**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 (Mark
        One)
 
 **x**  **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 
 For
        the
        quarterly period ended June 30, 2006
 
 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: 01-32665***BOARDWALK
                  PIPELINE PARTNERS, LP***(Exact
                  name of registrant as specified in its charter)***DELAWARE***(State
                  or other jurisdiction of incorporation or
                  organization)***20-3265614***(I.R.S.
                  Employer Identification No.)***3800
                  Frederica********Street,
                  Owensboro, Kentucky 42301***(Address
                  of principal executive office)***(270)
                  926-8686***(Registrant’s
                  telephone number, including area code
                  )*
 
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.        Yes x No  ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.
 See
        definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
        the Exchange Act. (Check one):
 Large
        accelerated filer o      Accelerated
        filer  ̈     Non-accelerated
        filer x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈ No x
 
 As
        of
        July 28, 2006, the registrant had 68,256,122 common units outstanding and
        33,093,878 subordinated units outstanding.
 
 
  1
  **TABLE
        OF CONTENTS**
 **FORM
        10-Q**
 **JUNE
        30, 2006**
 **BOARDWALK
        PIPELINE PARTNERS, LP**
 
 
 **PART
        I - FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
  **Condensed
        Consolidated Balance Sheets**
  **Condensed
        Consolidated Statements Of Income**
  **Condensed
        Consolidated Statements Of Cash Flows**
  **Condensed
        Consolidated Statements Of Changes In Member’s Equity And Partners’ Capital And
        Comprehensive Income**
  **Notes
        to Condensed Consolidated Financial Statements**
  **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**
  **Item
        3. Quantitative and Qualitative Disclosures About Market
        Risk**
  **Item
        4. Controls and Procedures**
 
 **PART
        II - OTHER INFORMATION**
  **Item
        1. Legal Proceedings**
  **Item
        1A. Risk Factors**
  **Item
        6. Exhibits-------**
  2
  **PART
        I - FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
  
 
 **BOARDWALK
        PIPELINE PARTNERS, LP**
  **CONDENSED
        CONSOLIDATED BALANCE
        SHEETS**
  **** **(Thousands
        of Dollars)**
 **(Unaudited)**
 
 
 **ASSETS**
              
              **June
                  30, 2006**
              
              **December
                  31, 2005**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              57,839
              
              $
              65,792Receivables,
                  net:Trade
              
              
              41,782
              
              
              59,115Other
              
              
              11,074
              
              
              5,564Gas
                  Receivables:Transportation
                  and exchange
              
              
              11,090
              
              
              29,557Storage
              
              
              3,971
              
              
              12,576Inventories
              
              
              15,828
              
              
              15,881Costs
                  recoverable from customers
              
              
              9,876
              
              
              3,560Gas
                  stored underground
              
              
              9,879
              
              
              6,500Prepaid
                  expenses and other current assets
              
              
              16,304
              
              
              7,720Total
                  current assets
              
              
              177,643
              
              
              206,265Property,
                  Plant and Equipment:Natural
                  gas transmission plant
              
              
              1,827,554
              
              
              1,772,483Other
                  natural gas plant
              
              
              210,245
              
              
              213,1362,037,799
              
              
              1,985,619Less—accumulated
                  depreciation and amortization
              
              
              151,563
              
              
              118,213Property,
                  plant and equipment, net
              
              
              1,886,236
              
              
              1,867,406Other
                  Assets:Goodwill
              
              
              163,474
              
              
              163,474Gas
                  stored underground
              
              
              169,091
              
              
              169,177Costs
                  recoverable from customers
              
              
              33,462
              
              
              43,960Other
              
              
              16,533
              
              
              15,209Total
                  other assets
              
              
              382,560
              
              
              391,820Total
                  Assets
              
              $
              2,446,439
              
              $
              2,465,491The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.
  3
  **BOARDWALK
        PIPELINE PARTNERS, LP**
 
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(Thousands
        of Dollars, except number of units)** ****
 **(Unaudited)**
 
 **LIABILITIES
                  AND PARTNERS’ CAPITAL**
              
              **June
                  30, 2006**
              
              **December
                  31, 2005**Current
                  Liabilities:Payables:Trade
              
              $
              25,244
              
              $
              20,433Other
              
              
              13,012
              
              
              3,681Gas
                  Payables:Transportation
                  and exchange
              
              
              17,528
              
              
              14,710Storage
              
              
              36,286
              
              
              27,559Accrued
                  taxes other
              
              
              15,930
              
              
              16,004Accrued
                  interest
              
              
              17,744
              
              
              17,996Accrued
                  payroll and employee benefits
              
              
              21,092
              
              
              29,028Current
                  note payable
              
              
              -
              
              
              42,100Other
                  current liabilities
              
              
              31,499
              
              
              30,776Total
                  current liabilities
              
              
              178,335
              
              
              202,287Long-Term
                  Debt
              
              
              1,101,694
              
              
              1,101,290Other
                  Liabilities and Deferred Credits:Postretirement
                  benefits
              
              
              39,565
              
              
              32,413Asset
                  retirement obligations
              
              
              14,496
              
              
              14,074Provision
                  for other asset retirements
              
              
              39,209
              
              
              33,212Other
              
              
              33,731
              
              
              93,541Total
                  other liabilities and deferred credits
              
              
              127,001
              
              
              173,240Commitments
                  and Contingencies (Note 5)
              
              
              -
              
              
              -Partners’
                  Capital:Common
                  units - 68,256,122 issued and outstanding
              
              
              735,921
              
              
              705,609Subordinated
                  units - 33,093,878 issued and outstanding
              
              
              281,269
              
              
              266,578General
                  partner
              
              
              17,579
              
              
              16,661Accumulated
                  other comprehensive income (loss)
              
              
              4,640
              
              
              (174
              )Total
                  partners’ capital
              
              
              1,039,409
              
              
              988,674Total
                  Liabilities and Partners’ Capital
              
              $
              2,446,439
              
              $
              2,465,491
 
 The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.
  4
  **BOARDWALK
        PIPELINE PARTNERS, LP**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF
        INCOME**
  **(Thousands
        of Dollars, except number of units and per unit amounts)**
 **(Unaudited)**
 
 **For
                  the**
                **Three
                  Months Ended**
                **June
                  30,**
              
              **For
                  the**
                **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Operating
                  Revenues:Gas
                  transportation
              $
                  105,390
              $
                  99,898
              $
                  256,402
              $
                  236,772Parking
                  and lending
              9,414
              6,687
              22,931
              13,076Gas
                  storage
              7,196
              5,240
              16,814
              10,232Other
              6,662
              6,437
              6,961
              8,564Total
                  operating revenues
              128,662
              118,262
              303,108
              268,644Operating
                  Costs and Expenses:Operation
                  and maintenance
              36,833
              36,343
              75,160
              67,628Administrative
                  and general
              22,844
              19,838
              50,232
              37,979Depreciation
                  and amortization
              18,727
              17,864
              37,410
              35,059Taxes
                  other than income taxes*
              6,785
              7,419
              12,014
              14,559Net
                  (gain) loss on disposal of operating assets
              (2,391)
              484
              (2,205)
              484Total
                  operating costs and expenses
              82,798
              81,948
              172,611
              155,709Operating
                  Income
              45,864
              36,314
              130,497
              112,935Other
                  (Income) Deductions:Interest
                  expense
              15,215
              15,074
              30,847
              29,739Interest
                  income
              (698)
              (594)
              (1,242)
              (746)Interest
                  income from affiliates
              (7)
              (553)
              (7)
              (957)Miscellaneous
                  other income, net
              (792)
              (406)
              (977)
              (736)Total
                  other (income) deductions
              13,718
              13,521
              28,621
              27,300Income
                  before income taxes
              32,146
              22,793
              101,876
              85,635Income
                  taxes and charge-in-lieu of income taxes*
              246
              9,088
              246
              34,073Net
                  Income*
              $
                  31,900
              $
                  13,705
              $
                  101,630
              $
                  51,562
 
 *Results
                  of operations reflect a change in the tax status associated with
                  Boardwalk
                  Pipeline Partners coincident with its initial public offering and
                  conversion to an MLP on November 15, 2005. Boardwalk Pipeline Partners
                  recorded a charge-in-lieu of income taxes and certain state franchise
                  taxes for the three and six month periods ended June 30, 2005,
                  and each
                  period thereafter through the date of the offering. A subsidiary
                  of
                  Boardwalk Pipeline Partners directly incurs some income-based state
                  taxes
                  following the date of the offering.
 
 **For
                  the**
                **Three
                  Months Ended**
                **June
                  30, 2006**
              
              **For
                  the**
                **Six
                  Months Ended**
                **June
                  30, 2006**Calculation
                  of limited partners’ interest in 2006 net income:Net
                  income to partners
              $
                  31,900
              
              $
                  101,630Less
                  general partner’s interest in net income
              638
              
              2,033Limited
                  partners’ interest in net income
              $
                  31,262
              
              $
                  99,597Basic
                  and diluted net income per limited partner unit:Common
                  units (See Note 6)
              $0.35
              
              $0.95Subordinated
                  units (See Note 6)
              $0.22
              
              $0.95Cash
                  distribution to common and subordinated unitholders and general
                  partner
                unit
                  equivalents
              $0.36
              
              $0.54Weighted-average
                  number of limited partner units outstanding:Common
                  units
              68,256,122
              
              68,256,122Subordinated
                  units
              33,093,878
              
              33,093,878
 
 The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.
  5
  **BOARDWALK
        PIPELINE PARTNERS, LP**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH
        FLOWS**
  **(Thousands
        of Dollars)**
 **(Unaudited)**
 
 **For
                  the**
                **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
 
 OPERATING
                  ACTIVITIES:Net
                  income
              $
                  101,630
              $
                  51,562Adjustments
                  to reconcile to cash provided from (used in) operations:Depreciation
                  and amortization
              37,410
              35,059Amortization
                  of acquired executory contracts
              (2,561)
              (6,043)Net
                  (gain) loss on disposal of operating assets
              (2,248)
              484Provision
                  for deferred income taxes
              -
              41,436Changes
                  in operating assets and liabilities:Receivables
              39,863
              44,390Inventories
              53
              (1,094)Affiliates
              (122)
              (1,317)Other
                  current assets
              (14,358)
              (3,665)Accrued
                  income taxes
              38
              (7,370)Payables
                  and accrued liabilities
              15,438
              (10,917)Other,
                  including changes in noncurrent assets and liabilities
              (38,590)
              (18,145)Net
                  cash provided by operating activities
              136,553
              124,380INVESTING
                  ACTIVITIES:Capital
                  expenditures, net
              (51,021)
              (33,018)Insurance
                  and other recoveries
              4,960
              6,392Advances
                  to affiliates, net
              (623)
              (20,852)Net
                  cash used in investing activities
              (46,684)
              (47,478)FINANCING
                  ACTIVITIES:Payment
                  of short-term debt
              (42,100)
              -Proceeds
                  from long-term debt
              -
              569,369Payment
                  of long-term debt
              -
              (575,000)Distributions
                  paid
              (55,722)
              (45,000)Capital
                  contribution from parent
              -
              6,684Net
                  cash used in financing activities
              (97,822)
              (43,947)Increase
                  (decrease) in cash and cash equivalents
              (7,953)
              32,955Cash
                  and cash equivalents at beginning of period
              65,792
              16,518Cash
                  and cash equivalents at end of period
              $
                  57,839
              $
                  49,473
 
 The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.
  6
  **BOARDWALK
          PIPELINE PARTNERS, LP**
  **CONDENSED
          CONSOLIDATED STATEMENTS OF CHANGES IN** **** **MEMBER’S
          EQUITY AND PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME**
  **(Thousands
          of Dollars)**
 **(Unaudited)**
  **Paid-in
                    Capital**
                
                **Retained
                    Earnings**
                
                **Accumulated
                    Other**
                  **Comprehensive
                    Income**
                  **(Loss)**
                
                **Comprehensive
                    Income**
                
                **Common**
                  **Units**
                
                **Subordinated
                    Units**
                
                **General**
                  **Partner**
                
                **Total
                    Member’s Equity and Partners’ Capital****Balance
                    January 1, 2005**
                $
                    1,071,651
                $
                    21,276
                -
                -
                -
                -
                -
                $
                    1,092,927Add
                    (deduct):Net
                    income
                -
                51,562
                -
                $
                    51,562
                -
                -
                -
                51,562Capital
                    contribution
                6,684
                -
                -
                -
                -
                -
                -
                6,684Distributions
                    paid
                -
                (45,000)
                -
                -
                -
                -
                -
                (45,000)Other
                    comprehensive (loss), net of tax
                -
                -
                $
                    (372)
                (372)
                -
                -
                -
                (372)Comprehensive
                    income
                
                
                
                $
                    51,190**Balance,
                    June 30, 2005**
                $
                    1,078,335
                $
                    27,838
                $
                    (372)
                
                -
                -
                -
                $
                    1,105,801**Balance
                    January 1, 2006**
                -
                -
                $
                    (174)
                -
                $
                    705,609
                $
                    266,578
                $
                    16,661
                $
                    988,674Add
                    (deduct):Net
                    income
                -
                -
                -
                $
                    101,630
                67,075
                32,522
                2,033
                101,630Distributions
                    paid
                -
                -
                -
                -
                (36,776)
                (17,831)
                (1,115)
                (55,722)Other
                    comprehensive income
                -
                -
                4,814
                4,814
                -
                -
                -
                4,814Transaction
                    costs related to sale of common units
                -
                -
                -
                -
                13
                -
                -
                13Comprehensive
                    income
                
                
                
                $
                    106,444**Balance
                    June 30, 2006**
                -
                -
                $
                    4,640
                
                $
                    735,921
                $
                    281,269
                $
                    17,579
                $
                    1,039,409
 
 The
                    accompanying notes are an integral part of these condensed consolidated
                    financial statements.
 7
 **BOARDWALK
        PIPELINE PARTNERS, LP**
 
 **Notes
        to Condensed Consolidated Financial Statements******
 
 **(Unaudited)**
  **Note
        1:** **Basis
        of Presentation**
  Boardwalk
        Pipeline Partners, LP (the Partnership) is a Delaware limited partnership
        formed
        in 2005 to own and operate the business conducted by Boardwalk Pipelines,
        LP
        (Boardwalk Pipelines) and its subsidiaries, Texas Gas Transmission, LLC (Texas
        Gas) and Gulf South Pipeline Company, LP (Gulf South). The Partnership is
        an
        85.5% owned subsidiary of Boardwalk Pipelines Holding Corp. (BPHC) which
        is
        wholly owned by Loews Corporation (Loews). The
        Partnership is engaged through its subsidiaries in the interstate transportation
        and storage of natural gas and operates
        in one reportable segment - the operation of interstate natural gas pipeline
        systems.
 
 The
        accompanying condensed consolidated financial statements of the Partnership
        were
        prepared in accordance with accounting principles generally accepted in the
        United States of America (GAAP) and i n
        the
        opinion of management, reflect all adjustments (consisting of only normal
        recurring accruals) necessary to present fairly the financial position as
        of
        June 30, 2006 and December 31, 2005, the results of operations for the three
        and
        six months ended June 30, 2006 and 2005 and changes in cash flows. Reference
        is
        made to the Notes to Condensed Consolidated Financial Statements in the 2005
        Annual Report on Form 10-K, which should be read in conjunction with these
        Unaudited Condensed Consolidated Financial Statements.
 
 Net
        income for interim periods may not necessarily be indicative of results for
        the
        calendar year. All significant intercompany items have been eliminated in
        consolidation. Certain
        reclassifications have been made to the 2005 financial statements to conform
        to
        the 2006 presentation.
 
 In
        connection with the November 15, 2005 initial public offering of the Partnership
        (IPO), BPHC contributed all of the equity interests of Boardwalk
        Pipelines to the
        Partnership for limited partner and general partner units .
        This
        contribution was accounted for as a transfer of assets between entities under
        common control in accordance with Statement
        of Financial Accounting Standards (SFAS)
        No. 141, *Business
        Combinations* .
        Therefore, the consolidated results of Boardwalk Pipelines for the periods
        prior
        to the IPO have been presented in this report as the consolidated results
        of the
        Partnership.
 
 See
        Note
        4 of the Notes to Condensed Consolidated Financial Statements for additional
        information related to the change in income and franchise taxes.
 
 
 **Note
        2:** **Gas
        in Storage and Gas Receivables/Payables**
 
 Gas
        receivables and payables reflect amounts of customer-owned gas at the Texas
        Gas
        facilities. Consistent with regulatory treatment prescribed by the Federal
        Energy Regulatory Commission (FERC) and risk of loss provisions included
        in its
        tariff, Texas Gas reflects an equal and offsetting receivable and payable
        for
        customer-owned gas in its facilities for storage and related services. The
        gas
        payables amount is valued at the historical cost of gas, and was $41.4 million
        and $33.6 million at June 30, 2006 and December 31, 2005, respectively. The
        Partnership does not reflect volumes held by Gulf South on behalf of others
        on
        its Condensed Consolidated Balance Sheets. As of June 30, 2006 and December
        31,
        2005, Gulf South held 52.3 trillion British thermal units (TBtu) and 32.9
        TBtu
        of gas owned by shippers, respectively, and had loaned 0.2 TBtu of gas to
        shippers as of December 31, 2005. No gas was loaned by Gulf South to shippers
        as
        of June 30, 2006. The average market price during June 2006 and December
        2005
        was $6.20 and $12.34 per one million British thermal units (MMBtu),
        respectively.
 
  8
 **Note
        3: Derivative Financial Instruments**
   In
        accordance with the Partnership’s risk management policy, Gulf South utilizes
        natural gas futures, swaps and options contracts (collectively, derivatives)
        to
        hedge exposures to market price fluctuations for natural gas. These transactions
        include hedges of anticipated natural gas purchases and sales related to
        system
        operations, fuel reimbursement and management of company-owned storage capacity.
        Each of these types of transactions are performed by employees of Gulf South
        in
        furtherance of its performance of transportation and storage services in
        interstate commerce. These derivatives are reported at fair value in accordance
        with SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities,* as
        amended. The fair values of derivatives and
        the
        effects thereof, existing as of June 30, 2006 and December 31, 2005, are
        included in the following captions in the Condensed Consolidated Financial
        Statements (expressed in millions):
 
 **June
                  30, 2006**
              
              **December
                  31, 2005**Prepaid
                  expenses and other current assets
              $6.2
              
              $0.6Other
                  noncurrent assets
              0.5
              
              -Other
                  current liabilities
              0.5
              
              0.8Accumulated
                  other comprehensive income (loss)
              4.6
              
              (0.2)
 
 The
        changes in fair values of the hedge contracts are expected to, and do, have
        a
        high correlation to changes in value of the anticipated transactions. The
        derivatives related to the sale of natural gas and derivatives related to
        cash
        for fuel reimbursement generally qualify for cash flow hedge accounting under
        SFAS No. 133 and are designated as such. The related unrealized gains and
        losses
        resulting from changes in the fair values of derivatives contracts designated
        as
        cash flow hedges are deferred as a component of Accumulated Other Comprehensive
        Income (Loss). These deferred gains and losses are recognized in the Condensed
        Consolidated Statements of Income when the hedged anticipated purchases or
        sales
        affect earnings. The Partnership expects
        to reclassify $4.1 million of the credits currently recorded in Accumulated
        Other Comprehensive Income to
        earnings by December 31, 2006. The
        amounts recorded in Accumulated Other Comprehensive Income (Loss) reflected
        in
        the Condensed Consolidated Balance Sheets and the Condensed Consolidated
        Statements of Changes in Member’s Equity and Partners’ Capital and Comprehensive
        Income were solely related to unrealized gains and losses on cash flow hedges.
 
 Each
        reporting period the Partnership measures the effectiveness of the cash flow
        hedge contracts. To the extent the change in the fair value of the hedge
        contracts does not effectively offset the change in the fair value of the
        anticipated purchases or sales, the ineffective portion of the hedge contracts
        is currently recognized in earnings. No ineffectiveness was recorded during
        the
        three or six month periods ended June 30, 2006 or 2005. If the anticipated
        purchase or sale is deemed no longer probable to occur, hedge accounting
        would
        be terminated and the associated changes in the fair values of the derivative
        financial instruments would be recognized currently on the Condensed
        Consolidated Statements of Income.  No cash flow hedges were discontinued
        during the three or six month periods ended June 30, 2006 or 2005.
 
 The
        derivatives related to the value of company-owned storage capacity and the
        purchase of operational gas for the East Texas expansion project during the
        second quarter 2006 have not been designated as cash flow hedges. The changes
        in
        the values of the derivatives were recognized currently in earnings. The
        Partnership recognized $0.3 million and $0.4 million of credits to earnings,
        respectively, for the three and six months ended June 30, 2006 related to
        the
        change in fair values associated with the derivatives.
 
 The
        activity affecting Accumulated
        Other Comprehensive Income (Loss), with
        respect to cash flow hedges included the following:
 **June
                  30,**For
                  the three months ended (expressed in thousands):
              **2006**
              
              **2005**
                **(net
                  of tax)**Net
                  unrealized gains (losses) on derivatives qualifying as cash flow
                  hedges at
                  the beginning of the period
              $
                  4,052
              
              $
                  (1,222)Unrealized
                  hedging gains arising during the period on derivatives qualifying
                  as cash
                  flow hedges
              3,390
              
              676Reclassification
                  adjustment transferred to net income
              (2,802)
              
              174Net
                  unrealized gains (losses) on derivatives qualifying as cash flow
                  hedges at
                  the end of the period
              $
                  4,640
              
              $
                  (372)
 
 
 **June
                  30,**For
                  the six months ended (expressed in thousands):
              **2006**
              
              **2005**
                **(net
                  of tax)**Net
                  unrealized losses on derivatives qualifying as cash flow hedges
                  at the
                  beginning of the period
              $
                  (174)
              
              -Unrealized
                  hedging gains (losses) arising during the period on derivatives
                  qualifying
                  as cash flow hedges
              10,408
              
              $
                  (546)Reclassification
                  adjustment transferred to net income
              (5,594)
              
              174Net
                  unrealized gains (losses) on derivatives qualifying as cash flow
                  hedges at
                  the end of the period
              $
                  4,640
              
              $
                  (372)
 
   9
  
   **Note
        4: Income and Franchise Taxes**
  
 The
        Partnership is not a taxable entity for federal income tax purposes and does
        not
        directly pay federal income tax. The Partnership’s taxable income or loss, which
        may vary substantially from the net income or loss reported in the Condensed
        Consolidated Statements of Income, is includable in the taxable income of
        its
        partners. The partners are required to pay federal income taxes and, in some
        cases, state and local income taxes on their share of taxable income.
 
 Prior
        to
        converting to a limited partnership on November 15, 2005, Boardwalk Pipelines’
taxable income was included in the consolidated federal income tax return
        of
        Loews and Boardwalk Pipelines recorded a charge-in-lieu of income taxes pursuant
        to a tax sharing agreement with Loews. The tax sharing agreement required
        Boardwalk Pipelines to remit to Loews on a quarterly basis any federal income
        taxes as if it were filing a separate return. Boardwalk Pipelines and its
        subsidiaries were also included in the state franchise tax filings of BPHC.
        The
        franchise taxes were charged to, and recorded by, Boardwalk Pipelines and
        its
        subsidiaries pursuant to the companies’ tax sharing policy.
  Following
        the IPO, the Partnership and its subsidiaries no longer record a charge-in-lieu
        of income taxes or certain state franchise taxes incurred by BPHC and no
        longer
        participate in a tax sharing agreement with Loews or tax sharing policy with
        BPHC. A subsidiary of the Partnership directly incurs some income-based state
        taxes which are accrued as Income Taxes and Charge-In-Lieu of Income Taxes
        on
        the Condensed Consolidated Statements of Income.
 
 **Note
        5: Commitments and Contingencies**
 
 **A** **.
        Impact of Hurricanes Katrina and Rita**
 
 In
        August
        and September 2005, Hurricanes Katrina and Rita and related storm activity
        caused extensive and catastrophic physical damage in and to the offshore,
        coastal and inland areas in the Gulf Coast region of the United States. A
        substantial portion of the Gulf South assets and a smaller portion of the
        Texas
        Gas assets are located in the area directly impacted by the hurricanes.
  The
        total
        cost to repair storm damages before insurance recoveries is not expected
        to
        exceed $20.0 million, however, repairs and system evaluations are ongoing.
        During the second quarter 2006, as a result of a change in estimate primarily
        related to property retirements, the Partnership reduced the liability accrued
        for damage incurred during Hurricane Rita by $2.9 million. This decrease
        resulted in a reduction in overall expenses related to the hurricanes of
        $0.8
        million for the six months ended June 30, 2006 on its Condensed Consolidated
        Statements of Income. The combined liability for both Hurricanes Katrina
        and
        Rita was $2.1 million as of June 30, 2006. For the six months ended June
        30,
        2006, the Partnership accrued estimated insurance proceeds of $2.7 million
        related to Hurricane Katrina which represented the minimum amount of insurance
        proceeds that were probable of recovery. In addition, the Partnership is
        pursuing recovery of insurance proceeds related to Hurricane Rita, but no
        amount
        has been recorded.
  Although
        the Partnership does not currently anticipate that the overall impact of
        Hurricanes Katrina and Rita will have a material adverse effect upon its
        future
        financial condition, results of operations or cash flows, in light of the
        magnitude of the damage caused by the hurricanes and the enormity of the
        relief
        and reconstruction effort, substantial uncertainty remains as to the ultimate
        impact these hurricanes will have on the Partnership.
 
 
 **B.
        Legal Proceedings**
 
 ***Hurricane
        Katrina - Related Class Actions***
  Gulf
        South, along with at least eight other interstate pipelines and major natural
        gas producers, has been named in two Hurricane Katrina-related class action
        lawsuits filed in the United States District Court for the Eastern District
        of
        Louisiana. The lawsuits allege that the dredging of canals caused damages
        to the
        marshes and that undamaged marshes would have prevented all, or almost all,
        of
        the loss of life and destruction of property caused by Hurricane Katrina.
        These
        cases are in very early stages and, as such, the Partnership cannot reasonably
        estimate the amount of potential loss, if any.
 
 10
 
 ***Napoleonville
        Salt Dome Matter***
 
 In
        December 2003, natural gas leaks were observed near two natural gas storage
        caverns that were being leased and operated by Gulf South for natural gas
        storage in Napoleonville, Louisiana. Gulf South commenced remediation efforts
        immediately and ceased using those storage caverns. Two class action lawsuits
        were filed relating to this incident and were converted to individual actions,
        a
        declaratory judgment action has been filed and stayed against Gulf South
        by the
        lessor of the property, and several individual actions have been filed against
        Gulf South and other defendants by local residents and businesses. In addition,
        the lessor of the property has filed an affirmative claim against Gulf South
        in
        an action filed against the lessor by one of Gulf South’s insurers. Gulf South
        intends to vigorously defend each of these actions, however it is not possible
        to predict the outcome of this litigation. Litigation is subject to many
        uncertainties, and it is possible these actions could be decided unfavorably.
        Gulf South has settled several of the cases filed against it and may enter
        into
        discussions in an attempt to settle other cases if Gulf South believes it
        is
        appropriate to do so ***.***
  From
        the
        date of acquisition of Gulf South on December 29, 2004 through June 30, 2006,
        Gulf South has incurred $5.4 million for remediation costs, root cause
        investigation, and legal fees and had a liability balance at June 30, 2006
        and
        December 31, 2005, of $0.9 million and $1.1 million, respectively, in Other
        Liabilities on the Condensed Consolidated Balance Sheets pertaining to this
        incident *.* Gulf
        South has made demand for reimbursement from its insurance carriers and will
        continue to pursue recoveries of the remaining expenses, including legal
        expenses. To date its insurance carriers have not taken any definitive coverage
        positions on all of the issues raised in the various lawsuits. For the six
        months ended June 30, 2006, Gulf South received $0.8 million of insurance
        reimbursements for legal expenses and root cause investigation. The range
        of
        loss related to this incident could not be estimated at June 30, 2006.
 
 ***Other
        Legal Matters***
 
 *Devon
        Energy Eugene Island Offshore Facilities Settlement* .
        In June
        2006, Gulf South received $4.0 million from Devon Energy in settlement of
        a
        lawsuit concerning the parties’ rights and obligations under a lease for a
        platform that Devon will decommission in the Eugene Island area in the Gulf
        of
        Mexico. The proceeds will be used to offset the costs of rebuilding certain
        offshore facilities. As of June 30, 2006, Gulf South deferred the settlement
        proceeds in Other Payables. The total cost of the new facilities is not expected
        to exceed $8.0 million.
 
 The
        Partnership’s subsidiaries are parties to various other legal actions arising in
        the normal course of business. Management believes the disposition of all
        known
        outstanding legal actions will not have a material adverse impact on its
        financial condition, results of operations or cash flows.
 
 
 **C.
        Regulatory and Rate Matters**
 
 ***Expansion
        Projects***
 
 The
        Partnership is currently engaged in the following expansion
        projects:
 
 *Increase
        in Working Gas at*  *Jackson,
        Mississippi Gas Storage Facility.* In
        June
        2006, Gulf South received FERC approval to permanently increase the working
        gas
        capacity at the Jackson, Mississippi gas storage facility by 2.4 billion
        cubic
        feet (Bcf), bringing the total working gas capacity at the Jackson gas storage
        facility to 5.1 Bcf.
 
 *East
        Texas/Mississippi Pipeline Expansion Project.* Gulf
        South has entered into long-term precedent agreements with customers providing
        firm commitments for most of the capacity on its 1.5 Bcf per day pipeline
        expansion project. The Partnership expects the total cost for the 1.5 Bcf
        per
        day expansion to be approximately $800 million, and expects the new capacity
        associated with this project to be in service during the second half of 2007.
        Gulf South has been granted the authority to initiate the pre-filing process
        for
        this project. Gulf South expects to file its certificate application with
        FERC
        on or about September 1, 2006.
 
 *Western
        Kentucky Storage Expansion.* Texas
        Gas has accepted, subject to FERC approval, commitments from customers for
        incremental no-notice service and firm storage service that will allow it
        to
        expand the working gas capacity in its Western Kentucky storage complex by
        approximately 9 Bcf. On April 14, 2006, Texas Gas filed an application with
        FERC
        requesting authority to proceed with this expansion project. The proposed
        in-service date for the storage expansion is November 2007.
 
 *Lake
        Charles, Louisiana Expansion.* On
        March
        17, 2006, Gulf South received approval from FERC to purchase an undivided
        38.46
        percent interest in 1.7 miles of pipeline from Trunkline Gas Company, LLC
        (Trunkline Gas) for $1.9 million. The pipeline connects Trunkline LNG Company,
        LLC’s liquefied natural gas import terminal in Lake Charles, Louisiana to Gulf
        South’s pipeline. Gulf South’s ownership interest will be equivalent to 500,000
        dekatherms per day. Trunkline Gas will continue to operate the pipeline pursuant
        to an operating agreement. This transaction was completed March 31, 2006,
        and
        the assets were placed in service in April 2006.
 
 *Magnolia
        Storage Expansion* . Gulf
        South has leased a gas storage facility near Napoleonville, Louisiana, and
        is
        currently developing high-deliverability storage caverns. During
        recent mining operations, certain issues have arisen causing the mining of
        the
        caverns to be temporarily suspended. Gulf South will conduct operational
        integrity tests on the cavern and associated facilities during the third
        quarter
        2006. If the test results are favorable, Gulf South expects the storage
        facilities to be in service during 2009. If
        the
        test results are not favorable, management will consider the options it has
        available, including developing a new cavern, or sale or abandonment of the
        project. The total book value at June 30, 2006 was $42.2 million. During
        the
        second quarter 2006, the Partnership tested the investment in Magnolia for
        recoverability in accordance with the requirements of SFAS No 144, *Accounting
        for the Impairment or Disposal of Long-Lived Assets* .
        No
        impairment loss was recognized as a result of the recoverability test.
 
 11
 
 ***General
        Rate Case***
 
 On April
        29, 2005, Texas Gas filed a general rate case. Texas Gas began collecting
        new
        rates, subject to refund, on November 1, 2005. Texas Gas and the other
        participants (FERC staff and customers) reached an unopposed settlement offer
        that was approved by FERC on April 21, 2006, and became final on June 20,
        2006.
        The annual settled cost of service was $257.8 million. On June 30, 2006,
        Texas
        Gas refunded approximately $6.6 million consisting of $6.4 million in principal
        and $0.2 million of interest to its customers. The amount of the refund was
        accrued as a reduction to revenues and an increase to interest expense over
        the
        period from November 1, 2005 to the date of the refund. At December 31, 2005
        the
        amount of the estimated liability for refund was approximately $5.0 million.
 
 Due
        to
        the settlement, in the first quarter 2006, Texas Gas began to amortize the
        balance of its regulatory asset for postretirement benefits other than pensions
        (PBOP).  The amortization of the remaining regulatory asset balance of
        approximately $28.5 million at June 30, 2006 will continue to be amortized
        on a
        straight-line basis over approximately five years.
 
 
 ***Pipeline
        Integrity***
 
 The
        Office of Pipeline Safety (OPS) has issued a final rule that requires natural
        gas pipeline operators to develop integrity management programs. On June
        30,
        2005, FERC issued an order addressing the accounting treatment for the costs
        pipeline operators will incur in implementing all aspects of pipeline integrity
        management programs. FERC’s accounting guidance became effective prospectively,
        beginning with integrity management costs incurred on or after January 1,
        2006.
        Amounts capitalized in periods prior to January 1, 2006, were permitted to
        remain as recorded. The Partnership applied the accounting guidance order
        on
        January 1, 2006. There were no changes to the Partnership’s accounting policy
        for the pipeline integrity management programs as a result of the application
        of
        this guidance.
 
 **D.** **Environmental
        and Safety Matters**
 
 Texas
        Gas
        and Gulf South are subject to federal, state and local environmental laws
        and
        regulations in connection with the operation and remediation of various sites.
        When possible, the Partnership enters into voluntary remediation programs
        with
        the regulatory agencies. The Partnership accrues for environmental remediation
        expenses resulting from existing conditions that relate to past operations
        when
        the costs are probable and can be reasonably estimated. As of June 30, 2006
        and
        December 31, 2005, the Partnership had an accrued liability of approximately
        $20
        million related to environmental remediation.
 
 The
        Partnership’s pipeline operations are subject to the Clean Air Act (CAA) and
        include two facilities in areas affected by non-attainment requirements for
        the
        current ozone standard (eight-hour standard), which are now in compliance.
        As of
        June 30, 2006, the Partnership had incurred costs of approximately $14 million
        for emission control modifications of compression equipment located at
        facilities required to comply with current CAA provisions and state
        implementation plans for nitrogen oxide reductions. The costs were recorded
        as
        additions to property, plant and equipment (PPE) as the modifications were
        added. If the Environmental Protection Agency (EPA) designates additional
        new
        non-attainment areas where the pipelines operate, the cost of additions to
        PPE
        would be expected to increase. The Partnership is unable at this time to
        estimate with any certainty the cost of any additions that may be required.
 
 In
        addition, the EPA promulgated new rules regarding hazardous air pollutants
        in
        2004, which will impose additional controls at four facilities at an estimated
        cost of $1.6 million. The effective compliance date for the hazardous air
        pollutants regulations is 2007. The Partnership anticipates installation
        of
        associated controls to meet these new regulations in 2006 and 2007.
 
 The
        Partnership considers environmental assessment, remediation costs and costs
        associated with compliance with environmental standards to be recoverable
        through its rates, as they are prudent costs incurred in the ordinary course
        of
        business. No regulatory asset has been recorded to defer these costs. The
        actual
        costs incurred will depend on the amount and extent of contamination discovered,
        the final cleanup standards mandated by the EPA or other governmental
        authorities, and other factors.
 
 12
 
 **E.
        Commitments for Construction**
  Boardwalk
        Pipeline Partners’ significant commitments for construction as of June 30, 2006,
        by period were as follows (expressed in millions):
 Less
                  than 1 year
              $
                  271.91-2
                  years
              37.23-5
                  years
              ->
                  5 years
              -Total
              $
                  309.1
 
 The
        commitments for construction were primarily related to the East
        Texas/Mississippi pipeline expansion. For further discussion of the East
        Texas/Mississippi pipeline expansion see Note 5C *Expansion
        Projects* contained
        herein.
 
 
 **F.
        Lease Commitments**
 
 Boardwalk
        Pipeline Partners has various operating lease commitments extending through
        the
        year 2018 covering storage facilities, offices and other equipment. The table
        below summarizes minimum future commitments related to these items at June
        30,
        2006, as follows (expressed in millions):
 
 2006
              $
                  3.02007
              6.42008
              5.52009
              4.42010
              4.2Thereafter
              14.5Total
              $
                  38.0
 
 The
        increase in lease commitments from December 31, 2005 was related to the signing
        of a ten-year lease for new office facilities at Gulf South. The estimated
        commencement date of the lease is May 1, 2007.
 
 
 **Note
        6: Net Income per Limited Partner Unit**
 
 The
        Partnership calculates net income per limited partner unit in accordance
        with
        Emerging Issues Task Force Issue No. 03-6 (EITF No. 03-6), *Participating
        Securities and the Two-Class Method under Financial Accounting Standards
        Board
        (FASB) Statement No. 128* .  In
        Issue 3 of EITF No. 03-6, the EITF reached a consensus that undistributed
        earnings for a period should be allocated to a participating security based
        on the contractual participation rights of the security to share in those
        earnings as if all of the earnings for the period had been distributed. 
The Partnership’s general partner holds contractual participation rights which
        are incentive distribution rights in accordance with the partnership agreement
        as follows:
  13
  
 **Net
                  Income per Unit**
              
              **Limited
                  Partner Units**
                **(and
                  Subordinated Units*)**
              
              **General
                  Partner Units**Up
                  to $0.4025
              
              98%
              
              2%From
                  $0.4026 to $0.4375
              
              85%
              
              15%From
                  $0.4376to
                  $0.5250
              
              75%
              
              25%Greater
                  than $0.5250
              
              50%
              
              50%
  *
        Under
        the terms of the partnership agreement, distributions during the subordination
        period are first made to the common unitholders and general partner, and
        then to
        the subordinated unitholders and general partner to the extent the total
        distributed amount is greater than the minimum quarterly distribution of
        $0.35
        per unit to the common unitholders.
 
 Due
        to
        the seasonal nature of the Partnership’s business, with the highest percentage
        of earnings typically occurring in the first and fourth quarters of a
        calendar year, the amount reported for net income per limited
        partner unit on the Condensed Consolidated Statements of Income for
        the six month period ended June 30, 2006 was reduced to take into account
        an assumed allocation to the general partner’s incentive distribution rights.
        However, the Partnership has not paid, nor has the general partner authorized
        the payment of any amounts to the general partner on account of its incentive
        distribution allocation rights. Assuming a historically seasonal earnings
        pattern, as the year progresses the impact on the disclosed net income per
        limited partner unit from the assumed allocation to the general partner’s
        incentive distribution rights would be reduced in subsequent year-to-date
        reporting periods from the assumed effect indicated in the first quarter
        and
        six-month period ended June 30, 2006 on a stand-alone basis.
 
 A
        reconciliation of the limited partners’ interest in net income and net income
        available to limited partners used in computing net income per limited partner
        unit is as follows (expressed in thousands, except per unit data):
 
 **For
                  the**
                **Three
                  Months Ended**
                **June
                  30, 2006**
              
              **For
                  the**
                **Six
                  Months Ended**
                **June
                  30, 2006**Limited
                  partners’ interest in net income
              $
                  31,262
              
              $
                  99,597Less
                  assumed allocation to incentive distribution rights
              -
              
              3,503Net
                  income available to limited partners
              31,262
              
              96,094Less
                  assumed allocation to subordinated units
              7,372
              
              31,378Net
                  income available to common units
              $
                  23,890
              
              $
                  64,716Weighted
                  average common units
              68,256
              
              68,256Weighted
                  average subordinated units
              33,094
              
              33,094Net
                  income per limited partner unit - common units
              $
                  0.35
              
              $
                  0.95Net
                  income per limited partner unit - subordinated units
              $
                  0.22
              
              $
                  0.95
 
 
 **Note
        7: Sale of Facilities**
 
 In
        June
        2006, Texas Gas received $2.5 million for the sale of offshore transmission
        facilities in the Gulf of Mexico at West Cameron 294. The sale of the facilities
        was considered a normal retirement. In accordance with the composite method
        of
        accounting for property, plant and equipment, the proceeds and the related
        book
        value of the plant were recorded to accumulated depreciation which is classified
        as Property, plant and equipment, net on the Condensed Consolidated Balance
        Sheets.
 
 14
 
 **Note
        8: Financing**
 
 As
        of
        June 30, 2006 and December 31, 2005 the weighted-average interest rate of
        the
        Partnership’s long-term debt was 5.29%.
 
 In
        June
        2006, certain subsidiaries of the Partnership entered into a $400 million
        unsecured revolving credit facility which amended and restated the previous
        $200
        million facility entered into by Boardwalk Pipelines at the time of the IPO.
        Under the amended and restated facility, which will continue to be guaranteed
        by
        the Partnership, Boardwalk Pipelines, Texas Gas and Gulf South may borrow
        funds,
        up to sub-limits. Interest
        on amounts drawn under the credit facility will be payable at a floating
        rate
        equal to an applicable spread per annum over the London Interbank Offered
        Rate
        (LIBOR) or a base rate defined as the greater of the prime rate or the Federal
        funds rate plus 50 basis points. Under the terms of the agreement, each of
        the
        borrowers respectively must maintain a minimum ratio, as of the last day
        of each
        fiscal quarter, of consolidated total debt to consolidated earnings before
        interest, taxes, depreciation and amortization (as defined in the agreement),
        measured for the preceding twelve months, of not more than five to one. There
        were no outstanding borrowings against the facility as of June 30, 2006.
 
 In
        connection with the IPO, Boardwalk Pipelines borrowed approximately
        $42.1 million under its revolving credit facility to reimburse BPHC for
        capital expenditures it incurred in connection with the acquisition of Gulf
        South. Interest on the borrowings was accrued at the 3-month LIBOR rate plus
        applicable margin (4.68%). The borrowings were repaid in full during February
        2006.
 
 In
        December 2004, Boardwalk Pipelines borrowed $575.0 million as an interim
        term
        loan in connection with the Gulf South Acquisition. In January 2005, Boardwalk
        Pipelines issued $300.0 million principal amount of 5.50% notes due in 2017
        and
        Gulf South issued $275.0 million principal amount of 5.05% notes due in 2015.
        The proceeds from these notes, together with available cash, were used to
        repay
        the interim loan.
 
 
 **Note
        9: Credit Concentration**
  Natural
        gas price volatility has increased dramatically in recent years, which has
        materially increased credit risk related to gas loaned to customers. As of
        June
        30, 2006, the amount of gas loaned by the Partnership’s subsidiaries was
        approximately 16 TBtu and, assuming an average market price during June 2006
        of
        $6.20 per MMBtu, the market value of that gas was approximately $99.2 million.
        As of December 31, 2005, the amount of gas loaned was approximately 15 TBtu
        and,
        assuming an average market price during December 2005 of $12.34 per MMBtu,
        the
        market value of that gas was approximately $185.1 million. If any significant
        customer should have credit or financial problems resulting in a delay or
        failure to repay the gas owed to the Partnership’s subsidiaries, this could have
        a material adverse effect on the Partnership’s financial condition, results of
        operations and cash flows.
 
 
 **Note
        10: Employee Benefits** ****
 
 ***Retirement
        Plan***
 
 Substantially
        all of Texas Gas' employees are covered under a non-contributory, defined
        benefit pension plan. Texas Gas also provides postretirement life insurance
        and
        postretirement health care benefits to certain retired employees. Texas Gas
        uses
        a measurement date of December 31 for its pension and postretirement benefits
        plans.
 
 During
        the first quarter 2006, Texas Gas began recognizing pension expense based
        on the
        actuarially determined net periodic pension cost pursuant to the settlement
        of
        its rate case. Based on the annual actuarial study, pension expense for 2006
        was
        determined to be approximately $4.0 million. During the six months ended
        June
        30, 2006, Texas Gas recorded pension expense retroactive to November 1, 2005,
        the date on which Texas Gas’ new general rate case became effective. As of June
        30, 2006, no cash contributions had been made for the current year, however,
        the
        contribution for 2006 is expected to be $3.5 million.
 
 Net
        periodic benefit cost components were as follows (expressed in
        thousands):
 
 **Pension
                  Benefits**
                **For
                  the**
                **Three
                  Months Ended**
                **June
                  30,**
              
              **Other
                  Benefits**
                **For
                  the**
                **Three
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Service
                  cost
              $
                  1,075
              
              $
                  975
              
              $
                  464
              
              $
                  519Interest
                  cost
              1,600
              1,500
              1,582
              1,806Expected
                  return on plan assets
              (1,775)
              (1,675)
              (1,157)
              (1,158)Amortization
                  of prior service cost
              -
              
              -
              
              (647)
              
              -Amortization
                  of accumulated loss
              100
              
              -
              
              330
              
              90Regulatory
                  accrual/amortization
              -
              (800)
              1,354
              68Estimated
                  net periodic benefit cost
              $
                  1,000
              $
                  -
              $
                  1,926
              $
                  1,325
  15
  
 **Pension
                  Benefits**
                **For
                  the**
                **Six
                  Months Ended**
                **June
                  30,**
              
              **Other
                  Benefits**
                **For
                  the**
                **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Service
                  cost
              $
                  2,150
              
              $
                  1,950
              
              $
                  1,105
              
              $
                  1,038Interest
                  cost
              3,200
              3,000
              3,526
              3,612Expected
                  return on plan assets
              (3,550)
              (3,450)
              (2,326)
              (2,316)Amortization
                  of prior service cost
              -
              -
              (647)
              -Amortization
                  of accumulated loss
              200
              -
              770
              180Regulatory
                  accrual/amortization
              -
              (1,500)
              3,610
              136Estimated
                  net periodic benefit cost
              $
                  2,000
              $
                  -
              $
                  6,038
              $
                  2,650
 
 
 ***Defined
        Contribution Plans***
 
 Subsidiaries
        of the Partnership maintain defined contribution plans covering substantially
        all of its employees. Costs related to these plans were $1.3 million and
        $2.5
        million, respectively, for the three and six months ended June 30, 2006 and
        $1.2
        million and $2.4 million, respectively, for the three and six months ended
        June
        30, 2005.
 
 ***Postretirement
        Benefits other than Pensions***
 
 In
        May
        2006, as part of an overall cost reduction program, Texas Gas announced to
        its
        employees and retirees a plan to make changes to PBOP beginning January 1,
        2007.
        Under the revised plan, Texas Gas will cap its contributions toward medical
        benefit coverage for pre-65 retirees to the amount contributed for each retiree
        in 2006. For retirees age 65 and older, Texas Gas will cap its contribution
        at
        three times the 2006 amount. In addition, Texas Gas will no longer cover
        prescription drug costs for retirees age 65 and older. In conjunction with
        the
        plan amendments, Texas Gas increased the discount rate used in determining
        the
        accumulated postretirement benefit obligation (APBO) and net periodic
        postretirement benefit cost from 5.88% to 6.38%, effective June 1, 2006 to
        accomodate changes in market interest rates since the end of 2005. The changes
        will result in an estimated reduction in the APBO of approximately $75.3
        million
        for the plan amendment and $13.5 million for the increase in the discount
        rate.
        In accordance with SFAS No. 106, *Employers’*  *Accounting
        for Postretirement Benefits other than Pension* s,
        the
        decrease in the APBO from the plan amendment will be recognized as a reduction
        to net periodic postretirement benefit cost over the average remaining service
        lives of active employees covered under the plan, or approximately nine years.
        For the second quarter 2006, the change resulted in a reduction of $1.3 million
        for net periodic benefit cost from the amount that would otherwise have been
        recognized.
 
 
 ***Early
        Retirement Incentive Program***
 
 In
        May
        2006, Texas Gas began implementing an early retirement incentive program
        (ERIP)
        available to approximately 240 non-executive employees age 52 and older with
        at
        least five years of service. Under the program, Texas Gas would provide eligible
        employees three additional years for purposes of age-based vesting under
        the
        postretirement medical plan and three additional years of pay credits under
        the
        pension plan. Retirements under the program would generally be effective
        January
        1, 2007. For the second quarter 2006, Texas Gas did not recognize any effects
        of
        the program in its financial statements due to uncertainty as to which, if
        any,
        eligible employees would accept the terms of the program and the resulting
        inability to quantify the actual financial results of the program. The eligible
        employees will indicate their intent to participate in the program during
        the
        third quarter 2006.
 
  **Note
        11: Related Parties**
  Loews
        has
        a policy of charging its subsidiary companies for management services provided
        by Loews. The Partnership recorded $2.4 million and $6.5 million, respectively,
        for the three and six months ended June 30, 2006 and $2.3 million and $4.0
        million, respectively, for the three and six month periods ended June 30,
        2005,
        respectively, for management services.
  **Note
        12: Distributions**
 
 On
        July
        31, 2006, the Partnership declared a quarterly distribution of $0.38 per
        unit,
        payable on August 18, 2006 to unitholders of record on August 11, 2006,
        including common and subordinated units and the 2% general partner interest
        held
        by its general partner.
 
 On
        May
        19, 2006, the Partnership paid a cash distribution of $0.36 per unit to
        unitholders of record on May 12, 2006, including common and subordinated
        units
        and the 2% general partner interest held by its general partner.
  On
        February 23, 2006, the Partnership paid a cash distribution of $0.1788 per
        unit.
        This distribution represented a prorated portion of the $0.35 per unit “minimum
        quarterly distribution” (as defined in the Partnership’s partnership agreement)
        for the period from November 15, 2005 through December 31, 2005.
    16
   **Item
        2. Management’s Discussion and Analysis of Financial Condition
        and Results of Operations**
  
 *The
        following discussion and analysis of our financial condition and results
        of
        operations should be read in conjunction with (i) our accompanying interim
        condensed consolidated financial statements and related notes, included
        elsewhere in this report and prepared in accordance with accounting principles
        generally accepted in the United States of America (GAAP), (ii) our consolidated
        financial statements, related notes, management's discussion and analysis
        of
        financial condition and results of operations and Risk Factors
        included* *in
        our Annual Report on Form 10-K for the year ended December 31, 2005, and
        (iii)
        the Risk Factors described in Item 1A of Part II of this
        report.*
 
 We
        are a
        Delaware limited partnership formed in 2005 to own and operate the business
        conducted by Boardwalk Pipelines, LP (Boardwalk Pipelines) and its subsidiaries,
        Texas Gas Transmission, LLC (Texas Gas) and Gulf South Pipeline Company,
        LP
        (Gulf South). We are engaged through our subsidiaries in the interstate
        transportation and storage of natural gas and operate in one reportable segment
        - the operation of interstate natural gas pipeline systems. Our pipeline
        systems
        are comprised of an aggregate of 13,470 miles of pipe and integrated storage
        originating in the Gulf Coast area and running north and east through Texas,
        Louisiana, Mississippi, Alabama, Florida, Arkansas, Tennessee, Kentucky,
        Indiana, Ohio and Illinois.
  In
        connection with the initial public offering (IPO) ,
        Boardwalk Pipelines Holding Corp. ( BPHC)
        contributed all of the equity interests of Boardwalk
        Pipelines to us
        in
        exchange for limited partner and general partner units. This
        contribution was accounted for as a transfer of assets between entities under
        common control in accordance with Statement of Financial Accounting Standards
        (SFAS) No. 141, *Business
        Combinations* .
        Therefore, the consolidated results of Boardwalk Pipelines for the periods
        prior
        to the IPO have been presented in this report as our consolidated results.
   **Critical
        Accounting Policies and Estimates**
  Certain
        amounts included in or affecting our condensed consolidated financial statements
        and related disclosures must be estimated, requiring us to make certain
        assumptions with respect to values or conditions that cannot be known with
        certainty at the time the financial statements are prepared. These estimates
        and
        assumptions affect the amounts we report for assets and liabilities and our
        disclosure of contingent assets and liabilities at the date of our financial
        statements. We evaluate these estimates on an ongoing basis, utilizing
        historical experience, consultation with experts and other methods we consider
        reasonable. Nevertheless, actual results may differ significantly from our
        estimates. Any effects on our business, financial position or results of
        operations resulting from revisions to these estimates are recorded in the
        period in which the facts that give rise to the revision become known.
 
 We
        calculate net income per limited partner unit in accordance with Emerging
        Issues
        Task Force Issue No. 03-6 (EITF No. 03-6), *Participating
        Securities and the Two-Class Method under FASB Statement No.
        128* .  In
        Issue 3 of EITF No. 03-6, the EITF reached a consensus that undistributed
        earnings for a period should be allocated to a participating security based
        on the contractual participation rights of the security to share in those
        earnings as if all of the earnings for the period had been distributed. 
The Partnership’s general partner holds contractual participation rights which
        are incentive distribution rights in accordance with the partnership agreement
        as follows:
 
 **Net
                  Income per Unit**
              **Limited
                  Partner Units**
                **(and
                  Subordinated Units*)**
              **General
                  Partner Units**Up
                  to $0.4025
              98%
              2%From
                  $0.4026 to $0.4375
              85%
              15%From
                  $0.4376 to $0.5250
              75%
              25%Greater
                  than $0.5250
              50%
              50%
  *
        Under
        the terms of the partnership agreement, distributions during the subordination
        period are first made to the common unitholders and general partner, and
        then to
        the subordinated unitholders and general partner to the extent the total
        distributed amount is greater than the minimum quarterly distribution of
        $0.35
        per unit to the common unitholders.
 
 17
 Due
        to
        the seasonal nature of our business, with the highest percentage of
        earnings typically occurring in the first and fourth quarters of a calendar
        year, the amount reported for net income per limited partner
        unit on the Condensed Consolidated Statements of Income for the six
        month period ended June 30, 2006 was reduced to take into account an assumed
        allocation to the general partner’s incentive distribution rights. However, we
        have not paid, nor has the general partner authorized the payment of, any
        amounts to the general partner on account of its incentive distribution
        allocation rights. Assuming a historically seasonal earnings pattern, as
        the
        year progresses the impact on the disclosed net income per limited partner
        unit
        from the assumed allocation to the general partner’s incentive distribution
        rights would be reduced in subsequent year-to-date reporting periods from
        the
        assumed effect indicated in the first quarter and six-month period ended
        June
        30, 2006 on a stand-alone basis.
 
 Further
        information regarding our accounting policies and estimates that we considered
        to be critical can be found in our Annual Report on Form 10-K for the year
        ended
        December 31, 2005. There have not been any significant changes in these policies
        and estimates during 2006.
 
 
 **Results
        of Operations for the Three Months Ended June 30, 2006 and 2005**
 
 Total
          Operating Revenues increased by $10.4 million, or 9%, to $128.7 million
          for the
          three months ended June 30, 2006, compared to $118.3 million for the three
          months ended June 30, 2005 primarily due to:
 
 ·
              $6.8
                  million increase in transportation services due primarily to higher
                  reservation rates and additional capacity reserved by shippers
                  due to
                  increased production in the East Texas region; ·
              $4.7
                  million increase in storage and parking-and-lending due to favorable
                  natural gas price spreads and volatility in forward gas prices;
                  and ·
              $0.8
                  million increase in fuel retained primarily due to an increase
                  in realized
                  gas prices, including revenues locked in at favorable rates through
                  hedging activities; ·
              partially
                  offset by, ·
              $1.2
                  million decrease in revenues for a reduction in the amortization
                  of
                  acquired executory contracts. 
 Total
          Operating Costs and Expenses increased by $0.9 million, or 1%, to $82.8
          million
          for the three months ended June 30, 2006, compared to $81.9 million for
          the
          three months ended June 30, 2005 primarily due to:
 ·
                $2.0
                    million increase due to the amortization of a deferred asset
                    related to
                    postretirement benefits other than pensions and pension expense
                    recognition as a result of the settled rate
                    case; ·
                $1.1
                    million increase in costs for transportation of gas on third-party
                    pipelines due to utilization of increased capacity; ·
                $0.9
                    million increase in labor and outside services primarily due
                    to growth in
                    operations; ·
                $0.9
                    million increase in depreciation and amortization due to the
                    increased
                    asset base from additions to plant; and ·
                $0.5
                    million increase in group insurance; ·
                partially
                    offset by, ·
                $2.9
                    million decrease related to adjustment of the accrual for hurricane
                    damage, and ·
                $1.6
                    million decrease in company-used gas due to lower natural gas
                    prices.
  Total
          Other (Income) Deductions increased by $0.2 million, or 1%, to $13.7 million
          for
          the three months ended June 2006, compared to $13.5 million for the comparable
          2005 period. The increase is primarily due to interest expense related
          to
          borrowings under a credit facility that occurred after the IPO in 2005.
          The
          increase for interest expense was partially offset by a $0.5 million gain
          related to the purchase of operational gas for the East Texas/Mississippi
          pipeline expansion project included in Miscellaneous Other (Income),
          net.
 
 Income
          Taxes and Charge-In-Lieu of Income Taxes decreased by $8.8 million, to
          $0.2
          million for the second quarter 2006, due to the change in tax status and
          conversion to a limited partnership concurrent with the IPO.
 
 
 **Results
          of Operations for the Six Months Ended June 30, 2006 and
          2005**
 
 Total
          Operating Revenues increased by $34.5 million, or 13%, to $303.1 million
          for the
          six months ended June 30, 2006, compared to $268.6 million for the six
          months
          ended June 30, 2005 primarily due to:
 ·
                $16.4
                    million increase in storage and parking-and-lending due to favorable
                    natural gas price spreads and volatility in forward gas prices; ·
                $15.7
                    million increase in transportation services due primarily to
                    higher
                    reservation rates and additional capacity reserved by shippers
                    due to
                    increased production in the East Texas region;
                    and ·
                $5.2
                    million increase in fuel retained revenue primarily due to an
                    increase in
                    realized gas prices including revenues locked in at favorable
                    rates
                    through hedging activities; ·
                partially
                    offset by, ·
                $3.4
                    million decrease in revenues for a reduction in the amortization
                    of
                    acquired executory contracts. 
 18
 Total
          Operating Costs and Expenses increased by $16.9 million, or 11%, to $172.6
          million for the six months ended June 30, 2006, compared to $155.7 million
          for
          the six months ended June 30, 2005 primarily due to:
 
 ·
              $7.5
                  million increase in operations and maintenance expenses primarily
                  due to
                  increased costs of outside services and materials from high demand
                  for the
                  services, cost of transportation on third-party pipelines due to
                  new
                  contract rates, and an increase in company-used gas due to increased
                  gas
                  prices; ·
              $7.0
                  million increase due to the amortization of a deferred asset related
                  to
                  postretirement benefits other than pensions and pension expense
                  recognition as a result of the settled rate
                  case; ·
              $2.6
                  million increase in corporate overhead; and ·
              $2.4
                  million increase in depreciation and amortization due to the increased
                  asset base from additions to plant; ·
              partially
                  offset by, ·
              $3.5
                  million decrease related to adjustment of the accrual for hurricane
                  damage, and ·
              $2.5
                  million decrease in expenses for state franchise taxes due to the
                  change
                  in tax status to a limited partnership concurrent with the IPO. 
 Total
          Other (Income) Deductions increased by $1.3 million, or 5%, to $28.6 million
          for
          the six months ended June 30, 2006, compared to $27.3 million for the comparable
          2005 period. The increase is primarily due to interest expense related
          to
          borrowings under a credit facility that occurred after the IPO in 2005.
          The
          increase for interest expense was partially offset by a $0.5 million gain
          related to the purchase of operational gas for the East Texas/Mississippi
          pipeline expansion project included in Miscellaneous Other (Income),
          net.
 
 Income
          Taxes and Charge-In-Lieu of Income Taxes decreased by $33.8 million, to
          $0.2
          million for the six months ended June 30, 2006, due to the change in tax
          status
          and conversion to a limited partnership concurrent with the IPO.
 
 
 **Capital
        Expenditures**
  Capital
        expenditures, net of amounts received for retirements and salvage for the
        six
        months ended June 30, 2006 and 2005 were $51.0 million and $33.0 million,
        respectively.
 
 For
        the
        year ending December 31, 2006, we expect to make capital expenditures of
        approximately $300 million, of which we expect approximately $55 million
        to be
        for maintenance capital and $245 million to be for expansion capital, including
        approximately $193 million to fund our East
        Texas/Mississippi pipeline expansion project ,
        discussed below. The amount of expansion capital we expend in 2006 could
        vary
        significantly depending on the progress made with these projects, the number
        and
        types of other capital projects we decide to pursue, the timing of any of
        those
        projects and numerous other factors beyond our control.
 We
        currently expect to fund our 2006 maintenance capital expenditures from
        operating cash flows and our 2006 expansion capital expenditures with borrowings
        under our revolving credit facility. Thereafter, we expect to fund the balance
        of the cost of our pipeline expansion projects, with a combination of borrowings
        under our revolving credit facility and proceeds from sales of our debt and
        equity securities.
 
 We
        are
        currently engaged in the following expansion projects:
 
 ***·***
            *Increase
                in Working Gas at**Jackson,
                Mississippi Gas Storage Facility.*In
                June 2006, Gulf South received the Federal Energy Regulatory Commission
                (FERC) approval to permanently increase the working gas capacity
                at the
                Jackson, Mississippi gas storage facility by 2.4 Bcf, bringing the
                total
                working gas capacity at the Jackson gas storage facility to 5.1
                Bcf. 
 ·
            *East
                Texas/Mississippi Pipeline Expansion Project.*Gulf South has entered into long-term precedent agreements with customers
                providing firm commitments for most of the capacity on its 1.5 Bcf
                per day
                pipeline expansion project. The Partnership expects the total cost
                for the
                1.5 Bcf per day expansion to be approximately $800 million, and expects
                the new capacity associated with this project to be in service during
                the
                second half of 2007. Gulf South has been granted the authority to
                initiate
                the pre-filing process for this project. Gulf South expects to file
                its
                certificate application with FERC on or about September 1, 2006. 
 *·*
            *Western
                Kentucky Storage Expansion.*Texas Gas has accepted, subject to FERC approval, commitments from
                customers for incremental no-notice service and firm storage service
                that
                will allow it to expand the working gas capacity in its Western Kentucky
                storage complex by approximately 9 Bcf. On April 14, 2006, Texas
                Gas filed
                an application with FERC requesting authority to proceed with this
                expansion project. The proposed in-service date for the storage expansion
                is November 2007. The Partnership expects the total cost for the
                expansion
                to be approximately $36 million. 
 ·
            *Lake
                Charles, Louisiana Expansion*.
                On March 17, 2006, Gulf South received approval from FERC to purchase
                an
                undivided 38.46 percent interest in 1.7 miles of pipeline from Trunkline
                Gas for $1.9 million. The pipeline connects Trunkline LNG Company,
                LLC’s
                liquefied natural gas import terminal in Lake Charles, Louisiana
                to Gulf
                South’s pipeline. Gulf South’s ownership interest will be equivalent to
                500,000 dekatherms per day. Trunkline Gas will continue to operate
                the
                pipeline pursuant to an operating agreement. This transaction was
                completed March 31, 2006 and the assets were placed in service in
                April
                2006. 
 ·
            *Magnolia
                Storage Expansion*.
                Gulf South has leased a gas storage facility near Napoleonville,
                Louisiana
                and is currently developing high-deliverability storage caverns.
                During
                recent mining operations, certain issues have arisen causing the
                mining of
                the caverns to be temporarily suspended. Gulf South will conduct
                operational integrity tests on the cavern and associated facilities
                during
                the third quarter 2006. If the test results are favorable, we expect
                the
                facilities to be in service during 2009. If the test results are
                not
                favorable, management will consider the options it has available,
                including developing a new cavern, or sale or abandonment of the
                project.
                The total book value at June 30, 2006 was $42.2 million. During the
                second
                quarter 2006, the Partnership tested the investment in Magnolia for
                recoverability in accordance with the requirements of SFAS No 144,*Accounting
                for the Impairment or Disposal of Long-Lived Assets*.
                No impairment loss was recognized as a result of the recoverability
                test.
                Gulf South incurred costs of $0.6 million on this project during
                the six
                months ended June 30, 2006, and expects the remaining costs to be
                approximately $5.0 million, which will be funded by internally generated
                cash flows. 
 We
        are
        also engaged in discussions with customers and potential partners on several
        other proposed future expansion projects, which would connect our pipeline
        system to growing supplies of gas in the Mid-Continent region, and would
        expand
        our capacity serving Southeast markets through interconnections with other
        pipelines. Among these are our previously announced Mid-Continent Pipeline
        Expansion and the Southeast Expansion. The Mid-Continent Pipeline Expansion
        is a
        proposed joint venture that would construct, own and operate a new interstate
        pipeline which would connect gas supplies originating in North Central Texas,
        Oklahoma, and Arkansas to a new interconnect with Texas Gas. The Southeast
        Expansion is a proposed pipeline expansion, which may consist of newly
        constructed facilities and a lease of third party transportation capacity,
        which
        would expand Gulf South’s capacity to deliver gas to Florida markets through
        interconnects with interstate pipelines serving markets in the Southeast
        and
        Northeast. The
        completion of these projects is subject to risks and uncertainties including
        market conditions, signing of definitive agreements, obtaining appropriate
        regulatory approvals, obtaining the necessary financing for the projects
        and
        other factors beyond our control.
 
 **Distributions**
 
 The
        following distributions were paid from our available cash pursuant to the
        partnership agreement and were funded by cash from operations.
 
 On
        July
        31, 2006, we declared a quarterly distribution of $0.38 per unit, payable
        on
        August 18, 2006 to unitholders of record on August 11, 2006, including common
        and subordinated units and the 2% general partner interest held by its general
        partner.
 
 On
        May
        19, 2006, we paid a quarterly distribution in the amount of $0.36 per unit
        to
        unitholders of record on May 12, 2006, including common and subordinated
        units
        and the 2% general partner interest held by our general
        partner.
 
 On
        February 23, 2006, we paid a cash distribution of $0.1788 per unit. This
        distribution represented a prorated portion of the $0.35 per unit minimum
        quarterly distribution (as provided in the Partnership’s partnership agreement)
        for the period from November 15, 2005 through December 31, 2005.
 
 
  19
  **Cost
        Reduction Program**
  Texas
        Gas
        is implementing a program intended to reduce normal, recurring costs by
        approximately $15 to $20 million annually. The components of the program
        include
        changes to postretirement benefits other than pensions (PBOP) an early
        retirement incentive program (ERIP), a reduction in the annual cash incentive
        program and the elimination of the broad-based merit increase pool for 2006.
        Refer to Note 10 of the Notes to Condensed Consolidated Financial Statements
        in
        Item 1 of this report for additional information regarding the changes to
        PBOP
        and the ERIP.
 
 
 **Liquidity
        and Capital Resources**
  We
        are a
        limited partnership holding company and derive all of our operating cash
        flow
        from our subsidiaries, Texas Gas and Gulf South. Our subsidiaries use funds
        from
        their respective operations to fund their operating activities and maintenance
        capital requirements, service their indebtedness and make advances or
        distributions to Boardwalk Pipelines. Boardwalk Pipelines uses cash provided
        from Texas Gas and Gulf South and, as needed, borrowings under its revolving
        credit facility, to service its indebtedness and make distributions or advances
        to us to fund our distributions to unitholders and our general partner.
 
 In
        June
        2006, certain of our subsidiaries entered into a $400 million unsecured
        revolving credit facility which amended and restated the previous $200 million
        facility entered into by Boardwalk Pipelines at the time of the IPO. Under
        the
        amended and restated facility, which will continue to be guaranteed by us,
        Boardwalk Pipelines, Texas Gas and Gulf South may borrow funds, up to
        sub-limits. Interest
        on amounts drawn under the credit facility will be payable at a floating
        rate
        equal to an applicable spread per annum over the London Interbank Offered
        Rate
        or a base rate defined as the greater of the prime rate or the Federal funds
        rate plus 50 basis points. Under the terms of the agreement, each of the
        borrowers respectively must maintain a minimum ratio, as of the last day
        of each
        fiscal quarter, of consolidated total debt to consolidated earnings before
        interest, taxes, depreciation and amortization (as defined in the agreement),
        measured for the preceding twelve months, of not more than five to one. There
        were no outstanding borrowings against the facility as of June 30, 2006.
 
 
 **Changes
        in cash flow from operating activities for the Six Months Ended June 30,
        2006
        and June 30, 2005**
 
 Net
        cash
        provided by operating activities was $136.6 million for the six months ended
        June 30, 2006, compared to $124.4 million in the comparable period of 2005.
        The
        increase of $12.2 million in cash flow from operating activities primarily
        consisted of:
 
 ·  $53.2
        million increase in net income, excluding non-cash items such as
        depreciation;
 ·  $41.4
        million decrease in the provision for deferred income taxes due to the change
        in
        entity structure;
 ·  $20.4
        million decrease in cash inflows relative to net changes in non-current assets
        and liabilities; and
 ·  $20.8
        million decrease in cash outflows relative to net changes in working capital
        items.
 
 
 **Changes
        in cash flow from investing activities:**
 
 Net
        cash
        used in investing activities decreased $0.8 million, to $46.7 million for
        the
        six month period ended June 30, 2006, from $47.5 million in the comparable
        2005
        period, which was primarily attributable to:
 
 ·  $18.0
        million increase in capital expenditures of which $8.7 million was used for
        expansion projects;
 ·  $1.4
        million decrease in insurance and other recoveries; and
 ·  $20.2
        million decrease in advances to affiliates.
 
 
 **Changes
        in cash flow from financing activities:**
 
 Net
        cash
        used in financing activities amounted to $97.8 million for the six months
        ended
        June 30, 2006, compared to $43.9 million during the same period in 2005.
        The
        increase of $53.9 million was primarily due to:
 
 ·  $36.5
        million primarily due to payment of the balance of a revolving credit facility
        in February 2006; and
 ·  $6.7
        million decrease due to a capital contribution from our parent in 2005;
        partially offset by
 ·  $10.7
        million increase in distributions paid.
  20
  **Contractual
        Obligations**
  The
        table
        below is updated for significant changes in lease and capital commitments
        from
        those included in the 2005 Form 10-K by period (expressed in millions):
 
 **Payments
                  due by Period****Total**
              
              **Less than
                  1 Year**
              
              **1-2 Years**
              
              **3-5 Years**
              
              **More than
                   5 Years**Lease
                  commitments
              $
                  38.0
              
              $
                  3.0
              
              $
                  11.9
              
              $
                  10.6
              
              $
                  12.5Capital
                  commitments
              309.1
              
              271.9
              
              37.2
              
              -
              
              -Total
              $
                  347.1
              
              $
                  274.9
              
              $
                  49.1
              
              $
                  10.6
              
              $
                  12.5
 
 The
        change in lease commitments was related to the signing of a ten-year lease
        for
        new office facilities at Gulf South. The estimated commencement date of the
        lease is May 1, 2007.
 
 The
        capital commitments for construction were primarily related to the East
        Texas/Mississippi pipeline expansion. For further discussion of the East
        Texas/Mississippi pipeline expansion please read Note 5C *Expansion
        Projects* in the
        Notes to Condensed Consolidated Financial Statements included in Item 1.
 
 The
        annual funding requirement to the employee benefits retirement plan as a
        result
        of the settled rate case is $3.0 million.
 
 For
        a
        detailed listing of our Contractual Obligations, please see our Annual
        Report on Form 10-K for the year ended December 31, 2005.
 
 
 **Off-Balance
        Sheet Arrangements**
  We
        have
        no off-balance sheet arrangements as defined by Regulation S-K.
 
 
 **Forward-Looking
        Statements**
 
 Investors
        are cautioned that certain statements contained in this report as well as
        some
        statements in periodic press releases and some oral statements made by our
        officials and our subsidiaries during presentations about us, are
“forward-looking” statements within the meaning of the Private Securities
        Litigation Reform Act of 1995 (Act). Forward-looking statements include,
        without
        limitation, any statement that may project, indicate or imply future results,
        events, performance or achievements, and may contain the words “expect,”
“intend,” “plan,” “anticipate,” “estimate,” “believe,” “will likely result,” and
        similar expressions. In addition, any statement concerning
        future financial performance (including future revenues, earnings or growth
        rates), ongoing business strategies or prospects, and possible actions by us or our subsidiaries,
        which
        may be provided by management, are also forward-looking statements as defined
        by
        the Act.
 
 Forward-looking
        statements are based on current expectations and projections about future
        events
        and are inherently subject to a variety of risks and uncertainties, many
        of
        which are beyond our control that could cause actual results to differ
        materially from those anticipated or projected. These risks and uncertainties
        include, among others:
  •
              the
                  gas transmission and storage operations of our subsidiaries are
                  subject to
                  rate-making policies and actions by FERC or customers that could
                  have an
                  adverse impact on the rates we charge and our ability to recover
                  the full
                  cost of operating our pipelines, including a reasonable return;
  •
              the
                  impact of Hurricanes Katrina and Rita or any new hurricane could
                  have a
                  material adverse effect on our business, financial condition and
                  results
                  of operations because some of our damages may not be covered by
                  insurance;
  •
              we
                  are subject to laws and regulations relating to the environment
                  and
                  pipeline operations which may expose us to significant costs, liabilities
                  and loss of revenues. Any changes in such regulations or their
                  application
                  could negatively affect our results of
                  operations;
  •
              our
                  operations are subject to operational hazards and unforeseen interruptions
                  for which we may not be adequately
                  insured;
  •
              the
                  cost of insuring our assets may increase
                  dramatically;
  •
              because
                  of the natural decline in gas production from existing wells, our
                  success
                  depends on the ability to obtain access to new sources of natural
                  gas,
                  which is dependent on factors beyond our control. Any decrease
                  in supplies
                  of natural gas in our supply areas could adversely affect our business
                  and
                  operating results;
  •
              successful
                  development of LNG import terminals in the eastern or northeastern
                  United
                  States could reduce the demand for our
                  services;
  •
              we
                  may not be able to maintain or replace expiring gas transportation
                  and
                  storage contracts at favorable
                  rates;
  •
              we
                  depend on certain key customers for a significant portion of our
                  revenues.
                  The loss of any of these key customers could result in a decline
                  in our
                  revenues;
  •
              significant
                  changes in natural gas prices could affect supply and demand, reducing
                  system throughput and adversely affecting our revenues;****
  •
              we
                  may not complete projects, including growth or expansion projects,
                  that we
                  commence, or we may complete projects on materially different terms
                  or
                  timing than anticipated and we may not be able to achieve the intended
                  benefits of any such project, if completed;
                  and
  •
              the
                  successful completion, timing, cost, scope and future financial
                  performance of our expansion projects could differ materially from
                  our
                  expectations due to weather, untimely regulatory approvals, land
                  owner
                  opposition, the lack of adequate materials or labor and numerous
                  other
                  factors beyond our control.
 
 Developments
        in any of these areas could cause our results to differ materially from results
        that have been or may be anticipated or projected. Forward-looking statements
        speak only as of the date of this report and we expressly disclaim any
        obligation or undertaking to update these statements to reflect any change
        in
        our expectations or beliefs or any change in events, conditions or circumstances
        on which any forward-looking statement is based.
  
    21
   **Item
        3. Quantitative****and
        Qualitative Disclosures About Market Risk**
  
 Our
        market risk is substantially limited to our long-term debt. Total long-term
        debt
        at June 30, 2006, had a carrying value of $1.1 billion and a fair value of
        $1.0
        billion. The weighted-average interest rate of our long-term debt was 5.29%
        at
        June 30, 2006.
 
 Certain
        volumes of gas stored underground at Gulf South are available for sale under
        its
        tariff and subject to commodity price risk. At June 30, 2006 and December
        31,
        2005, approximately $9.9 million and $6.5 million, respectively, of Gulf
        South’s
        gas stored underground, which we own and carry as inventory, is exposed to
        commodity price risk. In accordance with
        Gulf
        South’s risk management policy, Gulf South utilizes natural gas futures, swaps,
        and options contracts (collectively, derivatives) to hedge certain exposures
        to
        market price fluctuations on our anticipated operational sales of gas. The
        changes in fair values of the derivatives related to the anticipated sales
        of
        gas, are designated as cash flow hedges under SFAS No. 133 and are expected
        to,
        and do, have a high correlation to changes in the anticipated value of the
        hedged transactions. Pursuant to SFAS No. 133, the periodic changes in fair
        values of the derivatives are deferred
        as a component of Accumulated Other Comprehensive Income (Loss) and are
        recognized in the Condensed Consolidated Statements of Income when the hedged
        anticipated purchases or sales affect earnings.
 
 We
        also
        utilize derivatives to hedge exposures to market price fluctuations related
        to
        the value of company-owned storage capacity and, during the second quarter
        2006,
        operational gas purchases for the Gulf South expansion projects. While the
        changes in the derivatives are expected to, and do, have a high correlation
        to
        changes in the anticipated value of the hedged transactions, the derivatives
        have not been designated as cash flow hedges in accordance with SFAS No.
        133.
        The changes in fair values of the derivatives related to the storage capacity
        were losses of $0.2 million and $0.1 million, respectively, for the three
        and
        six months ended June 30, 2006 and accordingly were recognized currently
        in
        earnings as reductions to Gas Storage revenue on the Condensed Consolidated
        Statements of Income. The derivatives associated with the gas purchases referred
        to above were settled in April 2006, resulting in the recognition of a $0.5
        million gain. The gain was recorded as Miscellaneous Other (Income), net
        on the
        Condensed Consolidated Statements of Income.
 
 We
        are exposed to credit risk. Credit risk relates to the risk of loss resulting
        from the nonperformance by a customer of its contractual obligations. Our
        exposure generally relates to receivables for services provided, as well
        as
        volumes owed by customers for imbalances or gas lent by us to them, generally
        under parking-and-lending and no-notice services. We maintain credit policies
        intended to minimize credit risk and actively monitor these policies.
 Natural gas price volatility has increased dramatically in recent years,
        which has materially increased credit risk related to gas loaned to customers.
        As of June 30, 2006, the amount of gas loaned out by our subsidiaries was
        approximately 16 Trillion British thermal units (Tbtu) and, assuming an average
        market price during June 2006 of $6.20 per million British thermal units
        (MMBtu), the market value of gas loaned out at June 30, 2006, would have
        been
        approximately $99.2 million. As of December 31, 2005, the amount of gas loaned
        out was approximately 15 TBtu and, assuming an average market price during
        December 2005 of $12.34 per MMBtu, the market value of that gas would be
        approximately $185.1 million. If any significant customer of ours should
        have
        credit or financial problems resulting in a delay or failure to repay the
        gas
        they owe to us, this could have a material adverse effect on our financial
        condition, results of operations and cash flows.
 
 As
        of
        June 30, 2006, our cash and investment portfolio did not include fixed-income
        securities. Due to the short-term nature of our investment portfolio, a
        hypothetical 10% increase in interest rates would not have a material effect
        on
        the fair market value of
        our
        portfolio. Since we have the ability to liquidate this portfolio, we do not
        expect our Condensed Consolidated Statements of Income or Cash Flows to be
        materially affected to any significant degree by the effect of a sudden change
        in market interest rates on our investment portfolio.
 
    22
   **Item
        4. Controls and Procedures**
  
 We
        maintain a system of disclosure controls and procedures which are designed
        to
        ensure that information required to be disclosed in reports filed or submitted
        under the federal securities laws, including this report, is recorded,
        processed, summarized and reported on a timely basis. These disclosure controls
        and procedures are designed to ensure that information required to be disclosed
        under the federal securities laws is accumulated and communicated to management
        on a timely basis to allow assessment of required disclosures.
  Our
        principal executive officers and principal financial officer have conducted
        an
        evaluation of the disclosure controls and procedures as of the end of the
        period
        covered by this report. Based on this evaluation, the principal executive
        officers and principal financial officer have each concluded that the disclosure
        controls and procedures are effective.
 
 There
        was
        no change in our control over financial reporting identified in connection
        with
        the foregoing evaluation that occurred during the last fiscal quarter that
        has
        materially affected, or is reasonably likely to materially affect, our internal
        control over financial reporting.
  23
  **PART
        II - OTHER INFORMATION**
 
  **Item
        1. Legal Proceedings**
  
 For
        further discussion of our legal proceedings, please read Note 5 Commitments
        and
        Contingencies—Legal Proceedings in the Notes to Condensed Consolidated Financial
        Statements included in Item 1.
 
  **Item
        1A. Risk Factors**
  
 *The
        following discussion supplements the Risk Factors in Item 1A "Risk Factors"
        of
        our Annual Report on Form 10-K for the year ended December 31, 2005.*
 
 During
        the first quarter of 2006, we announced projects to expand pipeline capacity
        on
        Gulf South by 1.5 Bcf/day.  The new capacity is expected to be in service
        during the second half of 2007.  The total cost of the expansion projects
        is expected to be approximately $800 million.
 
 These
        expansion projects involve potential risks, including:
 
 ·
            the inability
                to complete the projects on
                time;  ·
            actual
                costs of the projects could be higher than
                expected;  ·
            delays
                in obtaining the requisite regulatory
                approvals;  ·
            performance
                of our business following the expansions does not meet
                expectations;  ·
            the
                inability to timely and effectively integrate the expanded capacities
                into our
                operations;  ·
            diversion
                of our management's attention from other business
                concerns;  ·
            inability
                or delays in obtaining key materials; and  ·
            land
                owner opposition.   Any
        of
        these factors could adversely affect our ability to realize the anticipated
        benefits from the newly expanded capacities.  The process of
        integrating newly expanded assets into our operations may result in unforeseen
        operating difficulties or unanticipated costs that could have a material
        adverse
        effect on our business, financial condition, results of operations and cash
        flows.
 
  24
   **Item
        6. Exhibits**
  
 
 Exhibit
                DesignationRegistrant
              Nature
                  of Exhibit31.1
              Boardwalk
                  Pipeline Partners, LP
              Certification
                  of Rolf A. Gafvert, Co-President, pursuant to Rule 13a-14(a) and
                  Rule
                  15d-14(a)31.2
              Boardwalk
                  Pipeline Partners, LP
              Certification
                  of H. Dean Jones II, Co-President, pursuant to Rule 13a-14(a) and
                  Rule
                  15d-14(a)31.3
              Boardwalk
                  Pipeline Partners, LP
              Certification
                  of Jamie L. Buskill, Vice President and Chief Financial Officer,
                  pursuant
                  to Rule 13a-14(a) and Rule 15d-14(a)32.1
              Boardwalk
                  Pipeline Partners, LP
              Certification
                  by Rolf A. Gafvert, Co-President and H. Dean Jones, II, Co-President,
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  200232.2
              Boardwalk
                  Pipeline Partners, LP
              Certification
                  of Jamie L. Buskill, Vice President and Chief Financial Officer,
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of
                  2002
 
   
   
   25
   **SIGNATURES**
  
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
 
 **Boardwalk
                  Pipeline Partners, LP**By:
                  Boardwalk GP, LPits
                  general partnerBy:
                  Boardwalk GP, LLCits
                  general partnerDated:
                  August 1, 2006
              
              By:
              */s/
                  Jamie L. Buskill*Jamie
                  L. BuskillVice
                  President and Chief Financial
                  Officer
 
  26