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 March 31, 2009
 
 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:      01-32665BOARDWALK
      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.)9
      Greenway Plaza, Suite 2800
                Houston,
      Texas  77046
                (866)
      913-2122(Address
      and Telephone Number of Registrant’s Principal Executive
      Office)Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class
              
              Name
      of each exchange on which registeredCommon
      Units Representing Limited Partner Interests
              
              New
      York Stock ExchangeSecurities registered pursuant
      to Section 12(g) of the Act:  NONE
 
 
 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    Noo
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one)
 Large
accelerated filer  x                                               Accelerated
filer  o                                           Non-accelerated
filer  o                                           Smaller
reporting company  o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes  ̈  No x
 
 As
of April 23, 2009, the registrant had 154,934,609 common units outstanding and
22,866,667 class B units outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 TABLE
OF CONTENTS
 
 FORM
10-Q
 
 March
31, 2009
 
 BOARDWALK
PIPELINE PARTNERS, LP
 
 PART
I - FINANCIAL INFORMATION
 
 Item
      1.  Financial Statements
  Condensed
Consolidated Balance
Sheets .................................................................................................................................3
 Condensed
Consolidated Statements of
Income ........................................................................................................................5
 Condensed
Consolidated Statements of Cash
Flows ...............................................................................................................6
 Condensed
Consolidated Statements of Changes in Partners’
Capital ...............................................................................7
 Condensed
Consolidated Statements of Comprehensive
Income ...........................................................................................8
 Notes
to Condensed Consolidated Financial
Statements .......................................................................................................9
  Item
2.   Management's Discussion and Analysis of Financial Condition
and Results of Operations ..............................19
  Item
3.  Quantitative and Qualitative Disclosures About Market
Risk ..................................................................................26
  Item
4.  Controls and
Procedures ..................................................................................................................................................28
  PART
II - OTHER INFORMATION
   Item
1.  Legal
Proceedings ..............................................................................................................................................................29
  Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds ...................................................................................29
  Item
6.  Exhibits ................................................................................................................................................................................30
  Signatures .........................................................................................................................................................................................31
  
   2
  PART
I – FINANCIAL INFORMATION
 
 Item
1.  Financial Statements
 
 BOARDWALK
PIPELINE PARTNERS, LP
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Millions)
 (Unaudited)
 
 March
      31,
                
                
                December
      31,ASSETS
                
                2009
                
                
                2008Current
      Assets:Cash
      and cash equivalents
                
                $
                114.6
                
                
                $
                137.7Short-term
      investments
                
                
                -
                
                
                
                175.0Receivables:Trade,
      net
                
                
                76.2
                
                
                
                67.3Other
                
                
                20.4
                
                
                
                18.0Gas
      transportation receivables
                
                
                40.5
                
                
                
                13.5Inventories
                
                
                3.4
                
                
                
                2.6Costs
      recoverable from customers
                
                
                5.4
                
                
                
                5.4Gas
      stored underground
                
                
                0.9
                
                
                
                0.2Prepayments
                
                
                5.0
                
                
                
                17.3Other
      current assets
                
                
                17.0
                
                
                
                14.8Total
      current assets
                
                
                283.4
                
                
                
                451.8Property,
      Plant and Equipment:Natural
      gas transmission plant
                
                
                6,044.6
                
                
                
                3,871.0Other
      natural gas plant
                
                
                216.9
                
                
                
                215.26,261.5
                
                
                
                4,086.2Less—accumulated
      depreciation and amortization
                
                
                427.2
                
                
                
                382.45,834.3
                
                
                
                3,703.8Construction
      work in progress
                
                
                267.9
                
                
                
                2,196.4Property,
      plant and equipment, net
                
                
                6,102.2
                
                
                
                5,900.2Other
      Assets:Goodwill
                
                
                163.5
                
                
                
                163.5Gas
      stored underground
                
                
                129.0
                
                
                
                124.8Costs
      recoverable from customers
                
                
                15.3
                
                
                
                15.4Other
                
                
                86.8
                
                
                
                65.9Total
      other assets
                
                
                394.6
                
                
                
                369.6Total
      Assets
                
                $
                6,780.2
                
                
                $
                6,721.6
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  3
  BOARDWALK
PIPELINE PARTNERS, LP
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Millions)
 (Unaudited)
 
 March
      31,
                    
                    
                    December
      31,LIABILITIES
      AND PARTNERS’ CAPITAL
                    
                    2009
                    
                    
                    2008Current
      Liabilities:Payables:Trade
                    
                    $
                    113.0
                    
                    
                    $
                    216.4Affiliates
                    
                    
                    1.3
                    
                    
                    
                    1.8Other
                    
                    
                    8.0
                    
                    
                    
                    7.4Gas
      transportation payables
                    
                    
                    34.8
                    
                    
                    
                    11.6Accrued
      taxes, other
                    
                    
                    40.8
                    
                    
                    
                    35.2Accrued
      interest
                    
                    
                    30.3
                    
                    
                    
                    40.1Accrued
      payroll and employee benefits
                    
                    
                    9.6
                    
                    
                    
                    16.3Construction
      retainage
                    
                    
                    69.9
                    
                    
                    
                    76.3Deferred
      income
                    
                    
                    4.9
                    
                    
                    
                    1.8Other
      current liabilities
                    
                    
                    40.1
                    
                    
                    
                    27.1Total
      current liabilities
                    
                    
                    352.7
                    
                    
                    
                    434.0Long
      –Term Debt
                    
                    
                    3,051.3
                    
                    
                    
                    2,889.4Other
      Liabilities and Deferred Credits:Pension
      liability
                    
                    
                    37.0
                    
                    
                    
                    35.7Asset
      retirement obligation
                    
                    
                    16.7
                    
                    
                    
                    18.0Provision
      for other asset retirement
                    
                    
                    47.0
                    
                    
                    
                    45.6Payable
      to affiliate
                    
                    
                    20.6
                    
                    
                    
                    20.6Other
                    
                    
                    40.5
                    
                    
                    
                    33.3Total
      other liabilities and deferred credits
                    
                    
                    161.8
                    
                    
                    
                    153.2Commitments
      and ContingenciesPartners’
      Capital:Common
      units – 154.9 million units issued and outstanding as of
                      March
      31, 2009, and December 31, 2008
                    
                    
                    2,472.4
                    
                    
                    
                    2,504.8Class
      B units – 22.9 units issued and outstanding as of
                      March
      31, 2009, and December 31, 2008
                    
                    
                    692.1
                    
                    
                    
                    692.8General
      partner
                    
                    
                    62.2
                    
                    
                    
                    62.9Accumulated
      other comprehensive loss, net of tax
                    
                    
                    (12.3
                    )
                    
                    
                    (15.5
                    )Total
      partners’ capital
                    
                    
                    3,214.4
                    
                    
                    
                    3,245.0Total
      Liabilities and Partners’ Capital
                    
                    $
                    6,780.2
                    
                    
                    $
                    6,721.6
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  4
  BOARDWALK
PIPELINE PARTNERS, LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Millions,
except per unit amounts)
 (Unaudited)
 
 For
      the Three Months Ended
                        March
      31,2009
                      
                      
                      2008Operating
      Revenues:Gas
      transportation
                      
                      $
                      200.9
                      
                      
                      $
                      176.5Parking
      and lending
                      
                      
                      7.4
                      
                      
                      
                      5.1Gas
      storage
                      
                      
                      13.6
                      
                      
                      
                      10.7Other
                      
                      
                      1.5
                      
                      
                      
                      5.0Total
      operating revenues
                      
                      
                      223.4
                      
                      
                      
                      197.3Operating
      Costs and Expenses:Fuel
      and gas transportation
                      
                      
                      15.7
                      
                      
                      
                      15.9Operation
      and maintenance
                      
                      
                      30.8
                      
                      
                      
                      24.9Administrative
      and general
                      
                      
                      28.9
                      
                      
                      
                      25.2Depreciation
      and amortization
                      
                      
                      46.4
                      
                      
                      
                      27.4Contract
      settlement gain
                      
                      
                      -
                      
                      
                      
                      (11.2
                      )Asset
      impairment
                      
                      
                      -
                      
                      
                      
                      1.4Net
      loss on disposal of operating assets and related contracts
                      
                      
                      0.9
                      
                      
                      
                      0.2Taxes
      other than income taxes
                      
                      
                      22.1
                      
                      
                      
                      12.0Total
      operating costs and expenses
                      
                      
                      144.8
                      
                      
                      
                      95.8Operating
      income
                      
                      
                      78.6
                      
                      
                      
                      101.5Other
      Deductions (Income):Interest
      expense
                      
                      
                      26.6
                      
                      
                      
                      19.0Interest
      income
                      
                      
                      (0.1
                      )
                      
                      
                      (1.0
                      )Miscellaneous
      other income, net
                      
                      
                      (0.2
                      )
                      
                      
                      (4.9
                      )Total
      other deductions
                      
                      
                      26.3
                      
                      
                      
                      13.1Income
      before income taxes
                      
                      
                      52.3
                      
                      
                      
                      88.4Income
      taxes
                      
                      
                      0.3
                      
                      
                      
                      0.3Net
      income
                      
                      $
                      52.0
                      
                      
                      $
                      88.1Net
      Income per Unit:
                      
                      For
      the Three Months Ended
                        March
      31,2009
                      
                      
                      2008Basic
      and diluted net income per unit:Common
      units (a)
                      
                      $
                      0.29
                      
                      
                      $
                      0.68Class
      B units
                      
                      $
                      0.11
                      
                      
                      $
                      -Subordinated
      units (a)
                      
                      $
                      -
                      
                      
                      $
                      0.68Cash
      distribution to common and subordinated units (a)
                      
                      $
                      0.48
                      
                      
                      $
                      0.46Cash
      distribution to class B units
                      
                      $
                      0.30
                      
                      
                      $
                      -Weighted-average
      number of units outstanding:Common
      units (a)
                      
                      
                      154.9
                      
                      
                      
                      90.7Class
      B units
                      
                      
                      22.9
                      
                      
                      
                      -Subordinated
      units (a)
                      
                      
                      -
                      
                      
                      
                      33.1(a)
      All of the 33.1 million subordinated units converted to common units on a
      one-for-one basis in November 2008.
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  5
  BOARDWALK
PIPELINE PARTNERS, LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Millions)
 (Unaudited)
 
 For
      the Three Months Ended
                              March
      31,2009
                            
                            
                            2008OPERATING
      ACTIVITIES:Net
      income
                            
                            $
                            52.0
                            
                            
                            $
                            88.1Adjustments
      to reconcile to cash provided by operations:Depreciation
      and amortization
                            
                            
                            46.4
                            
                            
                            
                            27.4Amortization
      of deferred costs
                            
                            
                            2.4
                            
                            
                            
                            2.4Amortization
      of acquired executory contracts
                            
                            
                            -
                            
                            
                            
                            (0.1
                            )Asset
      impairment
                            
                            
                            -
                            
                            
                            
                            1.4Net
      loss on disposal of operating assets and related contracts
                            
                            
                            0.9
                            
                            
                            
                            0.2Changes
      in operating assets and liabilities:Trade
      and other receivables
                            
                            
                            (9.3
                            )
                            
                            
                            1.1Gas
      receivables and storage assets
                            
                            
                            (31.9
                            )
                            
                            
                            19.6Costs
      recoverable from customers
                            
                            
                            -
                            
                            
                            
                            (0.8
                            )Inventories
                            
                            
                            (14.2
                            )
                            
                            
                            (2.4
                            )Other
      assets
                            
                            
                            (39.3
                            )
                            
                            
                            (8.2
                            )Trade
      and other payables
                            
                            
                            (4.7
                            )
                            
                            
                            (24.2
                            )Gas
      payables
                            
                            
                            29.0
                            
                            
                            
                            (15.6
                            )Accrued
      liabilities
                            
                            
                            (18.5
                            )
                            
                            
                            (12.5
                            )Other
      liabilities
                            
                            
                            15.6
                            
                            
                            
                            (2.1
                            )Net
      cash provided by operating activities
                            
                            
                            28.4
                            
                            
                            
                            74.3INVESTING
      ACTIVITIES:Capital
      expenditures
                            
                            
                            (301.9
                            )
                            
                            
                            (542.5
                            )Advances
      to affiliates, net
                            
                            
                            -
                            
                            
                            
                            (0.3
                            )Sales
      of short-term investments
                            
                            
                            175.0
                            
                            
                            
                            -Net
      cash used in investing activities
                            
                            
                            (126.9
                            )
                            
                            
                            (542.8
                            )FINANCING
      ACTIVITIES:Proceeds
      from long-term debt, net of issuance costs
                            
                            
                            -
                            
                            
                            
                            247.2Proceeds
      from borrowings on revolving credit agreement
                            
                            
                            161.5
                            
                            
                            
                            153.0Repayment
      of borrowings on revolving credit agreement
                            
                            
                            -
                            
                            
                            
                            (153.0
                            )Payments
      on note payable
                            
                            
                            (0.3
                            )
                            
                            
                            -Distributions
                            
                            
                            (85.8
                            )
                            
                            
                            (59.6
                            )Net
      cash provided by financing activities
                            
                            
                            75.4
                            
                            
                            
                            187.6Decrease
      in cash and cash equivalents
                            
                            
                            (23.1
                            )
                            
                            
                            (280.9
                            )Cash
      and cash equivalents at beginning of period
                            
                            
                            137.7
                            
                            
                            
                            317.3Cash
      and cash equivalents at end of period
                            
                            $
                            114.6
                            
                            
                            $
                            36.4
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
 
  6
  BOARDWALK
PIPELINE PARTNERS, LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’
CAPITAL
 (Millions)
 (Unaudited)
 
 
 Common
                            Units
                          
                          
                          Class
      B Units
                          
                          
                          Subordinated Units
                          
                          
                          General
      Partner
                          
                          
                          Accumulated
      Other Comp Income (Loss)
                          
                          
                          Total
      Partners’ CapitalBalance
      January 1, 2008
                          
                          $
                          1,473.9
                          
                          
                          $
                          -
                          
                          
                          $
                          291.7
                          
                          
                          $
                          33.2
                          
                          
                          $
                          4.2
                          
                          
                          $
                          1,803.0Add
      (deduct):Net
      income
                          
                          
                          62.1
                          
                          
                          
                          -
                          
                          
                          
                          22.7
                          
                          
                          
                          3.3
                          
                          
                          
                          -
                          
                          
                          
                          88.1Distributions
      paid
                          
                          
                          (41.7
                          )
                          
                          
                          -
                          
                          
                          
                          (15.2
                          )
                          
                          
                          (2.7
                          )
                          
                          
                          -
                          
                          
                          
                          (59.6
                          )Other
      comprehensive loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (26.0
                          )
                          
                          
                          (26.0
                          )Balance
      March 31, 2008
                          
                          $
                          1,494.3
                          
                          
                          $
                          -
                          
                          
                          $
                          299.2
                          
                          
                          $
                          33.8
                          
                          
                          $
                          (21.8
                          )
                          
                          $
                          1,805.5Balance
      January 1, 2009
                          
                          $
                          2,504.8
                          
                          
                          $
                          692.8
                          
                          
                          $
                          -
                          
                          
                          $
                          62.9
                          
                          
                          $
                          (15.5
                          )
                          
                          $
                          3,245.0Add
      (deduct):Net
      income
                          
                          
                          42.0
                          
                          
                          
                          6.2
                          
                          
                          
                          -
                          
                          
                          
                          3.8
                          
                          
                          
                          -
                          
                          
                          
                          52.0Distributions
      paid
                          
                          
                          (74.4
                          )
                          
                          
                          (6.9
                          )
                          
                          
                          -
                          
                          
                          
                          (4.5
                          )
                          
                          
                          -
                          
                          
                          
                          (85.8
                          )Other
      comprehensive income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          3.2
                          
                          
                          
                          3.2Balance
      March 31, 2009
                          
                          $
                          2,472.4
                          
                          
                          $
                          692.1
                          
                          
                          $
                          -
                          
                          
                          $
                          62.2
                          
                          
                          $
                          (12.3
                          )
                          
                          $
                          3,214.4
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
 
  7
  BOARDWALK
PIPELINE PARTNERS, LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
 (Millions)
 (Unaudited)
 
 For
      the Three Months Ended March 31,2009
                
                
                2008Net
      income
                
                $
                52.0
                
                
                $
                88.1Other
      comprehensive income (loss):Gain
      (loss) on cash flow hedges
                
                
                8.0
                
                
                
                (24.4
                )Reclassification
      adjustment transferred to Net income from cash flow hedges
                
                
                (0.9
                )
                
                
                0.6Pension
      and other postretirement benefits costs
                
                
                (3.9
                )
                
                
                (2.2
                )Total
      comprehensive income
                
                $
                55.2
                
                
                $
                62.1
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
  8
  
 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 to own and operate the
business conducted by its subsidiary, Boardwalk Pipelines, LP (Boardwalk
Pipelines), and its subsidiaries, Gulf Crossing Pipeline Company, LLC (Gulf
Crossing), Gulf South Pipeline Company, LP (Gulf South) and Texas Gas
Transmission, LLC (Texas Gas) (collectively, the operating subsidiaries). As of
March 31, 2009, Boardwalk Pipelines Holding Corp. (BPHC) a wholly-owned
subsidiary of Loews Corporation (Loews) owns 107.5 million of the Partnership’s
common units, all 22.9 million of the Partnership’s class B units and, through
Boardwalk GP, LP (Boardwalk GP), an indirect wholly-owned subsidiary of BPHC,
holds the 2% general partner interest and all of the incentive distribution
rights (IDRs). As of March 31, 2009, the common units, class B units and general
partner interest owned by BPHC represent approximately 74% of the Partnership’s
equity interests, excluding the IDRs. The Partnership’s common units are traded
under the symbol “BWP” on the New York Stock Exchange.
 
 The accompanying unaudited condensed
consolidated financial statements of the Partnership were prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the accompanying condensed
consolidated financial statements reflect all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 2009, and December 31, 2008, and the results of operations, changes
in cash flow, changes in partners’ equity and comprehensive income for the three
months ended March 31, 2009 and 2008. Reference is made to the Notes to
Consolidated Financial Statements in the 2008 Annual Report on Form 10-K, which
should be read in conjunction with these unaudited condensed consolidated
financial statements. The accounting policies described in Note 2 to the
Consolidated Financial Statements included in such Annual Report on Form 10-K
are the same used in preparing the accompanying unaudited condensed consolidated
financial statements.
 
 Net
income for interim periods may not necessarily be indicative of results for the
full year. All intercompany items have been eliminated in
consolidation.
 
 
 Note
2:  Gas Stored Underground and Gas Receivables and
Payables
 
 Gulf
South and Texas Gas provide storage services whereby they store gas on behalf of
customers. The pipelines also periodically hold customer gas under parking and
lending (PAL) services. Since the customers retain title to the gas held by the
Partnership in providing these services, the Partnership does not record the
related gas on its balance sheets. The Partnership held for storage or under PAL
agreements approximately 45.7 trillion British thermal units (TBtu) of gas owned
by third parties as of March 31, 2009. Assuming an average market price during
March 2009 of $3.85 per million British thermal units (MMBtu), the market value
of gas held on behalf of others was approximately $175.9 million. As of December
31, 2008, the Partnership held for storage or under PAL agreements approximately
63.8 TBtu of gas owned by third parties.
 
 In the
course of providing transportation and storage services to customers, the
operating subsidiaries may receive different quantities of gas from shippers and
operators than the quantities delivered on behalf of those shippers and
operators. This results in transportation and exchange gas receivables and
payables, commonly known as imbalances, which are settled in cash or the receipt
or delivery of gas in the future. Gulf South and Texas Gas also
periodically lend gas to customers under PAL services. As of March 31, 2009, the
amount of gas loaned out under PAL agreements and the amount of gas owed to the
operating subsidiaries due to gas imbalances was approximately 50.4 TBtu.
Assuming an average market price during March 2009 of $3.85 per MMBtu, the
market value of that gas was approximately $194.0 million. As of December 31,
2008, the amount of gas loaned out under PAL agreements and the amount of gas
owed to the operating subsidiaries due to gas imbalances was approximately 34.4
TBtu. If any significant customer should have credit or financial problems
resulting in a delay or failure to repay the gas owed to the operating
subsidiaries, it could have a material adverse effect on the Partnership’s
financial condition, results of operations and cash flows.
 
 9
 
 Note
3:Derivative
Financial Instruments
 
 In 2009,
the Partnership began applying the provisions of Statement of Financial
Accounting Standards (SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities, which requires entities to provide
additional information about their derivative instruments and hedging
activities. The application of SFAS No. 161 had no effect on the Partnership’s
financial condition, results of operations and cash flows. Additional
information required under the standard is contained in the following
disclosures.
 
 Subsidiaries
of the Partnership use futures, swaps, and option contracts (collectively,
derivatives) to hedge exposure to natural gas commodity price risk related to
the future operational sales of natural gas and cash for fuel reimbursement.
This includes approximately $0.9 million and $0.2 million of gas stored
underground at March 31, 2009, and December 31, 2008, which the Partnership owns
and carries on its balance sheets as current Gas stored underground, and 3.3
billion cubic feet (Bcf) of gas with a book value of $7.5 million that has
become available for sale as a result of Phase III of the Western Kentucky
Storage Expansion. At March 31, 2009, approximately 7.9 Bcf of anticipated
future sales of natural gas and cash for fuel reimbursement were hedged with
derivatives having settlement dates in 2009 and 2010. The derivatives qualify
for cash flow hedge accounting under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, and are designated as
such. The Partnership has also periodically used derivatives as cash flow hedges
of interest rate risk in anticipation of debt offerings.
 
 All of
the Partnership’s derivatives are reported at fair value in accordance with SFAS
No. 133. The currently outstanding derivatives are recorded at fair value based
on New York Mercantile Exchange (NYMEX) quotes for natural gas futures and
options. The NYMEX quotes are deemed to be observable inputs for similar assets
and liabilities and are considered Level 2 inputs for purposes of fair value
disclosures under SFAS No. 157, Fair Value
Measurements.
 
 The fair values of derivatives existing
as of March 31, 2009, and December 31, 2008, were included in the following
captions in the Condensed Consolidated Balance Sheets (in
millions):
 
 Asset
      Derivatives
                
                Liability
      DerivativesMarch
      31, 2009
                
                December
      31, 2008
                
                March
      31, 2009
                
                December
      31, 2008Balance
      sheet location
                
                Fair
      Value
                
                Balancesheet
      location
                
                Fair
      Value
                
                Balance
      sheet location
                
                Fair
      Value
                
                Balancesheet
                  location
                
                Fair
      ValueDerivatives
      designated as hedging instruments under SFAS No. 133Commodity
      contracts
                Other
      current
                  assets
                
                $
                14.3
                
                Other
      current
                  assets
                
                $
                10.5
                
                Other
      current
                  liabilities
                
                $
                -
                
                Other
      current
                  liabilities
                
                $
                0.1Other
      assets
                
                
                5.2
                
                Other
      assets
                
                
                3.7
                
                Other
                  liabilities
                
                
                0.3
                
                Other
                  liabilities
                
                
                -$
                19.5
                
                
                
                $
                14.2
                
                
                
                $
                0.3
                
                
                
                $
                0.1
 
 10
  The
effective component of related unrealized gains and losses resulting from
changes in fair values of the derivatives designated as cash flow hedges are
deferred as a component of Accumulated other comprehensive income (loss) (AOCI).
The deferred gains and losses associated with natural gas commodity contracts
are recognized in operating revenues when the anticipated transactions affect
earnings. In situations where continued reporting of a loss in AOCI would result
in recognition of a future loss on the combination of the derivative and the
hedged transaction, SFAS No. 133 requires that the loss be immediately
recognized in earnings for the amount that is not expected to be
recovered.
 
 The changes in fair values of the
derivatives designated as cash flow hedges are expected to, and do, have a high
correlation to changes in value of the anticipated transactions. Each reporting
period the Partnership measures the effectiveness of the cash flow hedge
contracts. To the extent the changes in the fair values of the hedge contracts
do not effectively offset the changes in the estimated cash flows of the
anticipated transactions, the ineffective portion of the hedge contracts is
currently recognized in earnings. If it becomes probable that the anticipated
transactions will not occur, hedge accounting would be terminated and changes in
the fair values of the associated derivative financial instruments would be
recognized currently in earnings. The Partnership did not discontinue any
cash flow hedges during the three months ended March 31, 2009 and
2008.
 
 The
amount of gains and losses from derivatives recognized in the Condensed
Consolidated Statements of Income for the three months ended March 31, 2009,
were (in millions):
 
 Amount
      of gain/(loss) recognized in AOCI on derivatives (effective
      portion)
                
                Location
      of gain/(loss) reclassified from AOCI into income (effective
      portion)
                
                Amount of gain/(loss)
      reclassified from AOCI into income (effective
    portion)
                
                
                Location
      of gain/(loss) recognized in income on derivative (in- effective portion
      and amount excluded from effectiveness testing)
                
                
                Amount
      of gain/(loss) recognized in income on derivative (in- effective portion
      and amount excluded from effectiveness testing)Derivatives
      in SFAS No. 133 Cash Flow Hedging RelationshipCommodity
      contracts
                
                $
                8.0
                
                Operating
      revenues
                
                $
                1.3
                
                
                
                N/A
                
                
                $
                -Interest
      rate contracts (1)
                
                
                -
                
                Interest
      expense
                
                
                (0.4
                )
                
                
                N/A
                
                
                
                -$
                8.0
                
                
                
                $
                0.9
                
                
                
                
                
                
                $
                -
 
 (1)
              Related
      to amounts deferred in AOCI from Treasury rate locks used in hedging
      interest payments associated with debt offerings which were settled in
      previous periods and are being amortized to earnings over the terms of
      related anticipated interest payments, generally the terms of the related
      debt.
 
 The
Partnership has entered into master netting agreements to manage counterparty
credit risk associated with its derivatives, however it does not offset on its
balance sheets fair value amounts recorded for derivative instruments under
these agreements. At March 31, 2009, all of the Partnership’s derivatives were
with two counterparties, however outstanding asset positions under derivative
contracts have not resulted in a material concentration of credit
risk.
 
 In
accordance with the contracts governing the Partnership’s derivatives, the
counterparty or the Partnership may be required to post cash collateral when
credit risk exceeds certain thresholds. Contractual provisions with one
counterparty require that cash collateral be posted to the extent the fair value
amount payable to the other party exceeds $5.0 million. The threshold for
posting collateral with the other counterparty varies based on the credit
ratings of the contracting subsidiary of the Partnership or the counterparty.
Based on credit ratings at March 31, 2009, the Partnership would be required to
post cash collateral to the extent the fair value amount payable to the other
party exceeds $10.0 million and the counterparty would be required to post cash
collateral to the extent the fair value amount payable to the Partnership
exceeds $25.0 million. At March 31, 2009, the Partnership held as cash
collateral $10.1 million related to its outstanding derivatives, which was
recorded in Other current liabilities. At December 31, 2008, the Partnership
held $5.4 million in cash collateral related to its outstanding derivatives.
Additionally, the outstanding derivative contracts contain ratings triggers
which would require the Partnership’s contracting subsidiary to immediately post
collateral in the form of cash or a letter of credit for the full value of any
of the derivatives that are in a liability position if the subsidiary’s credit
rating were reduced below investment grade. At March 31, 2009, the Partnership
was not required to post any collateral associated with its
derivatives.
 
 11
 
 Note 4:  Income Taxes
 
 The Partnership is not a taxable entity
for federal income tax purposes.  As such, it 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 federal income tax returns of each
partner. The aggregate difference in the basis of the Partnership’s net assets
for financial and income tax purposes cannot be readily determined as the
Partnership does not have access to the information about each partner’s tax
attributes. The subsidiaries of the Partnership directly incur some income-based
state taxeswhich are
presented in Income taxes on the Condensed Consolidated Statements of
Income.
 
 
 Note
5:  Commitments and Contingencies
 
 Calpine
Energy Services (Calpine) Settlement
 
 In the
first quarter 2008, the Partnership received a cash payment of approximately
$15.3 million as settlement of a claim against Calpine and recorded a net gain
of $11.2 million related to the realization of the unrecognized portion of the
claim which was reported as Contract settlement gain on the Condensed
Consolidated Statements of Income.
 
 Legal
Proceedings
 
 Napoleonville
Salt Dome Matter
 
 Following
the December 2003 accidental release of natural gas from storage in a salt dome
cavern operated by Gulf South at the Dow Hydrocarbon and Resources, Inc. (Dow
Hydrocarbon), Grand Bayou facility in Belle Rose, Louisiana, several suits were
filed, including two that were initially filed as class actions. One of the
cases initially filed as a class action was settled in 2008.
 
 A lawsuit entitled Crystal Aucoin,
et al. v. Gulf South Pipeline Company, LP, et al., No. 28,157 was filed
on February 12, 2004, in the 23rd
Judicial District Court for the Parish of Assumption, State of Louisiana. The
suit was initially filed as a class action. The defendants at the trial were
Gulf South, Dow Chemical Company (Dow Chemical), Dow Hydrocarbon and one of Gulf
South’s insurers, Oil Insurance Limited (OIL). The plaintiffs voluntarily
dismissed their class action allegations on February 2, 2006. Since that time
the case has proceeded in the same court as a mass joinder of approximately
1,200 individual claims. The plaintiffs seek damages for alleged inconvenience
and emotional distress arising from being forced to drive on a detour around a
road closed due to the gas release. A trial was held in August 2008 on damages
for a sample group of 23 plaintiffs. In January 2009, the court awarded damages
to these plaintiffs of less than $0.1 million in the aggregate. Gulf South and
the other defendants are considering whether to appeal the ruling. Pursuant to
an agreement among defendants, Gulf South is responsible for one half of any
judgment, subject to final determination of Gulf South’s claim for
indemnification from Dow Chemical. The Partnership expects that any
judgment amounts paid would be covered by insurance.
 
 On September 29, 2005, OIL filed suit
against Dow Chemical and Dow Hydrocarbon, No. 29,217, in the 23rd
Judicial District Court for the Parish of Assumption, State of Louisiana, Oil Insurance
Limited v. Dow Chemical Company, et al. OIL seeks indemnification from
Dow Hydrocarbon for amounts of insurance paid to Gulf South. Dow Hydrocarbon has
filed a demand against OIL and a third-party claim against Gulf South. Dow
Hydrocarbon’s allegations against Gulf South include contractual violations and
liability due to negligence and strict liability. Dow Hydrocarbon seeks recovery
for property damage, damages arising from the loss of use of certain
wells/caverns and damages incurred responding to and remediating the natural gas
leak. The case is ongoing and no trial date has been set.
 
 12
  Litigation
is subject to many uncertainties, and it is possible these actions could be
decided unfavorably. The Partnership expects claims in each of these cases to be
covered by insurance that was in place at the time of the incident. For the
first quarter 2009, the Partnership received $0.9 million in insurance proceeds
related to previously incurred litigation and remediation costs, which were
recorded as reductions to Operating Costs and Expenses. There were no insurance
proceeds received in the first quarter 2008 related to this
litigation.
 
 Contract
Compliance Review
 
 In
October 2008, the Federal Energy Regulatory Commission (FERC) issued an order
with respect to an interstate natural gas pipeline not affiliated with the
Partnership that redefined what types of changes to a contract within FERC’s
jurisdiction will be viewed by FERC as a material deviation, thereby requiring
that the contract be filed with and approved by FERC. In the fall 2008, the
Partnership initiated a review of its transportation and storage contracts for
both Gulf South and Texas Gas in order to verify compliance with the order.
Based upon the preliminary findings of this review, the Partnership has reported
to FERC that certain of its transportation and storage contracts may not be in
compliance with the requirements of the order. The Partnership has met with FERC
staff to review its findings and discuss additional steps to be taken. Although
this matter is in a preliminary stage, the Partnership does not expect the
outcome to have a material impact on its financial condition, results of
operations or cash flows.
 
  Other
Legal Matters
 
 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 the Partnership's financial condition,
results of operations or cash flows.
 
 
 Expansion
Capital Projects
 
  In the first quarter 2009, the
Partnership placed in service the remaining compression assets associated with
its Southeast Expansion. The Partnership also placed in service its Gulf
Crossing Project and Fayetteville and Greenville Laterals. The Partnership is
constructing additional compression facilities for its Gulf Crossing Project and
Fayetteville and Greenville Laterals, which are expected to be placed in service
in 2010. The Partnership recently received FERC approval to construct the
compression for the Fayetteville and Greenville Laterals. The compression
related to the Gulf Crossing Project remains subject to FERC approval. Through
March 31, 2009, the Partnership spent $735.5 million on the Southeast Expansion,
$1.5 billion on the Gulf Crossing Project and $803.0 million on the Fayetteville
and Greenville Laterals.
  
 The
Partnership is also engaged in Phase III of the Western Kentucky Storage
Expansion project, which consists of developing new working gas capacity at its
Midland storage facility for which FERC has granted the Partnership market-based
rate authority. A portion of the storage capacity went into service in 2008 and
the Partnership has entered into contracts for the remaining capacity to be
developed, which is expected to be placed in service in November 2009. Through
March 31, 2009, the Partnership spent $51.1 million related to this
project.
 
 Environmental
and Safety Matters
 
 The
operating subsidiaries are subject to federal, state, and local environmental
laws and regulations in connection with the operation and remediation of various
operating sites. The Partnership accrues for environmental expenses resulting
from existing conditions that relate to past operations when the costs are
probable and can be reasonably estimated. In addition to federal and state
mandated remediation requirements, the Partnership often enters into voluntary
remediation programs with regulatory agencies. Depending on the results of
on-going assessments and review of any data collected, the Partnership’s
liabilities for environmental remediation are updated based on new facts and
circumstances. The actual costs incurred will depend on the actual amount and
extent of contamination discovered, the final cleanup standards mandated by the
Environmental Protection Agency (EPA) or other governmental authorities and
other factors.
 
 13
  As of March 31, 2009, and December 31, 2008, the Partnership had an accrued
liability of approximately $16.3 million and $16.8 million related to assessment
and remediation costs associated with the historical use of polychlorinated
biphenyls, petroleum hydrocarbons and mercury, enhancement of groundwater
protection measures and other costs. The expenditures are expected to occur over
approximately the next ten years. The accrual represents management’s estimate
of the undiscounted future obligations based on evaluations and discussions with
counsel and operating personnel and the current facts and circumstances related
to these matters. As of March 31, 2009, and December 31, 2008, approximately
$3.5 million was recorded in Other current liabilities and approximately $12.8
million and $13.3 million were recorded in Other Liabilities and Deferred
Credits. The Partnership considers environmental assessment, remediation costs
and costs associated with compliance with environmental standards to be
recoverable through base rates, as they are prudent costs incurred in the
ordinary course of business and, therefore, no regulatory asset has been
recorded to defer these costs. The actual costs incurred will depend on the
actual amount and extent of contamination discovered, the final cleanup
standards mandated by the EPA or other governmental authorities and other
factors.
 
 Commitments
 
 The Partnership’s future capital
commitments are comprised of binding commitments under purchase orders for
materials ordered but not received and firm commitments under binding
construction agreements. These commitments as of March 31, 2009, were
approximately (in millions):
 
 Less
      than 1 year
                      
                      $
                      161.61-3
      years
                      
                      
                      1.34-5
      years
                      
                      
                      -More
      than 5 years
                      
                      
                      -Total
                      
                      $
                      162.9
  There were no substantial changes to
the Partnership’s operating lease commitments or pipeline capacity agreements
disclosed in Note 3 to the Partnership’s Annual Report on Form
10-K.
 
 14
 
 Note
6:  Cash Distributions and Net Income per Unit
 
 Cash
Distributions
 
 The
Partnership’s cash distribution policy requires that the Partnership distribute
to its various ownership interests on a quarterly basis all of its available
cash, as defined in its partnership agreement. Incentive distribution rights
(IDRs), which represent a limited partner ownership interest and are currently
held by the Partnership’s general partner, represent the contractual right to
receive an increasing percentage of quarterly distributions of available cash as
follows:
 
 Total
      Quarterly Distribution
              
              Marginal Percentage
                Interest in
                DistributionsTarget
      Amount
              Limited
      Partner
                Unitholders
                (1)
              
              General
                Partner
                and
      IDRsFirst
      Target Distribution
              
              up to $0.4025
              
              98%
              2%Second
      Target Distribution
              
              above $0.4025 up to $0.4375
              
              85%
              15%Third
      Target Distribution
              
              above
      $0.4375 up to $0.5250
              
              75%
              25%Thereafter
              
              above
      $0.5250
              
              50%
              50%
  (1)
              The
      class B unitholders participate in distributions on a pari passu basis
      with the Partnership’s common units up to $0.30 per unit per quarter. The
      class B units do not participate in quarterly distributions above $0.30
      per unit.
  
 In the first quarter 2009, the
Partnership paid quarterly distributions to unitholders of record, including
common and class B units and the 2% general partner interest and IDRs held by
its general partner of $0.48 per common unit. In the first quarter 2008, the
Partnership paid quarterly distributions to unitholders of record, including
common and subordinated units and the 2% general partner interest and IDRs held
by its general partner, of $0.46 per common unit.
 
  Net
Income per Unit
  
 In the
first quarter 2009, the Partnership began applying the provisions of Emerging
Issues Task Force (EITF) Issue No. 07-4, Application of the Two-Class Method
under FASB Statement No. 128, Earnings per Share, to MasterLimited Partnerships(EITF
No. 07-4) which provides that net income for the current period be reduced by
the amount of available cash that will be distributed with respect to that
period for purposes of calculating net income per unit. Any residual amount
representing undistributed net income (or losses) is assumed to be allocated to
the various ownership interests in accordance with the contractual provisions of
the partnership agreement.
 
 Under the
Partnership’s partnership agreement, for any quarterly period, the IDRs
participate in net income only to the extent of the amount of cash distributions
actually declared, thereby excluding the IDRs from participating in
undistributed net income or losses. Accordingly, undistributed net income is
assumed to be allocated to the other ownership interests on a pro rata basis,
except that the class B units participation in net income is limited to $0.30
per unit per quarter. Payments made on account of the Partnership’s various
ownership interests are determined in relation to actual declared distributions,
and are not based on the assumed allocations required by EITF No.
07-4.
 
 The
following table provides a reconciliation of net income and the assumed
allocation of net income to the common and class B units for purposes of
computing net income per unit for the quarter ending March 31, 2009 (in
millions, except per unit data):
 
 Total
                
                
                Common
      Units
                
                
                Class
      B Units
                
                
                General
      Partner and IDRsNet
      income
                
                $
                52.0Declared
      distribution
                
                
                86.8
                
                
                $
                75.1
                
                
                $
                6.9
                
                
                $
                4.8Assumed
      allocation of undistributed net loss
                
                
                (34.8
                )
                
                
                (29.7
                )
                
                
                (4.4
                )
                
                
                (0.7
                )Assumed
      allocation of net income
                
                $
                52.0
                
                
                $
                45.4
                
                
                $
                2.5
                
                
                $
                4.1Weighted
      average units outstanding
                
                
                
                
                
                
                154.9
                
                
                
                22.9Net
      income per unit
                
                
                
                
                
                $
                0.29
                
                
                $
                0.11
 
  15
  
 As a
result of applying the provisions of EITF No. 07-04, net income per unit for the
first quarter 2008 has been retrospectively adjusted from $0.60 per common and
subordinated unit, as originally reported using the provisions of EITF Issue No.
03-06, Participating
Securities and the Two-Class Method under FASB Statement No. 128, to
$0.68 per common and subordinated unit. The following table provides a
reconciliation of net income and the assumed allocation of net income to the
common and subordinated units for purposes of computing net income per unit for
the quarter ending March 31, 2008 (in millions, except per unit
data):
 
 Total
                
                
                Common
      Units
                
                
                Subordinated
      Units
                
                
                General
      Partner and IDRsNet
      income
                
                $
                88.1Declared
      distribution
                
                
                60.5
                
                
                $
                42.2
                
                
                $
                15.4
                
                
                $
                2.9Assumed
      allocation of undistributed net income
                
                
                27.6
                
                
                
                19.8
                
                
                
                7.2
                
                
                
                0.6Assumed
      allocation of net income
                
                $
                88.1
                
                
                $
                62.0
                
                
                $
                22.6
                
                
                $
                3.5Weighted
      average units outstanding
                
                
                
                
                
                
                90.7
                
                
                
                33.1Net
      income per unit
                
                
                
                
                
                $
                0.68
                
                
                $
                0.68
 
 
 Note
7:  Financing
 
 Notes
and Debentures
 
 As of March 31, 2009, and December 31,
2008, the weighted-average interest rate of the Partnership’s notes and
debentures was 5.89%. The indentures governing the notes and debentures have
restrictive covenants which provide that, with certain exceptions, neither the
Partnership nor any of its subsidiaries may create, assume or suffer to exist
any lien upon any property to secure any indebtedness unless the debentures and
notes shall be equally and ratably secured. All debt obligations are unsecured.
At March 31, 2009, Boardwalk Pipelines and its operating subsidiaries were in
compliance with their debt covenants.
 
 Revolving
Credit Facility
 
 The
Partnership has a revolving credit facility which has aggregate lending
commitments of $1.0 billion. A financial institution which has a $50.0 million
commitment under the revolving credit facility filed for bankruptcy protection
in 2008 and has not funded its portion of the Partnership’s borrowing requests
since that time. Borrowings outstanding under the credit facility as of March
31, 2009, and December 31, 2008, were $953.5 million and $792.0 million with a
weighted-average borrowing rate of 0.79% and 3.43%. As of March 31, 2009, the
Partnership had fully borrowed against all commitments available under the
credit facility.
 
 The
credit facility contains various restrictive covenants and other usual and
customary terms and conditions, including limitations on the payment of cash
dividends by its subsidiaries and other restricted payments, the incurrence of
additional debt, the sale of assets, and sales-leaseback transactions. The
financial covenants under the credit facility require the Partnership and its
subsidiaries to maintain, among other things, a ratio of total consolidated debt
to consolidated EBITDA (as defined in the credit agreement) measured for the
previous twelve months, of not more than 5.0 to 1.0. The Partnership and its
subsidiaries were in compliance with all covenant requirements under the credit
facility as of March 31, 2009, and December 31, 2008.
 
 
 Note
8: Property, Plant and Equipment
 
 In first
quarter 2009, the Partnership placed in service its Gulf Crossing Project and
Fayetteville and Greenville Laterals and the remaining compression facilities
associated with its Southeast Expansion project. As a result, approximately $2.1
billion was transferred from work in progress to plant. The assets will
generally be depreciated over a term of 35 years.
 
 16
 
 Note
9:  Employee Benefits
 
 Defined
Benefit Plans
 
 Texas Gas employees hired prior to
November 1, 2006, are covered under a non-contributory, defined benefit pension
plan. The Texas Gas Supplemental Retirement Plan provides pension benefits for
the portion of an eligible employee’s pension benefit that becomes subject to
compensation limitations under the Internal Revenue Code. The Partnership uses a
measurement date of December 31 for its benefits plans.
 
 Components of net periodic benefit cost
for both the retirement plans and postretirement benefits other than pensions
(PBOP) for the three months ended March 31, 2009 and 2008 were the following (in
millions):
 
 Retirement
      Plans
                
                
                PBOPFor
      the Three Months Ended
                
                
                For
      the Three Months EndedMarch
      31,
                
                
                March
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008Service
      cost
                
                $
                0.9
                
                
                $
                0.9
                
                
                $
                0.1
                
                
                $
                0.2Interest
      cost
                
                
                1.7
                
                
                
                1.6
                
                
                
                0.8
                
                
                
                0.8Expected
      return on plan assets
                
                
                (1.4
                )
                
                
                (1.7
                )
                
                
                (1.0
                )
                
                
                (1.3
                )Amortization
      of prior service credit
                
                
                -
                
                
                
                -
                
                
                
                (1.9
                )
                
                
                (1.9
                )Amortization
      of unrecognized net loss
                
                
                0.5
                
                
                
                -
                
                
                
                0.3
                
                
                
                -Regulatory
      asset decrease
                
                
                -
                
                
                
                -
                
                
                
                1.4
                
                
                
                1.4Net
      periodic pension expense
                
                $
                1.7
                
                
                $
                0.8
                
                
                $
                (0.3
                )
                
                $
                (0.8
                )
 
 
 Defined
Contribution Plans
 
 Texas Gas
employees hired on or after November 1, 2006, and Gulf South employees are
provided retirement benefits under a defined contribution money purchase plan.
The operating subsidiaries also provide 401(k) plan benefits to their employees.
Costs related to the Partnership’s defined contribution plans were $1.7 million
and $1.5 million for the three months ended March 31, 2009 and
2008.
 
 
 Note
10:  Related Party Transactions
 
 Loews provides a variety of corporate
services to the Partnership and its subsidiaries under services agreements which
have been operative since the Partnership’s initial public offering. Services
provided by Loews include, among others, information technology, tax, risk
management, internal audit and corporate development services. Loews charged
$3.9 million and $4.0 million for the three months ended March 31, 2009 and 2008
to the Partnership for performing these services, plus related expenses, and
allocated overheads.
 
 Distributions paid related to limited
partner units held by BPHC, the 2% general partner interest and IDRs held by
Boardwalk GP were $63.0 million and $42.4 million during the first quarter 2009
and 2008.
 
 17
 
 Note
11:  Accumulated Other Comprehensive Income (Loss)
 
 The following table shows the
components of Accumulated other comprehensive loss, net of tax which is included
in Partners’ Capital on the Condensed Consolidated Balance Sheets (in
millions):
 
 As
      of
                    
                    
                    As
      ofMarch
      31, 2009
                    
                    
                    December
      31, 2008Gain
      (loss) on cash flow hedges, net of tax
                    
                    $
                    6.4
                    
                    
                    $
                    (0.7
                    )Deferred
      components of net periodic benefit cost, net of tax
                    
                    
                    (18.7
                    )
                    
                    
                    (14.8
                    )Total
      Accumulated other comprehensive loss
                    
                    $
                    (12.3
                    )
                    
                    $
                    (15.5
                    )
 
 
 Note
12:  Guarantee of Securities of Subsidiaries
 
 The
Partnership has no independent assets or operations other than its investment in
its subsidiaries. The Partnership’s Boardwalk Pipelines subsidiary has issued
securities which have been fully and unconditionally guaranteed by the
Partnership. All of the subsidiaries of the Partnership are minor other than
Boardwalk Pipelines and its consolidated subsidiaries. The Partnership does have
separate partners’ capital including publicly traded limited partner common
units.
 
 The Partnership’s subsidiaries have no
significant restrictions on their ability to pay distributions or make loans to
the Partnership except as noted in the debt covenants and had no restricted
assets at March 31, 2009. Note 7 contains additional information regarding
the Partnership’s debt and related covenants.
 
 
 Note
13:  Recently Issued Accounting Pronouncements
 
 In April
2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as annual financial statements. FSP No.
FAS 107-1 and APB 28-1 is effective for interim and annual periods beginning
after June 15, 2009. The Partnership does not expect this standard to impact its
financial condition or results of operations.
 
 In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Indentifying Transactions That Are Not Orderly, which
requires entities to assess whether certain factors exist that indicate that the
volume and level of market activity for an asset or liability have decreased or
that transactions are not orderly. If, after evaluating those factors, the
evidence indicates there has been a significant decrease in the volume and level
of activity in relation to normal market activity, observed transactional values
or quoted prices may not be determinative of fair value and adjustment to the
observed transactional values or quoted prices may be necessary to estimate fair
value. FSP No. FAS 157-4 is effective for interim and annual periods ending
after June 15, 2009. The Partnership is currently assessing the impact FSP No.
FAS 157-4 will have on its financial condition and results of
operations.
 
  18
  
 Item 2.   Management's Discussion and Analysis of
Financial Condition and Results of Operations
 
 The following discussion and analysis
of financial condition and results of operations should be read in conjunction
with 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 and 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,
2008.
 
 Overview
 
 Through
our subsidiaries, Gulf Crossing Pipeline Company, LLC (Gulf Crossing), Gulf
South Pipeline Company, LP (Gulf South) and Texas Gas Transmission, LLC (Texas
Gas) (collectively, the operating subsidiaries), we own and operate three
interstate natural gas pipeline systems including integrated storage facilities.
Our pipeline systems originate in the Gulf Coast region and extend northeasterly
to the Midwestern states of Tennessee, Kentucky, Illinois, Indiana and Ohio. As
of March 31, 2009, Boardwalk Pipelines Holding Corp. (BPHC) a wholly-owned
subsidiary of Loews Corporation (Loews) owns 107.5 million of our common units,
all 22.9 million of our class B units and, through Boardwalk GP, LP (Boardwalk
GP), an indirect wholly-owned subsidiary of BPHC, holds the 2% general partner
interest and all of the incentive distribution rights (IDRs). As of March 31,
2009, the common units, class B units and general partner interest owned by BPHC
represent approximately 74% of our equity interests, excluding the IDRs. Our
common units are traded under the symbol “BWP” on the New York Stock
Exchange.
 
 Our
transportation services consist of firm transportation, whereby the customer
pays a capacity reservation charge to reserve pipeline capacity at certain
receipt and delivery points along our pipeline systems, plus a commodity and
fuel charge on the volume of natural gas actually transported, and interruptible
transportation, whereby the customer pays to transport gas only when capacity is
available and used. We offer firm storage services in which the customer
reserves and pays for a specific amount of storage capacity, including injection
and withdrawal rights, and interruptible storage and parking and lending (PAL)
services where the customer receives and pays for capacity only when it is
available and used. Some PAL agreements are paid for at inception of the service
and revenues for these agreements are recognized as service is provided over the
term of the agreement. Our operating costs and expenses typically do not vary
significantly based upon the amount of gas transported, with the exception of
fuel consumed at our compressor stations, which is included in Fuel and gas
transportation expenses on our Condensed Consolidated Statements of
Income.
 
 We are not in the business of buying
and selling natural gas other than for system management purposes, but changes
in the price of natural gas can affect the overall supply and demand of natural
gas, which in turn can affect our results of operations. Our business is
affected by trends involving natural gas price levels and natural gas price
spreads, including spreads between physical locations on our pipeline system,
which affect our transportation revenues, and spreads in natural gas prices
across time (for example summer to winter), which primarily affect our storage
and PAL revenues.
 
 Expansion
Projects
 
 During
the first quarter 2009, we placed in service the remaining pipeline assets and
the initial compression assets associated with our major pipeline expansion
projects, all of which are now transporting natural gas.  Additional
compression facilities will be constructed in 2010 on the Gulf Crossing Pipeline
and the Fayetteville and Greenville Laterals to increase the peak-day delivery
capacities of those projects.
 
 We are seeking authority
from thePipelines and Hazardous Material Safety Administration (PHMSA)
to operate our new expansion pipelines under special permits that
would allow them to be operated at higher operating pressures, thereby
increasing the peak-day transmission capacity. During this permitting
process, we have
discovered anomalies in pipe segments on each of our expansion pipelines. We
have tested a significant portion of our expansion pipeline joints and have
identified anomalies (slight expansion of the pipe) in less than 1% of the
joints. Testing for anomalies is continuing on the remaining portions of the
expansion pipelines.In response to these discoveries, and in
consultation with PHMSA, we reduced operating pressures on all of our expansion
pipelines to levels below normal operating pressures and this reduction will
continue until we obtain permission from PHMSA to increase operating pressures.
This reduction has limited our ability to transport the maximum contracted
amounts on our expansion pipelines which lowers our transportation
revenues.
 
 19
  The
following provides information on the volumes currently being transported by
each of our expansion pipelines. The anticipated peak-day delivery capacity
stated below for each expansion pipeline assumes that pipe anomalies have been
remediated and that we have received authority from PHMSA to operate the
pipeline at higher operating pressures under a special permit:
 
 East Texas Pipeline – We are
currently flowing approximately 1.1 billion cubic feet (Bcf) per day of natural
gas, out of the anticipated peak-day delivery capacity of 1.4 Bcf per
day.
 
 Southeast Expansion – We are
currently flowing approximately 0.5 Bcf per day of natural gas, out of the
anticipated peak-day delivery capacity of 1.9 Bcf per day.
 
 Gulf Crossing Project – We
are currently flowing approximately 0.7 Bcf per day of natural gas, out of the
anticipated peak-day delivery capacity of 1.4 Bcf per day. We expect to increase
the peak-day delivery capacity to 1.7 Bcf per day by adding compression, which
is expected to be in service in 2010, subject to Federal Energy Regulatory
Commission (FERC) approval.
 
 Fayetteville and Greenville
Laterals – We are currently flowing approximately 0.7 Bcf per day of
natural gas on the Fayetteville Lateral and 0.4 Bcf per day on the Greenville
Lateral, in each case out of the anticipated peak-day delivery capacity of 0.8
Bcf per day. In early 2010, we expect to increase the peak-day delivery
capacities to 1.3 Bcf per day on the Fayetteville Lateral and 1.0 Bcf per day on
the Greenville Lateral with the addition of compression facilities. During the
second quarter 2009, we expect to replace a section of this line comprised of
18-inch pipe running under the Little Red River in Arkansas with 36-inch
pipe.
 
 As a
result of these reduced transportation volumes, our revenues from the expansion
pipelines were lower than expected in the first quarter 2009, as discussed
further under Results of
Operations. In addition, we expect to temporarily shut down each
expansion pipeline for periods of time during the remainder of 2009 to remove
and replace affected pipe joints as necessary. As a result, we expect throughput
on these expansion pipelines to be below the full capacity which our shippers
have contracted for, causing reduced transportation revenues in future periods.
Until we have remediated the pipe anomalies, performed additional testing
required by PHMSA and obtained PHMSA’s consent to increase operating pressures
to normal levels, as well as the higher levels under the special permits, we
will not be able to operate at our peak-day transmission capacity, which could
have a material adverse affect on our business, financial condition, results of
operations and cash flows, including our ability to make distributions to
unitholders. PHMSA
retains discretion as to whether to grant, or to maintain in force, authority to
operate a pipeline at higher operating pressures.Item 1A, Risk Factors –
A portion of the expected
maximum daily capacity of our pipeline expansion projects is contingent on our
receiving and maintaining authority from PHMSA to operate at higher operating
pressures in our Annual Report on Form 10-K for the year ended December
31, 2008, contains more information regarding risks associated with this
matter.
 
 In
addition to the projects previously described, we recently signed shipper
agreements for approximately 0.4 Bcf per day of capacity that will support a
further expansion of our Gulf South system to transport natural gas from the
Haynesville production area in Louisiana. This expansion, which we anticipate
will be in service in late 2010, will be accomplished by adding compression at
an expected cost of up to approximately $200.0 million, subject to FERC
approval.
 
 We are
also engaged in Phase III of our Western Kentucky Storage Expansion project. We
have placed in service approximately 5.4 Bcf of new working gas capacity. In the
first quarter 2009 we sold the remaining capacity available, and we expect to
place into service another 3.0 Bcf of working gas capacity in November 2009. We
expect this project to cost approximately $87.7 million, of which we have spent
approximately $51.1 million as of March 31, 2009.
 
 20
  Results
of Operations for the Three Months Ended March 31, 2009 and 2008
 
 Our net
income for the three months ended March 31, 2009, decreased $36.1 million, or
41%, to $52.0 million compared to $88.1 million for the three months ended March
31, 2008. Operating expenses for the first quarter 2009 were higher than the
comparable period in 2008, mainly as a result of increases in depreciation and
property taxes associated with our expansion projects. The increase in expenses
more than offset the increase in revenues from our expansion projects, which
were approximately $12.0 million lower than expected as a result of operating
our expansion pipelines at reduced pressures as previously discussed under Expansion Projects.
 
 Operating
revenues for the three months ended March 31, 2009, increased $26.1 million, or
13%, to $223.4 million, compared to $197.3 million for the three months ended
March 31, 2008. Gas transportation revenues, excluding fuel, increased $28.2
million, primarily from our expansion projects. Gas storage revenues increased
$2.9 million related to an increase in storage capacity associated with our
Western Kentucky Storage Expansion and PAL revenues increased $2.3 million due
to favorable winter-to-summer natural gas price spreads. These increases were
partially offset by lower fuel revenues of $7.3 million due to unfavorable
natural gas prices.
 
 Operating
costs and expenses for the three months ended March 31, 2009, increased $49.0
million, or 51%, to $144.8 million, compared to $95.8 million for the three
months ended March 31, 2008. The primary factors for the increases were higher
depreciation and other taxes, comprised primarily of property taxes, of $29.1
million associated with an increase in our asset base. Operations and
maintenance expense increased $5.9 million due to major maintenance projects and
expansion project operations. Administrative and general expense increased $3.7
million due to increases in outside services, unit-based compensation driven by
an increase in the price of our common units and employee benefits from
reductions in trust assets for our pension and post-retirement benefit plans.
The 2008 period was favorably impacted by an $11.2 million contract settlement
gain.
 
 Total
other deductions increased by $13.2 million, or 100%, to $26.3 million for the
three months ended March 31, 2009, compared to $13.1 million for the 2008
period. The primary factor for the increase was higher interest expense of $7.6
million resulting from increased debt levels in 2009 and lower capitalized
interest associated with our expansion projects. The 2008 period included $3.1
million of gains from the mark-to-market effect of derivatives associated with
the purchase of line pack for our expansion projects.
 
 Liquidity
and Capital Resources
 
 We are a
partnership holding company and derive all of our operating cash flow from our
operating subsidiaries. Our principal sources of liquidity include cash
generated from operating activities, our revolving credit facility to the extent
there is undrawn availability thereunder, debt issuances and sales of limited
partner units. Our operating subsidiaries use cash from 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 the operating subsidiaries and, as
needed, borrowings under our revolving credit facility to service its
outstanding indebtedness and, when available, make distributions or advances to
us to fund our distributions to unitholders. We have no material guarantees of
debt or other similar commitments to unaffiliated parties.
 
 Maintenance
Capital Expenditures
 
 Maintenance
capital expenditures for the three months ended March 31, 2009 and 2008 were
$9.2 million and $5.2 million. We expect to fund the remaining 2009 maintenance
capital expenditures of approximately $58.6 million from our operating cash
flows.
 
 21
  Expansion
Capital Expenditures
 
 We will
incur costs to remediate the pipeline anomalies previously described, including
costs associated with our East Texas Pipeline. Additionally, we are still
testing portions of the expansion pipelines for anomalies, thereby making the
full cost of remediating the pipelines unknown. However, we anticipate that
the cost to remediate the anomalies will not require us to increase our
previously announced estimated total cost to complete our expansion projects due
to lower costs experienced during the initial phase of the construction. The
following table presents the estimated total costs and the amounts invested
through March 31, 2009, for our remaining pipeline expansion projects (in
millions):
 
 
 Estimated
                          Total
      Cost
                          (1)
                        
                        
                        Cash
      Invested through
                          March
      31, 2009Southeast
      Expansion
                        
                        $
                        775
                        
                        
                        $
                        735.5Gulf
      Crossing Project
                        
                        
                        1,800
                        
                        
                        
                        1,518.6Fayetteville
      and Greenville Laterals
                        
                        
                        1,290
                        
                        
                        
                        803.0Total
                        
                        $
                        3,865
                        
                        
                        $
                        3,057.1
 
 (1)
              Our
      cost estimates are based on internally developed financial models and
      timelines. Factors in the estimates include, but are not limited to, those
      related to pipeline costs based on mileage, size and type of pipe,
      materials and construction and engineering
  costs.
 
 We expect
to incur capital expenditures of approximately $800.0 million for the remainder
of 2009 and in 2010 to complete our pipeline expansion projects.  The
majority of the expenditures are expected to occur in 2009, with the
balance to be incurred in early 2010. We also expect to spend up
to $200.0 million for our Haynesville project which expenditures are
expected to occur in 2010. Our cost and timing estimates for these projects are
subject to a variety of risks and uncertainties as discussed in Item 1A, Risk
Factors, of our Annual Report on Form 10-K for the year ended December 31,
2008.
 
 We have
financed our expansion capital costs through the issuance of equity and debt,
borrowings under our revolving credit facility and available operating cash flow
in excess of our operating needs. We anticipate we will need to finance
approximately $700.0 million to complete our pipeline expansion projects,
including the Haynesville project, which we expect to finance through the
issuance of both debt and equity. Our largest unitholder, Loews Corporation, has
advised us that it is willing to provide up to an additional $500.0 million of
capital to fund these projects to the extent the public markets remain
unavailable on acceptable terms. Any additional financing provided by Loews
would be subject to review and approval, as to fairness, by our independent
Conflicts Committee. Item 1A, Risk Factors, of our Annual Report on Form 10-K
for the year ended December 31, 2008, contains more information regarding risks
associated with our expansion projects and the related financing.
 
 Revolving
Credit Facility
 
 We
maintain a revolving credit facility which has aggregate lending commitments of
$1.0 billion, under which Boardwalk Pipelines, Gulf South and Texas Gas each may
borrow funds, up to applicable sub-limits. A financial institution which has a
$50.0 million commitment under the revolving credit facility filed for
bankruptcy protection in 2008 and has not funded its portion of our borrowing
requests since that time. Interest on amounts drawn under the credit facility is
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. The revolving credit
facility has a maturity date of June 29, 2012.
 
 As of
March 31, 2009, we have fully borrowed against all commitments available under
our revolving credit facility, resulting in loans outstanding of $953.5 million
with a weighted-average interest rate of 0.79%. We were in compliance with all
covenant requirements under our credit facility at March 31, 2009.
 
 Our
revolving credit facility contains customary negative covenants, including,
among others, limitations on the payment of cash dividends and other restricted
payments, the incurrence of additional debt, sale-leaseback transactions and
transactions with our affiliates. The facility also contains a financial
covenant that requires us and our subsidiaries to maintain a ratio of total
consolidated debt to consolidated earnings before income taxes, depreciation and
amortization (as defined in the credit agreement), measured for the preceding
twelve months, of not more than five to one. Although we do not believe that
these covenants have had, or will have, a material impact on our business and
financing activities or our ability to obtain the financing to maintain
operations and continue our capital investments, they could restrict us in some
circumstances as stated in Item 1A, Risk Factors, of our Annual
Report on Form 10-K for the year ended December 31, 2008. In particular,
maintaining compliance with the financial covenant may limit our ability to
incur additional indebtedness to finance our growth projects, which could limit
our growth opportunities or require the issuance of more equity securities by us
than anticipated.
 
 22
  Distributions
 
 For the three months ended March 31,
2009 and 2008, we paid distributions of $85.8 million and $59.6 million. Note 6
in Part 1, Item 1 of this report contains further discussion regarding our
distributions.
 
 Changes
in cash flow from operating activities
  Net cash
provided by operating activities decreased $45.9 million to $28.4 million for
the three months ended March 31, 2009, compared to $74.3 million for the
comparable 2008 period, primarily due to a $22.2 million increase in inventories
and trade receivables, and $11.0 million from the change in net income,
excluding non-cash items such as depreciation and amortization and the
recognition of income previously deferred.
 
 Changes
in cash flow from investing activities
  Net cash
used in investing activities decreased $415.9 million to $126.9 million for the
three months ended March 31, 2009, compared to $542.8 million for the comparable
2008 period, from a $240.6 million decrease in capital expenditures related to
our expansion projects, and the sale of $175.0 million of short-term
investments.
 
 Changes
in cash flow from financing activities
  Net cash
provided by financing activities decreased $112.2 million to $75.4 million for
the three months ended March 31, 2009, compared to $187.6 million for the
comparable 2008 period. These decreases resulted from an $85.7 million decrease
in proceeds from the issuance of debt and net borrowings under our revolving
credit facility and a $26.2 million increase in distributions to our
partners.
 
 Contractual
Obligations
  The table below is updated for
significant changes in contractual cash payment obligations as of March 31,
2009, by period (in millions):
 
 Total
                                    
                                    
                                    Less
      than 1 Year
                                    
                                    
                                    1-3
      Years
                                    
                                    
                                    4-5
      Years
                                    
                                    
                                    More
      than 5 YearsPrincipal
      payments on long-term debt (1)
                                    
                                    $
                                    3,063.5
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    1,428.5
                                    
                                    
                                    $
                                    1,635.0Interest
      on long-term debt (2)
                                    
                                    
                                    887.9
                                    
                                    
                                    
                                    83.5
                                    
                                    
                                    
                                    234.9
                                    
                                    
                                    
                                    214.4
                                    
                                    
                                    
                                    355.1Capital
      commitments (3)
                                    
                                    
                                    162.9
                                    
                                    
                                    
                                    161.6
                                    
                                    
                                    
                                    1.3
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Total
                                    
                                    $
                                    4,114.3
                                    
                                    
                                    $
                                    245.1
                                    
                                    
                                    $
                                    236.2
                                    
                                    
                                    $
                                    1,642.9
                                    
                                    
                                    $
                                    1,990.1
  (1)
              Includes
      our senior unsecured notes, having maturity dates from 2012 to 2027 and
      $953.5 million of loans outstanding under our revolving credit facility,
      having a maturity date of June 29,
2012.
 
 (2)
              Interest
      obligations represent interest due on our senior unsecured notes at fixed
      rates. Future interest obligations under our revolving credit facility are
      uncertain, due to the variable interest rate and fluctuating balances.
      Based on a 0.79% weighted-average interest rate on amounts outstanding
      under our revolving credit facility as of March 31, 2009, $5.6 million,
      $15.1 million and $3.7 million would be due under the credit facility in
      less than one year, 1-3 years, and 4-5
years.
 
 (3)
              Capital
      commitments represent binding commitments under purchase orders for
      materials ordered but not received and firm commitments under binding
      construction service agreements existing at March 31, 2009. The amounts
      shown do not reflect commitments we have made after March 31,
      2009.
 
 23
  Pursuant
to the settlement of the Texas Gas rate case in 2006, we are required to
annually fund an amount to the Texas Gas pension plan equal to the amount of
actuarially determined net periodic pension cost, including a minimum of $3.0
million. In 2009, we expect to fund approximately $5.0 million to the Texas
Gas pension plan.
 
 Off-Balance
Sheet Arrangements
  At March 31, 2009, we had no guarantees
of off-balance sheet debt to third parties, no debt obligations that contain
provisions requiring accelerated payment of the related obligations in the event
of specified levels of declines in credit ratings, and no other off-balance
sheet arrangements.
 
 Critical
Accounting Policies
 
 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 in our
financial statements. We evaluate these estimates on an ongoing basis, utilizing
historical experience, consultation with third parties 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
periods in which the facts that give rise to the revisions become
known.
 
 During
the first quarter 2009, there were no significant changes to our critical
accounting policies, judgments or estimates disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2008.
 
 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.”
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 made by our management concerning future financial performance
(including future revenues, earnings or growth rates), ongoing business
strategies or prospects, and possible actions by our partnership or its
subsidiaries, are also forward-looking statements.
 
 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:
 
 ·
              A
      portion of the transportation capacity on each of our expansion project
      pipelines that we expect will ultimately be available is contingent upon
      our receipt of authority to operate each of these pipelines at higher
      operating pressures under a special permit issued by PHMSA. To the extent
      that PHMSA does not grant us authority to operate any of our expansion
      pipelines under a special permit or withdraws previously granted authority
      to operate under a special permit, transportation capacity made available
      to the market and transportation revenues received in the future would be
      reduced.
 
 24
 ·
              The
      successful completion, timing, cost, scope and future financial
      performance of our expansion projects could differ materially from our
      expectations due to anomalies or defects in pipe segments, availability of
      contractors or equipment, ground conditions, weather, difficulties or
      delays in obtaining regulatory approvals or denied applications, land
      owner opposition, the lack of adequate materials, labor difficulties or
      shortages and numerous other factors beyond our
  control.
 
 ·
              We
      may not complete projects, including growth or expansion projects, that we
      have commenced or will commence, or we may complete projects on materially
      different terms, cost or timing than anticipated and we may not be able to
      achieve the intended economic or operational benefits of any such
      projects, if completed.
 
 ·
              Global
      financial markets and economic conditions have been, and continue to be,
      experiencing extraordinary disruption and volatility following adverse
      changes in global capital markets. The cost of raising money in the debt
      and equity capital markets and commercial credit markets has increased
      substantially while the availability of funds from those markets has
      diminished significantly.
 
 ·
              Our
      FERC gas tariffs only allow us to require limited credit support in the
      event that our transportation customers are unable to pay for our
      services. If any of our significant customers have credit or financial
      problems which result in a delay or failure to pay for services provided
      by us, or contracted for with us, or repay the gas they owe us, it could
      adversely affect our business, financial condition and results of
      operations.
 
 ·
              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 services we offer and the rates we charge and our
      ability to recover the full cost of operating our pipelines, including
      earning a reasonable return.
 
 ·
              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
      generally or through enforcement actions could adversely affect our
      business, financial condition and 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 connected to our system, our
      success depends on our 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, financial condition and results of
  operations.
 
 ·
              We
      may not be able to maintain or replace expiring gas transportation and
      storage contracts at favorable
rates.
 
 ·
              Significant
      changes in natural gas prices could affect supply and demand, reducing
      system throughput and adversely affecting our
  revenues.
 
 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.
  25
  Item 3.  Quantitative and Qualitative Disclosures About
Market Risk
 
 Interest
rate risk:
 
 With the
exception of our revolving credit facility, for which the interest rate is reset
each quarter, our debt has been issued at fixed rates. For fixed-rate debt,
changes in interest rates affect the fair value of the debt instruments but do
not directly affect earnings or cash flows. The following table presents market
risk associated with our fixed-rate long-term debt at March 31, 2009, and
December 31, 2008 (in millions, except interest rates):
 
 March
      31, 2009
                  
                  
                  December
      31, 2008Carrying
      value of debt
                  
                  $
                  2,097.8
                  
                  
                  $
                  2,097.4Fair
      value of debt
                  
                  $
                  1,781.2
                  
                  
                  $
                  1,863.3100
      basis point increase in interest rates and resulting debt
      decrease
                  
                  $
                  113.8
                  
                  
                  $
                  117.1100
      basis point decrease in interest rates and resulting debt
      increase
                  
                  $
                  122.4
                  
                  
                  $
                  126.1Weighted-average
      interest rate
                  
                  
                  5.89
                  %
                  
                  
                  5.89
                  %
 
 At March
31, 2009, we had $953.5 million outstanding under our revolving credit agreement
at a weighted- average interest rate of 0.79%, which rate is reset approximately
each quarter. A 1% increase or decrease in interest rates would increase or
reduce our cash payments for interest on the credit facility by $9.5 million on
an annual basis. At December 31, 2008, we had $792.0 million outstanding under
our revolving credit facility.
 
 At March
31, 2009, and December 31, 2008, $114.6 million and $137.7 million of our
undistributed cash, shown on the balance sheets as Cash and cash equivalents,
were invested primarily in Treasury fund accounts and at December 31, 2008,
$175.0 million was invested in U.S. Treasury notes under repurchase agreements
and shown as Short-term investments. Due to the short-term nature of the
Treasury fund accounts, a hypothetical 10% increase or decrease in interest
rates would not have a material effect on the fair market value of our Cash and
cash equivalents.
 
 Commodity
risk:
 
 Certain
volumes of our gas stored underground are available for sale and subject to
commodity price risk. At March 31, 2009, and December 31, 2008, approximately
$0.9 million and $0.2 million of gas stored underground, which we own and carry
as current Gas stored underground, was available for sale and exposed to
commodity price risk. Additionally, 3.3 Bcf of gas with a book value of $7.5
million has become available for sale as a result of Phase III of the Western
Kentucky Storage Expansion. We utilize derivatives to hedge certain exposures to
market price fluctuations on the anticipated operational sales of gas. Our
pipelines do not take title to the natural gas which they transport and store in
rendering traditional firm and interruptible storage services; therefore they do
not assume the related natural gas commodity price risk associated with that
gas.
 
 The
derivatives related to the sale of natural gas and cash for fuel reimbursement
generally qualify for cash flow hedge accounting under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, and are designated as
such. The effective component of related gains and losses resulting from changes
in fair values of the derivatives contracts designated as cash flow hedges are
deferred as a component of Accumulated other comprehensive (loss) income. The
deferred gains and losses are recognized in earnings when the anticipated
transactions affect earnings. Generally, for gas sales and retained fuel, any
gains or losses on the related derivatives would be recognized in Operating
Revenues.
 
 Credit
risk:
 
 We are
exposed to credit risk relating to the risk of loss resulting from the
nonperformance by a customer of its contractual obligations. We have established
credit policies in the pipeline tariffs which are intended to minimize credit
risk in accordance with FERC policies and actively monitor this portion of our
business. Our credit 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 PAL and no-notice services. Natural gas price
volatility has increased dramatically in recent years, which has materially
increased credit risk related to gas loaned to customers. 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.
 
 26
  As of
March 31, 2009, the amount of gas loaned out under PAL agreements and the amount
of gas owed to the operating subsidiaries due to gas imbalances was
approximately 50.4 trillion British thermal units (TBtu). Assuming an average
market price during March 2009 of $3.85 per million British thermal units
(MMBtu), the market value of that gas was approximately $194.0 million. As of
December 31, 2008, the amount of gas loaned out under PAL agreements and the
amount of gas owed to the operating subsidiaries due to gas imbalances was
approximately 34.4 TBtu. Assuming an average market price during December 2008
of $5.85 per MMBtu, the market value of this gas at December 31, 2008, would
have been approximately $201.2 million.
 
 
 
 
 
 
 
  27
  Item 4.  Controls and Procedures
 
 Disclosure
Controls and Procedures
 
 Our
principal executive officer (CEO) and principal financial officer (CFO)
undertook an evaluation of our disclosure controls and procedures as of the end
of the period covered by this report. The CEO and CFO have concluded that our
controls and procedures were effective as of March 31, 2009.
 
 Changes
in Internal Control over Financial Reporting
 
 There
were no changes in our internal control over financial reporting that occurred
during the first quarter 2009 that have materially affected or that are
reasonably likely to materially affect our internal control over financial
reporting.
 
 
  28
  PART
II – OTHER INFORMATION
 
 Item 1.  Legal Proceedings
 
 For a discussion of certain of our
current legal proceedings, please read Note 5 of the Notes to Condensed
Consolidated Financial Statements in Item 1 of this Report.
 
 
 Item 2.  Unregistered Sales of Equity Securities and Use of
Proceeds
 
 Issuer
purchases of equity securities
 Period
                
                Total
      number of units purchased
                
                
                Average
      price paid per unit
                
                
                Total
      number of units purchased as part of publicly announced plans or
      programs
                
                
                Maximum
      number of units that may yet be purchased under the plans or
      programsMarch
      1, 2009 to March 31, 2009 (1)
                
                
                1,500
                
                
                $
                20.58
                
                
                
                -
                
                
                
                -
 
 (1)
              Our
      general partner purchased these units and subsequently granted them to our
      independent directors as part of their annual director
      compensation.
  29
  Item 6.  Exhibits
 
 
 Exhibit
                Number
              
              Description
 
 *31.1
              
              Certification
      of Rolf A. Gafvert, Chief Executive Officer, pursuant to Rule 13a-14(a)
      and Rule 15d-14(a).*31.2
              
              Certification
      of Jamie L. Buskill, Chief Financial Officer, pursuant to Rule 13a-14(a)
      and Rule 15d-14(a).*32.1
              
              Certification
      of Rolf A. Gafvert, Chief Executive Officer, pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.*32.2
              
              Certification
      of Jamie L. Buskill, Chief Financial Officer, pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.*
      Filed herewith
  30
  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, LPBy:
      Boardwalk GP, LPits
      general partnerBy:
      Boardwalk GP, LLCits
      general partnerDated:
      April 29, 2009
                    
                    
                    By:
                    /s/  Jamie L.
    BuskillJamie
      L. BuskillSenior
      Vice President, Chief Financial Officer and
  Treasurer
 
 
 31