UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended June 30, 2004                 
|OR                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number 1-10934

ENBRIDGE ENERGY PARTNERS, L.P.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                           |  | 39-1715850(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------------------------------ |  | ----------------------------------------------
|1100 Louisiana
Suite 3300
Houston, TX 77002(Address of principal executive offices and zip code)
|(713) 821-2000(Registrant's telephone number, including area code)                              

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes ý    No o

The Registrant had 40,616,134 Class A common units outstanding as of July 30, 2004.



---





TABLE OF CONTENTS

|PART I. FINANCIAL INFORMATION
|-----------------------------
|Item 1.                      
|                             
|                             
|                             
|                             
|                             
|Item 2.                      
|Item 3.                      
|Item 4.                      
|PART II. OTHER INFORMATION   
|Item 1.                      
|Item 6.                      
|Signatures                   

Exhibits

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements are identified
as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "believe," "continue," "estimate," "expect," "forecast," "intend," "may," "plan,"
"position," "projection," "strategy," "could," "should," or "will" or the negative of those terms or other variations of them or comparable terminology. In particular, statements, expressed or
implied, concerning future actions, conditions or events or future operating results or the ability to generate revenues, income or cash flow are forward-looking statements. Forward-looking statements
are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed
in these forward-looking statements. Many of the factors that will determine these results are beyond the ability of Enbridge Energy Partners, L.P. (the "Partnership") to control or predict. For
additional discussion of risks, uncertainties and assumptions, see the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31,
2003.

2

---





PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENBRIDGE ENERGY PARTNERS, L.P.  CONSOLIDATED STATEMENTS OF INCOME

|                                           |                               | Three months ended June 30, |       | Six months ended June 30, |  
|------------------------------------------ | ----------------------------- | --------------------------- | ----- | ------------------------- | -
|
|
|Operating revenue                          |                               | $                           | 969.7 |                           | $
|                                           |                               |                             |       |                           |  
|Operating expenses                         |                               |                             |       |                           |  
|                                           | Cost of natural gas           |                             |       | 797.5                     |  
|                                           | Operating and administrative  |                             |       | 68.2                      |  
|                                           | Power                         |                             |       | 17.1                      |  
|                                           | Depreciation and amortization |                             |       | 28.9                      |  
|                                           |                               |                             |       |                           |  
|                                           |                               |                             | 911.7 |                           |  
|                                           |                               |                             |       |                           |  
|Operating income                           |                               |                             | 58.0  |                           |  
|                                           |                               |                             |       |                           |  
|Interest expense                           |                               |                             | (22.0 | )                         |  
|Other income (expense) (Note 9)            |                               |                             | (0.1  | )                         |  
|                                           |                               |                             |       |                           |  
|Net income                                 |                               | $                           | 35.9  |                           | $
|                                           |                               |                             |       |                           |  
|Net income allocable to common and i-units |                               |                             | 30.4  |                           |  
|                                           |                               |                             |       |                           |  
|Net income per common and i-unit (Note 3)  |                               | $                           | 0.56  |                           | $
|                                           |                               |                             |       |                           |  
|Weighted average units outstanding         |                               |                             | 54.9  |                           |  
|                                           |                               |                             |       |                           |  

The accompanying notes are an integral part of these consolidated financial statements.

3

---



ENBRIDGE ENERGY PARTNERS, L.P.  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

|                                                                                     |  | Three months ended June 30, |      | Six months ended June 30, |  
|------------------------------------------------------------------------------------ |  | --------------------------- | ---- | ------------------------- | -
|
|
|Net income                                                                           |  | $                           | 35.9 |                           | $
|Unrealized loss on derivative financial instruments                                  |  |                             | (7.2 | )                         |  
|Change associated with ineffectiveness of current period hedge transactions (Note 4) |  |                             | 1.3  |                           |  
|                                                                                     |  |                             |      |                           |  
|Comprehensive income (loss)                                                          |  | $                           | 30.0 |                           | $
|                                                                                     |  |                             |      |                           |  

The accompanying notes are an integral part of these consolidated financial statements.

4

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ENBRIDGE ENERGY PARTNERS, L.P.  CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                    |                                                                                   | Six months ended June 30,                    |                                       
|--------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------
|
|
|Cash provided by operating activities               |                                                                                   |                                              |                                       
|                                                    | Net income                                                                        |                                              | $                                     
|                                                    | Adjustments to reconcile net income to net cash provided by operating activities: |                                              |                                       
|                                                    |                                                                                   | Depreciation and amortization                |                                       
|                                                    |                                                                                   | Hedge transaction ineffectiveness (Note 4)   |                                       
|                                                    |                                                                                   | Environmental liabilities (Note 9)           |                                       
|                                                    |                                                                                   | Other                                        |                                       
|                                                    |                                                                                   | Changes in operating assets and liabilities: |                                       
|                                                    |                                                                                   |                                              | Receivables, trade and other          
|                                                    |                                                                                   |                                              | Due from General Partner and affiliate
|                                                    |                                                                                   |                                              | Accrued receivables                   
|                                                    |                                                                                   |                                              | Current and long-term other assets    
|                                                    |                                                                                   |                                              | Due to General Partner and affiliates 
|                                                    |                                                                                   |                                              | Accounts payable and other            
|                                                    |                                                                                   |                                              | Accrued purchases                     
|                                                    |                                                                                   |                                              | Interest payable                      
|                                                    |                                                                                   |                                              | Property and other taxes payable      
|                                                    |                                                                                   |                                              |                                       
|Net cash provided by operating activities           |                                                                                   |                                              | 154.1                                 
|                                                    |                                                                                   |                                              |                                       
|Cash used in investing activities                   |                                                                                   |                                              |                                       
|                                                    | Additions to property, plant and equipment                                        |                                              |                                       
|                                                    | Changes in construction payables                                                  |                                              |                                       
|                                                    | Asset acquisitions, net of cash acquired (Note 2)                                 |                                              |                                       
|                                                    | Other                                                                             |                                              |                                       
|                                                    |                                                                                   |                                              |                                       
|Net cash used in investing activities               |                                                                                   |                                              | (199.7                                
|                                                    |                                                                                   |                                              |                                       
|Cash provided by (used in) financing activities     |                                                                                   |                                              |                                       
|                                                    | Proceeds from unit issuance, net (Note 8)                                         |                                              |                                       
|                                                    | Distributions to partners (Note 7)                                                |                                              |                                       
|                                                    | Borrowings under debt agreements                                                  |                                              |                                       
|                                                    | Repayments of debt                                                                |                                              |                                       
|                                                    | Borrowings from General Partner and affiliates                                    |                                              |                                       
|                                                    | Other                                                                             |                                              |                                       
|                                                    |                                                                                   |                                              |                                       
|Net cash provided by (used in) financing activities |                                                                                   |                                              | 51.7                                  
|                                                    |                                                                                   |                                              |                                       
|Net increase in cash and cash equivalents           |                                                                                   |                                              | 6.1                                   
|Cash and cash equivalents at beginning of period    |                                                                                   |                                              | 64.4                                  
|                                                    |                                                                                   |                                              |                                       
|Cash and cash equivalents at end of period          |                                                                                   | $                                            | 70.5                                  
|                                                    |                                                                                   |                                              |                                       

The accompanying notes are an integral part of these consolidated financial statements.

5

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ENBRIDGE ENERGY PARTNERS, L.P.  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

|                                                                  |                                                                                                       | June 30, 2004 |         | December 31, 2003 |  
|----------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------- | ------- | ----------------- | -
|
|ASSETS                                                            |                                                                                                      
|Current assets                                                    |                                                                                                       |               |         |                   |  
|                                                                  | Cash and cash equivalents (Note 5)                                                                    |               | $       | 70.5              |  
|                                                                  | Receivables, trade and other, net of allowance for doubtful accounts of $3.6 in 2004 and $2.9 in 2003 |               |         | 42.0              |  
|                                                                  | Due from General Partner and affiliates                                                               |               |         | 0.3               |  
|                                                                  | Accrued receivables                                                                                   |               |         | 340.6             |  
|                                                                  | Other current assets                                                                                  |               |         | 52.2              |  
|                                                                  |                                                                                                       |               |         |                   |  
|                                                                  |                                                                                                       |               | 505.6   |                   |  
|Property, plant and equipment, net                                |                                                                                                       |               | 2,611.0 |                   |  
|Other assets, net                                                 |                                                                                                       |               | 18.6    |                   |  
|Goodwill                                                          |                                                                                                       |               | 257.3   |                   |  
|Intangibles, net                                                  |                                                                                                       |               | 75.6    |                   |  
|                                                                  |                                                                                                       |               |         |                   |  
|                                                                  |                                                                                                       | $             | 3,468.1 |                   | $
|                                                                  |                                                                                                       |               |         |                   |  
|LIABILITIES AND PARTNERS' CAPITAL                                 |                                                                                                      
|Current liabilities                                               |                                                                                                       |               |         |                   |  
|                                                                  | Due to General Partner and affiliates                                                                 |               | $       | 4.6               |  
|                                                                  | Accounts payable and other (Note 5)                                                                   |               |         | 87.9              |  
|                                                                  | Accrued purchases                                                                                     |               |         | 322.8             |  
|                                                                  | Interest payable                                                                                      |               |         | 11.3              |  
|                                                                  | Property and other taxes payable                                                                      |               |         | 18.9              |  
|                                                                  | Current maturities and short-term debt (Note 6)                                                       |               |         | 31.0              |  
|                                                                  |                                                                                                       |               |         |                   |  
|                                                                  |                                                                                                       |               | 476.5   |                   |  
|Long-term debt (Note 6)                                           |                                                                                                       |               | 1,495.7 |                   |  
|Loans from General Partner and affiliates                         |                                                                                                       |               | 137.5   |                   |  
|Commitments, contingencies and environmental liabilities (Note 9) |                                                                                                       |               | 5.6     |                   |  
|Deferred credits                                                  |                                                                                                       |               | 67.0    |                   |  
|                                                                  |                                                                                                       |               |         |                   |  
|                                                                  |                                                                                                       |               | 2,182.3 |                   |  
|                                                                  |                                                                                                       |               |         |                   |  
|Partners' capital                                                 |                                                                                                       |               |         |                   |  
|                                                                  | Class A common units (Units issued40,616,134 in 2004 and 40,166,134 in 2003)                         |               |         | 902.2             |  
|                                                                  | Class B common units (Units issued3,912,750 in 2004 and 2003)                                        |               |         | 62.4              |  
|                                                                  | i-units (Units issued10,457,421 in 2004 and 10,062,170 in 2003)                                      |               |         | 382.6             |  
|                                                                  | General Partner                                                                                       |               |         | 27.5              |  
|                                                                  | Accumulated other comprehensive loss                                                                  |               |         | (88.9             | )
|                                                                  |                                                                                                       |               |         |                   |  
|                                                                  |                                                                                                       |               | 1,285.8 |                   |  
|                                                                  |                                                                                                       |               |         |                   |  
|                                                                  |                                                                                                       | $             | 3,468.1 |                   | $
|                                                                  |                                                                                                       |               |         |                   |  

The accompanying notes are an integral part of these consolidated financial statements.

6

---





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim consolidated financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements.
In the opinion of management, they contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary to present fairly the financial position as of
June 30, 2004 and December 31, 2003; the results of operations for the three and six month periods ended June 30, 2004 and 2003; and cash flows for the six month periods ended
June 30, 2004 and 2003. The results of operations for the three and six months ended June 30, 2004 should not be taken as indicative of the results to be expected for the full year, due
to seasonality of portions of the natural gas business and maintenance activities. The interim consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes thereto of Enbridge Energy Partners, L.P. (the "Partnership"), presented in the Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003.

2. ACQUISITIONS

Mid-Continent System

On March 1, 2004, the Partnership acquired crude oil pipeline and storage assets, known as the Mid-Continent system, for $116.9 million, including
transaction costs of $2.0 million. The results of operations
are included in the Partnership's financial statements as of this date. The assets acquired serve refineries in the U.S. Mid-Continent from Cushing, Oklahoma and include:



These
systems were acquired to provide cash flows primarily from toll or fee-based revenues from a combination of regulated assets and contracted unregulated assets. The
assets and results of operations are included in the Partnership's Liquids segment from the date of acquisition.

The
purchase price and the allocation to assets acquired and liabilities assumed was as follows:

(dollars in millions
)Purchase Price:Cash paid, including transaction costs

$
116.9Allocation of purchase price:Property, plant and equipment, including construction in progress

$
117.5Current assets


0.1Current liabilities


(0.2
)Environmental liabilities


(0.5
)Total

$
116.9


7

---



Palo Duro System

On March 1, 2004, the Partnership purchased natural gas transmission and gathering pipeline assets for $13.1 million. The assets, referred to as the
"Palo Duro" system, are located in Texas between the Partnership's existing Anadarko system and the recently acquired North Texas system, and are expected to increase natural gas delivery flexibility
to the Partnership's customers. The assets purchased include approximately 400 miles of natural gas transmission and gathering pipelines, together with 5,200 horsepower of compression. The Palo Duro
system's results of operations are included in the Partnership's Natural Gas segment from the date of acquisition.

3. NET INCOME PER COMMON AND i-UNIT

Net income per common and i-unit is computed by dividing net income, after deduction of Enbridge Energy Company, Inc.'s. (the "General
Partner") allocation, by the weighted average number of Class A and Class B common units and i-units outstanding. The General Partner's allocation is equal to an amount based
upon its general partner interest, adjusted to reflect an amount equal to incentive distributions and an amount required to reflect depreciation on the General Partner's historical cost basis for
assets contributed upon formation of the Partnership. There are no dilutive securities. Net income per common and i-unit was determined as follows:

Three months ended
June 30,

Six months ended
June 30,2004

2003

2004

2003(dollars and units in millions, except per unit amounts)Net income

$
35.9

$
23.3

$
69.0

$
55.9Allocations to the General Partner:Net income


(0.7
)

(0.4
)

(1.4
)

(1.1
)Incentive distributions


(4.8
)

(4.3
)

(9.5
)

(8.4
)Historical cost depreciation adjustments








(0.1
)

(0.1
)Net income allocable to common units and i-units

$
30.4

$
18.6

$
58.0

$
46.3Weighted average units outstanding


54.9


46.8


54.8


45.7Net income per common and i-unit

$
0.56

$
0.39

$
1.06

$
1.01


4. HEDGE INSTRUMENT INEFFECTIVENESS

The changes in the market value of natural gas hedging instruments that are attributable to hedge ineffectiveness, measured on a quarterly basis, are included in
cost of natural gas expense in the period in which they occur. For the six months ended June 30, 2004 and 2003, the Partnership recorded $1.7 million and $0.5 million,
respectively, in cost of natural gas expense in the income statement to reflect the ineffective portion of certain hedge transactions. The hedge transaction ineffectiveness in the first six months of
2004 is reflected in the Marketing segment and the hedge transaction ineffectiveness for the first six months of 2003 is reflected in the Natural Gas segment.

8

---



5. CASH AND CASH EQUIVALENTS

The Partnership extinguishes liabilities when a creditor has relieved the Partnership of the obligation, which occurs when the Partnership's financial institution
honors a check that the creditor has presented for payment. As such, included in accounts payable and other are obligations for which the Partnership has issued check payments that have not yet been
presented to the financial institution of approximately $14.6 million at June 30, 2004 and $11.9 million at December 31, 2003.

6. DEBT

On April 26, 2004, the Partnership amended its unsecured multi-year revolving credit facility and terminated its existing 364-day
revolving credit facility, each of which was originally entered into in January 2003. The amended facility consists of a $600.0 million three-year term senior credit facility
(the "Senior Credit Facility"), which matures in 2007. Interest is charged on amounts drawn under this facility at a variable rate equal to the Base Rate or a Eurodollar rate as defined in the
facility agreement. In the case of Eurodollar rate loans, an additional margin is charged which varies depending on the Partnership's credit rating and the amounts
drawn under the facility. A facility fee is payable on the entire amount of the facility whether or not drawn. The facility fee varies depending on the Partnership's credit rating. As of
June 30, 2004, the facility fee was 0.175%. The Senior Credit Facility contains restrictive covenants that require the Partnership to maintain a minimum interest coverage ratio of 2.75 times
and a maximum leverage ratio of 5.25 times for eighteen months until September 2005, decreasing to 5.00 times thereafter, as described in the Senior Credit Facility. At June 30, 2004,
the interest coverage ratio was approximately 4.2 and the leverage ratio was approximately 4.1. The Senior Credit Facility also places limitations on the amount of debt that may be incurred directly
by the Partnership's subsidiaries. Accordingly, it is expected that the Partnership will provide debt financing to its subsidiaries as required and as of June 30, 2004 the Partnership's
subsidiaries had no amounts outstanding under this facility. As of June 30, 2004, the Partnership has drawn $380.0 million on the Senior Credit Facility at a weighted average interest
rate of 1.9%.

On
January 9, 2004, the Partnership issued $200.0 million in aggregate principal amount of its 4.0% Senior Notes due 2009. The Partnership used the proceeds of
approximately $198.3 million, net of expenses of approximately $1.6 million, to repay a portion of its outstanding debt under bank credit facilities.

For
the six months ended June 30, 2004 and 2003, the Partnership converted interest payable related to loans from the General Partner in the amount of $4.4 million and
$11.1 million, respectively, into long-term debt to the General Partner.

9

---



7. DISTRIBUTIONS TO PARTNERS

The following table sets forth the distributions, as approved by the Board of Directors for each period in the year ended December 31, 2004.

|Distribution
Declaration Date |  | Distribution
Payment Date |  | Ex-Distribution
Date |  | Distribution
per Unit |       | Cash
available for
distribution |   | Amount of
Distribution of
i-units
to i-unit
Holders |  | Retained from
General
Partner(1) |      | Distribution
of Cash
|----------------------------- |  | ------------------------- |  | -------------------- |  | --------------------- | ----- | ------------------------------- | - | --------------------------------------------------- |  | -------------------------------- | ---- | --------------------
|
|January 22, 2004              |  | February 13, 2004         |  | February 2, 2004     |  | $                     | 0.925 |                                 | $ | 56.3                                                |  | $                                | 9.3  |                     
|April 26, 2004                |  | May 14, 2004              |  | May 5, 2004          |  |                       | 0.925 |                                 |   | 56.5                                                |  |                                  | 9.5  |                     
|                              |  |                           |  |                      |  |                       |       |                                 |   |                                                     |  |                                  |      |                     
|                              |  |                           |  |                      |  |                       |       |                                 | $ | 112.8                                               |  | $                                | 18.8 |                     
|                              |  |                           |  |                      |  |                       |       |                                 |   |                                                     |  |                                  |      |                     

---

8. EQUITY UNIT ISSUANCE

On January 2, 2004, the Partnership issued an additional 450,000 Class A common units pursuant to the underwriters' exercise of the
over-allotment option as part of the December 2003 Class A common unit issuance, resulting in additional proceeds to the Partnership, net of underwriters' fees and discounts,
commissions and issuance expense, of approximately $21.6 million. In addition to the proceeds generated from the unit issuance, the General Partner contributed $0.4 million to the
Partnership to maintain its 2% general partner interest in the Partnership.

9. COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES

In March 2004, the Partnership reduced its long-term environmental liabilities by $2.0 million related to certain of its Natural Gas
segment assets that were originally recorded upon acquisition of these assets. During the time that these assets have been owned by the Partnership, since October 2002, management has completed
a review of the affected sites and determined that suspected contamination is less significant than originally estimated. This assessment was based upon information gathered during the ownership
period, existing technology, presently enacted laws and regulations and prior experience in remediating contaminated sites for similar assets.

As
of June 30, 2004, the Partnership has entered into contractual commitments of approximately $60 million. Of this amount, approximately $45 million relates to the
East Texas expansion, and the balance relates to a processing plant and additional compression facilities on the Anadarko system. Substantially, all of the amounts are expected to be settled by
December 31, 2004.

10. SEGMENT INFORMATION

During the second quarter of 2004, the Partnership changed its reporting segments. The Natural Gas Transportation segment was combined with the Gathering and
Processing segment to form one new segment called "Natural Gas". Liquids Transportation was renamed to "Liquids" and there were no changes to the Marketing segment. These changes were a result of
newly stated internal performance measures for the Partnership. The new segments are consistent with how management makes resource allocation decisions, evaluates performance, and furthers the
achievement of the Partnership's long-term objectives. Financial information for prior periods was reclassified to reflect the new segmentation.

10

---



The
following tables present certain financial information relating to the Partnership's business segments (dollars in millions):

As of and for the three months ended June 30, 2004Liquids

Natural Gas

Marketing

Corporate

TotalTotal revenue

$
102.7

$
630.4

$
664.5

$


$
1,397.6Less: Intersegment revenue





395.5


32.4





427.9Operating revenue


102.7


234.9


632.1





969.7Cost of natural gas





166.9


630.6





797.5Operating and administrative


33.4


33.3


0.8


0.7


68.2Power


17.1











17.1Depreciation and amortization


16.8


12.1








28.9Operating income


35.4


22.6


0.7


(0.7
)

58.0Interest expense











(22.0
)

(22.0
)Other income (expense)











(0.1
)

(0.1
)Net income

$
35.4

$
22.6

$
0.7

$
(22.8
)
$
35.9Capital expenditures (excluding acquisitions)

$
18.9

$
29.4

$


$
0.9

$
49.2


As of and for the three months ended June 30, 2003Liquids

Natural Gas

Marketing

Corporate

TotalTotal revenue

$
81.8

$
494.3

$
484.8

$


$
1,060.9Less: Intersegment revenue





288.0


17.6





305.6Operating revenue


81.8


206.3


467.2





755.3Cost of natural gas





158.5


464.9





623.4Operating and administrative


26.9


24.4


0.4


0.6


52.3Power


13.0











13.0Depreciation and amortization


14.5


8.9


0.1





23.5Operating income


27.4


14.5


1.8


(0.6
)

43.1Interest expense











(21.6
)

(21.6
)Other income (expense)











1.8


1.8Net income

$
27.4

$
14.5

$
1.8

$
(20.4
)
$
23.3Capital expenditures (excluding acquisitions)

$
15.1

$
11.2

$
0.1

$
0.9

$
27.3


11

---



As of and for the six months ended June 30, 2004Liquids

Natural Gas

Marketing

Corporate

TotalTotal revenue

$
194.4

$
1,294.9

$
1,261.4

$


$
2,750.7Less: Intersegment revenue





725.3


73.2





798.5Operating revenue


194.4


569.6


1,188.2





1,952.2Cost of natural gas





435.6


1,183.7





1,619.3Operating and administrative


61.2


65.7


1.6


2.0


130.5Power


34.3











34.3Depreciation and amortization


32.9


24.6








57.5Operating income


66.0


43.7


2.9


(2.0
)

110.6Interest expense











(43.6
)

(43.6
)Other income (expense)











2.0


2.0Net income

$
66.0

$
43.7

$
2.9

$
(43.6
)
$
69.0Total assets

$
1,638.9

$
1,522.9

$
277.8

$
28.5

$
3,468.1Goodwill

$


$
237.0

$
20.3

$


$
257.3Capital expenditures (excluding acquisitions)

$
26.8

$
42.7

$


$
1.3

$
70.8


As of and for the six months ended June 30, 2003Liquids

Natural Gas

Marketing

Corporate

TotalTotal revenue

$
167.2

$
1,044.6

$
1,052.5

$


$
2,264.3Less: Intersegment revenue





576.8


36.1





612.9Operating revenue


167.2


467.8


1,016.4





1,651.4Cost of natural gas





368.6


1,008.3





1,376.9Operating and administrative


53.3


49.1


0.8


1.7


104.9Power


25.7











25.7Depreciation and amortization


28.9


17.9


0.1





46.9Operating income


59.3


32.2


7.2


(1.7
)

97.0Interest expense











(42.9
)

(42.9
)Other income (expense)











1.8


1.8Net income

$
59.3

$
32.2

$
7.2

$
(42.8
)
$
55.9Total assets

$
1,498.5

$
1,164.3

$
225.0

$
54.6

$
2,942.4Goodwill

$


$
219.0

$
20.3

$


$
239.3Capital expenditures (excluding acquisitions)

$
20.0

$
23.7

$
0.1

$
1.8

$
45.6


11. SUBSEQUENT EVENT

Distributions Declaration

On July 22, 2004, the Partnership's Board of Directors declared a distribution payable on August 13, 2004. The distribution will be paid to
unitholders of record as of August 2, 2004. Of its

12

---



available
cash of $56.7 million at June 30, 2004, or $0.925 per common unit, $9.7 million will be distributed in i-units to its i-unit holders and
$0.2 million will be retained from the General Partner in respect of this i-unit distribution.

12. COMPARATIVE AMOUNTS

Certain reclassifications have been made to the prior period's reported amounts to conform to the classifications used in the 2004 consolidated financial
statements. These reclassifications were made to the Statement of Financial Position, the Statement of Cash Flows, the Segment Information footnote, and have no impact on net income.

13

---





ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This
discussion summarizes the significant factors affecting the Partnership's consolidated operating results, liquidity and capital resources during the six months ended June 30,
2004. This discussion should be read in conjunction with the financial statements and financial statement footnotes that are included in the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 2003.

By Business Segment:

Three months ended
June 30,

Six months ended
June 30,2004

2003

2004

2003(dollars in millions)Operating Income:Liquids

$
35.4

$
27.4

$
66.0

$
59.3Natural Gas


22.6


14.5


43.7


32.2Marketing


0.7


1.8


2.9


7.2Corporate


(0.7
)

(0.6
)

(2.0
)

(1.7
)Total Operating Income


58.0


43.1


110.6


97.0Interest expense


(22.0
)

(21.6
)

(43.6
)

(42.9
)Other income (expense)


(0.1
)

1.8


2.0


1.8Consolidated Net Income

$
35.9

$
23.3

$
69.0

$
55.9


OVERVIEW OF SECOND QUARTER 2004 RESULTS

During the second quarter of 2004, the Partnership achieved record quarterly net income as it realized progress on its strategic plan, which focuses on the
development and acquisition of complementary businesses and expansion of existing assets.

Operating
income was $58.0 million for the second quarter of 2004, an increase of 35% over the same quarter in 2003. Increases were recorded in the Partnership's Liquids and
Natural Gas segments. Acquisitions made since December 2003 contributed to the majority of the increase, along with improved deliveries on the Lakehead system and higher volumes on some of the
Partnership's natural gas systems.

Operating
income was $110.6 million for the first six months of 2004, an increase of 14% over the same period in 2003. Contributions from acquisitions accounted for the majority
of the increase, offset by lower earnings in the Marketing segment.

Earnings
per unit increased 44% to $0.56 per unit for the second quarter of 2004, compared with $0.39 for the same quarter of 2003. Earnings per unit was higher for the second quarter of
2004 due to the increase in net income, partially offset by an increase in the number of common units outstanding. Since the first quarter of 2003, the Partnership has issued 9,302,500 Class A
common units and 1,003,079 i-units, which increased the weighted average number of common units outstanding from 46.8 million during the second quarter of 2003 to
54.9 million in the second quarter of 2004.

BUSINESS SEGMENTS

During the second quarter of 2004, the Partnership changed its reporting segments. The Natural Gas Transportation segment was combined with the Gathering and
Processing segment to form one new segment called "Natural Gas". Liquids Transportation was renamed to "Liquids" and there were no changes to the Marketing segment. These changes were a result of
newly stated internal performance measures for the Partnership. The new segments are consistent with how management

14

---



makes
resource allocation decisions, evaluates performance, and furthers the achievement of the Partnership's long-term objectives. Financial information for prior periods was reclassified
to reflect the new segmentation.

ACQUISITIONS

Effective March 1, 2004, the Partnership acquired crude oil pipeline and storage systems for $116.9 million, including transaction costs of
$2.0 million. The assets, referred to as the Mid-Continent system, serve refineries in the U.S. Mid-Continent from Cushing, Oklahoma, and consist of over 480 miles of
crude oil pipelines and 9.5 million barrels of storage capacity. The Mid-Continent system's results of operations are included in the Liquids segment from the date of acquisition.

Effective
March 1, 2004, the Partnership acquired natural gas transmission and gathering pipeline assets for $13.1 million. The assets, referred to as the Palo Duro system,
are located in Texas and are
complementary to the Partnership's existing natural gas systems in the area. The Palo Duro system's results of operations are included in the Natural Gas segment from the date of acquisition.

RESULTS OF OPERATIONS BY SEGMENT

Liquids

Three months ended June 30, 2004 compared with three months ended June 30, 2003

Operating income for the Liquids segment increased by approximately $8.0 million to $35.4 million for the three months ended June 30, 2004,
compared with $27.4 million for the same period in 2003. The most significant reason for the increase was the full-quarter contribution from the Mid-Continent system
from the date of acquisition by the Partnership on March 1, 2004. The Mid-Continent system contributed $5.2 million to operating income during the second quarter. The
Mid-Continent system derives approximately two-thirds of its revenues from fee-based services on pipelines regulated by the Federal Energy Regulatory Commission
(the "FERC"). Consistent with the Partnership's other liquids pipelines, the Mid-Continent's pipeline tariffs are subject to inflation indexing effective July 1 of each year. The
balance of the revenue on the Mid-Continent system is from storage contracts, the majority of which are longer-term.

Operating
revenue for the second quarter of 2004 was $102.7 million, compared with $81.8 million for the second quarter of 2003. The increase of $20.9 million was
primarily due to the full-quarter contribution from the Mid-Continent system of $10.1 million, as well as increased volumes transported on the Lakehead system.

Deliveries
on the Lakehead system increased 13%, from 1,294 thousand barrels per day ("bpd") during the second quarter of 2003 to 1,458 thousand bpd during the same period
in 2004, which resulted in higher operating revenue of approximately $10 million. Production of western Canadian crude oil increased over 2003 primarily due to the start up of the Athabasca Oil
Sands Project ("AOSP") in June 2003. The AOSP is owned by Shell Canada Limited, Chevron Canada Limited and Western Oil Sands L.P., and consists of oil sands mining and bitumen extraction
operations. The positive impact to revenue of the increased deliveries was offset slightly by a decrease in overall tariffs, primarily due to the reduction of the Terrace incremental surcharge
effective April 1, 2004.

15

---



The
following table sets forth the operating statistics for the Liquids assets for the periods presented.

Three months ended
June 30,

Six months ended
June 30,2004

2003

2004

2003Lakehead(Average BBls/day)United States

1,103

945

1,059

948Province of Ontario

355

349

373

362Total deliveries (thousands)

1,458

1,294

1,432

1,310Barrel miles (billions)

92.5

81.0

182.4

165.7Average haul (miles)

697

688

700

699Mid-Continent (deliveries thousands)

200



210

North Dakota (deliveries thousands)

85

73

79

76


Power
costs increased by $4.1 million, from $13.0 million in the second quarter of 2003 to $17.1 million in the second quarter of 2004. The increase was primarily
related to the growth in volumes on the Lakehead system and higher mill-rates attributable to higher demand costs, as well as escalating fuel costs. Power costs associated with the
Mid-Continent system were $1.0 million in the second quarter of 2004.

Operating
and administrative expenses increased by $6.5 million, from $26.9 million in the second quarter of 2003 to $33.4 million for the second quarter of 2004.
The recently acquired Mid-Continent assets accounted for approximately $2.6 million of the increase. Related to the Lakehead and North Dakota systems, oil measurement losses were
higher in the second quarter of 2004 by approximately $2.9 million when compared with the second quarter of 2003, due to refinements in the process of valuing oil measurement losses and an
increase in physical losses. Physical losses are part of normal operating conditions and occur through evaporation, shrinkage, differences in measurements between receipt and delivery locations, and
other incidents. Operating and administrative expenses were also higher in the second quarter of 2004 by approximately $2.2 million when compared with the second quarter of 2003, due to
increased property taxes. The Partnership has experienced a trend of increasing property taxes partially due to new facilities placed into service, and also due to increases from the taxing
authorities in counties and states where pipeline assets are located. These increases in operating and administrative expenses were partially offset by lower leak remediation and repair costs of
approximately $2.4 million, as the second quarter of 2003 included expenses associated with Lakehead system leaks that occurred during the first six months of 2003.

Depreciation
expense was $16.8 million for the second quarter of 2004, compared with $14.5 million for the second quarter of 2003. Depreciation on the
Mid-Continent system accounted for $1.2 million and the balance relates to new facilities placed into service during 2003.

Six months ended June 30, 2004 compared with six months ended June 30, 2003

Operating income increased for the six months ended June 30, 2004 by $6.7 million to $66.0 million, compared with $59.3 million for
the six months ended June 30, 2003. Operating income was higher in 2004 primarily due to the four-month contribution from the Mid-Continent system of
$6.0 million.

16

---



Operating
revenue for the first six months of 2004 increased by $27.2 million to $194.4 million, compared with $167.2 million for the same period in 2003.
Approximately half of the increase was due to contributions from the Mid-Continent system and the remainder from the Lakehead system for the same reasons as noted above in the three-month
analysis.

Operating
and administrative expenses for the first six months of 2004 increased by $7.9 million to $61.2 million, compared with $53.3 million for the same period in
2003. Approximately half of the increase was due to contributions from the Mid-Continent system and the remainder from the Lakehead system for the same reasons as noted above in the
three-month analysis.

Depreciation
expense was $32.9 million for the six months ended June 30, 2004, compared with $28.9 million in 2003. Depreciation related to the
Mid-Continent system was $1.6 million and the balance was due to the same reasons as noted above in the three-month analysis.

Natural Gas

The following table indicates the average daily volume for each of the major systems in the Partnership's Natural Gas segment during the periods presented, in
million British thermal units per day ("MMBtu/d").

Three months ended
June 30,

Six months ended
June 30,2004

2003

2004

2003Natural Gas Systems:East Texas*

655,000

580,000

619,000

572,000Anadarko

315,000

249,000

296,000

242,000North Texas

188,000



190,000

South Texas

42,000

37,000

43,000

37,000UTOS

218,000

234,000

212,000

241,000Midla

97,000

123,000

107,000

122,000AlaTenn

54,000

50,000

67,000

66,000KPC

27,000

42,000

58,000

59,000Bamagas

35,000

16,000

22,000

14,000Other major intrastates

184,000

180,000

188,000

182,000Total

1,815,000

1,511,000

1,802,000

1,535,000


---

*Note:
East Texas now includes the combined systems previously referred to as East Texas and Northeast Texas.

Three months ended June 30, 2004 compared with three months ended June 30, 2003

Operating income for the Natural Gas segment increased by $8.1 million to $22.6 million for the three months ended June 30, 2004, compared
with $14.5 million for the same period in 2003.

Compared
with the second quarter of 2003, average daily volumes on the Partnership's major Natural Gas systems increased approximately 20% from 1,511,000 MMBtu/d to 1,815,000 MMBtu/d in
the second quarter of 2004. The most significant reason for the increase was the contribution of the North Texas results in the second quarter of 2004, from the date of acquisition by the Partnership
on December 31, 2003. The North Texas system contributed $6.2 million to operating income during this period. The North Texas system derives the majority of its revenues from the sharing
of sales proceeds net of costs, of natural gas and natural gas liquids under contracts with natural gas producers. The direct commodity price exposure inherent in such contracts has been largely
mitigated through a

17

---



hedging
strategy. The remainder of the revenue is derived from fees charged for gathering and treating of natural gas volumes and other related services.

The
East Texas system includes the combined results of the systems previously referred to as East Texas and Northeast Texas. The Partnership has completed projects that allow for
operation of these assets as one integrated system, now referred to as "East Texas". Comparative results have been reclassified to conform with this presentation.

Volumes
on the East Texas system increased by 13% in the second quarter of 2004 compared with the same period in 2003, as a result of increased drilling by producers of gas wells in the
areas served by this system. In addition, processing results improved on the East Texas system in the second quarter of 2004 due to more favorable natural gas liquids ("NGLs") pricing conditions
compared with the same period in 2003. Operating and administrative expenses increased in 2004 due to higher workforce related costs and timing of repairs and maintenance activities that mostly offset
the positive gains from the improved volumes and processing results. As a result, operating income on the East Texas system decreased slightly by approximately $0.3 million, from
$7.0 million during the second quarter of 2003, to $6.7 million in the second quarter of 2004.

Volumes
on the Anadarko system increased 27% in the second quarter of 2004 compared with the same period in 2003. The growth is a result of increased drilling activity in the Texas
panhandle and western Oklahoma regions. Similar to the East Texas system, processing results improved on the Anadarko system during the second quarter of 2004 due to a more favorable natural gas and
NGL pricing environment. These improvements were partially offset by higher operating and administrative expenses related to variable costs associated with the increased volumes on the system and
higher property taxes. As a result, operating income on the Anadarko system increased by approximately $3.6 million, from $3.3 million in the second quarter of 2003 to
$6.9 million in the second quarter of 2004.

Volumes
on the KPC system decreased 36% in the second quarter of 2004, compared with the second quarter of 2003. This decrease is attributable to warmer weather in 2004, creating less
demand by KPC customers. As the revenues of KPC depend largely upon fees derived from reserved pipeline capacity, this volume decline did not impact revenue. Operating income was lower by
$2.3 million during the second quarter of 2004 primarily due to lower fuel retainage, revaluations of operational balancing agreements and measurement losses.

The
remainder of the improved operating income in the Natural Gas segment was due to net positive results on a number of natural gas systems.

Six months ended June 30, 2004 compared with six months ended June 30, 2003

Operating income for the Natural Gas segment increased by $11.5 million to $43.7 million for the six months ended June 30, 2004, compared
with $32.2 million for the same period in 2003. The most significant reason for the increase was the contribution of the North Texas results in the first half of
2004. The North Texas system contributed $11.6 million to operating income during this period. On the Partnership's other major Natural Gas systems, positive impacts from increased drilling
activity and favorable processing earnings were offset by higher operating and administrative costs, as noted above in the three-month analysis.

Marketing

Three months ended June 30, 2004 compared with three months ended June 30, 2003

Operating income for the Marketing segment was $0.7 million for the second quarter of 2004, compared with $1.8 million for the second quarter of
2003. Operating income in 2004 included a charge of $1.3 million associated with hedges that do not qualify for hedge accounting treatment under

18

---



Statement
of Financial Accounting Standards ("SFAS") No. 133. The Partnership enters into financial natural gas basis swap transactions to mitigate the risk on index pricing differentials
between its physical gas purchases and corresponding gas sales. When the gas sales pricing index is different from the gas purchase pricing index, the Partnership is exposed to relative changes in
those two index levels. By entering into a basis swap between those two indices, the Partnership can effectively lock in the margin on the combined gas purchase and the gas sale, removing any market
price risk on the physical transactions. Although this is a sound economic hedging strategy, these types of financial transactions do not qualify for hedge accounting under the SFAS No. 133
guidelines. As such, the unqualified hedges are accounted for on a mark to market basis, and the periodic change in their market value will impact the income statement.

Six months ended June 30, 2004 compared with six months ended June 30, 2003

Operating income for the Marketing segment was $2.9 million for the six months ended June 30, 2004, compared with $7.2 million for the same
period in 2003. Stronger results in 2003 were due to the Partnership's ability to optimize natural gas supply to areas of strongest demand and profit within its operational area during the first four
months of 2003. Operating revenue less cost of natural gas was greater due to the unusual volatility in natural gas prices during this time period. This volatility was due to unusually cold weather,
lower volumes of natural gas in storage and, generally, a tighter supply of natural gas in North America. During the first six months of 2004, natural gas prices were less volatile due to more stable
market conditions. Also contributing to the stronger operating results in 2003 was a
non-recurring gain of approximately $2.0 million due to the settlement of disputed amounts. As well, the results for the first six months of 2004 include the mark to market losses
of $1.7 million as noted above.

LIQUIDITY AND CAPITAL RESOURCES

The Partnership believes that it will continue to have adequate liquidity to fund future recurring operating and investing activities. The Partnership's primary
cash requirements consist of normal operating expenses, maintenance and expansion capital expenditures, debt service payments, distributions to partners and acquisitions of new assets or businesses.
Short-term cash requirements, such as operating expenses, maintenance capital expenditures and quarterly distributions to partners, are expected to be funded by operating cash flows.
Long-term cash requirements for expansion projects and acquisitions are expected to be funded by several sources, including cash flows from operating activities, borrowings under credit
facilities and the issuance of additional equity and debt securities, including common units and i-units. The Partnership's ability to complete future debt and equity offerings and the
timing of any such offerings will depend on various factors, including prevailing market conditions, interest rates and the financial condition of the Partnership and its credit rating at the time.

On
April 26, 2004, the Partnership amended its unsecured multi-year revolving credit facility and terminated its existing 364-day revolving credit
facility, each of which was originally entered into in January 2003. The amended facility consists of a $600.0 million three-year term senior credit facility (the "Senior
Credit Facility"), which matures in 2007. Interest is charged on amounts drawn under this facility at a variable rate equal to the Base Rate or a Eurodollar rate as defined in the facility agreement.
In the case of Eurodollar rate loans, an additional margin is charged which varies depending on the Partnership's credit rating and the amounts drawn under the facility. A facility fee is payable on
the entire amount of the facility whether or not drawn. The facility fee varies depending on the Partnership's credit rating. As of June 30, 2004, the facility fee was 0.175%. The Senior Credit
Facility contains restrictive covenants that require the Partnership to maintain a minimum interest coverage ratio of 2.75 times and a maximum leverage ratio of 5.25 times for eighteen months until
September 2005, decreasing to 5.00 times thereafter, as described in the Senior Credit Facility. At

19

---



June 30,
2004, the interest coverage ratio was approximately 4.2 and the leverage ratio was approximately 4.1. The Senior Credit Facility also places limitations on the amount of debt that may
be incurred directly by the Partnership's subsidiaries. Accordingly, it is expected that the Partnership will provide debt financing to its subsidiaries as required. As of June 30, 2004,
$380.0 million was drawn on the Partnership's Senior Credit Facility at a weighted average interest rate of 1.9%.

On
January 9, 2004, the Partnership issued an additional $200.0 million in aggregate principal amount of its 4.0% Senior Unsecured Notes due 2009 in a public offering, from
which it received net proceeds of
$198.3 million. The Partnership used the proceeds to repay a portion of its outstanding debt under bank credit facilities.

On
January 2, 2004, the Partnership issued an additional 450,000 Class A common units pursuant to the underwriters' exercise of the over-allotment option as
part of the December 2003 Class A common unit issuance, resulting in additional proceeds to the Partnership, net of underwriters' fees and discounts, commissions and issuance expenses,
of approximately $21.6 million. In addition to the proceeds generated from the unit issuance, the General Partner contributed $0.4 million to the Partnership to maintain its 2% general
partner interest in the Partnership.

Working
capital, defined as current assets less current liabilities, improved by $208.9 million to $29.1 million at June 30, 2004, compared with a deficit of
$179.8 million at December 31, 2003. This improvement was primarily due to the reduction in current maturities and short-term debt related to the 364-day credit
facility. The Partnership used a portion of the net proceeds from its issuance of Senior Unsecured Notes in January 2004 to repay a portion of its outstanding debt under bank credit facilities,
and terminated the balance of the facilities at the end of April 2004, as noted above.

At
June 30, 2004, cash and cash equivalents totaled $70.5 million, compared with $64.4 million at December 31, 2003. Of this amount, $56.7 million
($0.925 per unit) will be used for the cash distribution declared on July 22, 2004. Of the cash available for distribution, $9.7 million will be retained from i-unitholders
and $0.2 million retained from the General Partner, to be used by the Partnership in its business.

Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2004 was $154.1 million, compared with $86.7 million for the same
period in 2003. Improved operating cash flow was the result of contributions from the North Texas and Mid-Continent assets, as well as improved results from the Partnership's existing
assets. The remaining changes in cash from operating activities were due to changes in the operating assets and liabilities from increased natural gas prices in the second quarter of 2004 and general
timing differences in the collection on and payment of the Partnership's current accounts.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2004 was $199.7 million, compared with $51.4 million for the same
period in 2003. The increase of $148.3 million was primarily
attributable to higher cash outflows made for strategic acquisitions, as well as increased cash outflow for expansion and growth opportunities.

Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2004 was $51.7 million, compared with net cash used in financing
activities of $21.4 million for the same period in 2003. The increase of $73.1 million in cash flow is primarily due to a reduction in the repayments of debt. The improvement in cash
flow is offset by an increase in cash used for distributions to partners,

20

---



and
a reduction in the proceeds from additional Class A common unit issuances in 2004, compared with 2003. Distributions to partners were higher in 2004 due to an increase in the number of
units outstanding, as a result of the unit issuances in May and December 2003, and January 2004, as well as a related increase in the general partner incentive distributions resulting
from higher distributions to unit holders.

CAPITAL EXPENDITURES

Capital expenditures are categorized by the Partnership as either core maintenance or enhancement expenditures. Core maintenance expenditures are those
expenditures that are necessary to maintain the service capability of the existing assets and includes the replacement of system components and equipment which are worn, obsolete or completing their
useful lives. Enhancement expenditures improve the service capability of the existing assets, extend asset useful lives, increase capacities from existing levels, reduce costs or enhance revenues and
enable the Partnership to respond to governmental regulations and developing industry standards. For the full year 2004, the Partnership anticipates capital expenditures to approximate
$368.0 million, as illustrated in the table that follows. Of the $368.0 million, approximately $200.0 million has been expended as of June 30, 2004.

(in millions
)Acquisitions

$
130.0System enhancements


70.0Core maintenance activities


33.0Lakehead System expansion projects


30.0East Texas expansion


105.0$
368.0


As
of June 30, 2004, the Partnership has entered into contractual commitments of approximately $60 million. Of this amount, approximately $45 million relates to the
East Texas expansion, and the balance relates to a processing plant and additional compression facilities on the Anadarko system. Substantially, all of the amounts are expected to be settled by
December 31, 2004.

Excluding
major expansion projects and acquisitions, ongoing capital expenditures are expected to average approximately $125 million annually (approximately 35% for core
maintenance and 65% for system enhancements).

The
Partnership anticipates funding the expenditures temporarily through its bank credit facilities, with permanent debt and equity funding being provided when appropriate.

The
Partnership expects to incur continuing annual capital and operating expenditures for pipeline integrity measures to ensure both regulatory compliance and to maintain the overall
integrity of the pipeline systems. Expenditure levels have continued to increase as pipelines age and require higher levels of inspection or maintenance; however, these are viewed to be consistent
with industry trends. Included in the anticipated capital expenditures spending for system enhancements in 2004 is approximately $25.0 million of capital expenditures to ensure regulatory
compliance on the Lakehead system. This spending is for pressure testing of the Lakehead system to establish operating pressures in excess of operating limits that would otherwise be allowed under
current circumstances.

FUTURE PROSPECTS

Natural Gas

During the first half of 2004, a variety of pipeline infrastructure assets have been tendered for sale with other significant asset packages anticipated to be for
sale. Competition among prospective

21

---



acquirers
of assets has been significant, and management of the Partnership has observed that prices paid for assets in these competitive settings has increased. Despite the increasingly competitive
environment, management of the Partnership continues to pursue its strategy of growth by acquisition and remains committed to making accretive acquisitions in or near areas where the Partnership
already operates. These situations present the best opportunities for consolidation savings and enhancement of the Partnership's market position.

Natural
gas development activity in and around the Partnership's Texas-based natural gas assets continues to be robust. To service increased amounts of natural gas flowing through the
Partnership's systems, management and the Board of Directors have approved several projects around the East Texas, Anadarko and North Texas systems. These projects include the installation of a
processing plant on the Anadarko System, and compression, pipeline and interconnect facilities on all systems. In the aggregate, these projects total approximately $40 million and will enter
into service later in 2004 or early 2005. Additional expansions approximating $40 million may be undertaken if appropriate customer support can be obtained.

The
Partnership has placed an order for pipe and has requested bids from contractors for construction of the previously announced $150 million East Texas expansion. Sufficient
contractual support for the expansion has been obtained from customers to proceed with construction and completion of the project is expected by May 2005. Approximately two thirds of the cost
of the expansion will be incurred in 2004, with the remainder in early 2005.

Liquids

The Partnership is initiating work on eight new storage tanks at its Cushing, Oklahoma terminal with an aggregate capacity of 3.7 million barrels. The
storage tanks will be contracted to customers, with the Partnership earning a fee on the contracted tankage. Four of the storage tanks are expected to be placed in-service during
mid-2005, with the remainder placed in-service in late 2005 or early 2006.

Two
market access initiatives previously announced by the Partnership and Enbridge Inc. ("Enbridge"), the Southern Access project and the Spearhead Pipeline, respectively,
continue to be pursued with customers. To date, customer support for the projects has not been sufficient to initiate the reversal of Enbridge's Spearhead line or commence construction on Southern
Access. Management of Enbridge and the Partnership continues to pursue both projects or alternatives to each project. Competitors of the Partnership have advocated competitive proposals to the
Southern Access project. Management believes that Southern Access, or a similar project, presents the most cost-effective alternative for its customers.

OFF BALANCE SHEET ARRANGEMENTS

The Partnership has no off-balance sheet arrangements.

SUBSEQUENT EVENT

Distribution Declaration

On July 22, 2004, the Partnership's Board of Directors declared a distribution payable on August 13, 2004. The distribution will be paid to
unitholders of record as of August 2, 2004, of its available cash of $56.7 million at June 30, 2004, or $0.925 per common unit. Of this distribution, $9.7 million will be
distributed in i-units to its i-unit holder and $0.2 million will be retained from the General Partner in respect of this i-unit distribution.

22

---



REGULATORY MATTERS

Effective July 1, 2004, in compliance with the indexed rate ceilings allowed by the FERC, the Partnership increased its rates for transportation on the
Lakehead, North Dakota and Ozark systems, crude oil pipelines by an average of approximately 3.17%. For the Lakehead system, indexing only applies to its base rates. The Partnership anticipates that
the increase in tariff rates will not have a material impact on the Partnership's financial condition and results of operations.

Included
with the July 1, 2004 tariff filing for the Lakehead system are tariff increases related to a Facilities Surcharge that was filed as an Offer of Settlement with the FERC
on May 20, 2004 in Docket No. OR -04-2-000. This offer of settlement was approved by the FERC on June 30, 2004 as being fair, reasonable and in the
public interest. The Facilities Surcharge has the support of the Canadian Association of Petroleum Producers ("CAPP"), an association that represents the producers of virtually all of the crude
petroleum transported on the Lakehead system. The Facilities Surcharge included in the filing represents cost recoveries for four projects that have been completed or are expected to be in operation
in the near future. The projects were undertaken by the Partnership at shipper requests for enhancements or modifications to permit greater flexibility in the types of crude oil handled or greater
access by shippers to particular markets or crude oil types. The Partnership anticipates that the increase in tariff rates will not have a material impact on the Partnership's financial condition and
results of operations. On the Lakehead system, the new rate for light crude movements from the International Border to Chicago is $0.69 per barrel, which reflects an approximate 2 cents per barrel
increase over rates filed effective April 1, 2004.

On
July 20, 2004, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision regarding the proper income tax allowance for SFPP, a pipeline owned by another
publicly traded partnership,BP West Coast Products LLC v. FERC(No. 99-1020) ("BP West Coast"). The FERC had included an income tax
allowance in the SFPP cost of service representing the percentage interest in the SFPP limited partnership held by SFPP, Inc., a subchapter C corporation. The Court of Appeals, eliminated the
tax allowance in the SFPP cost of service because the SFPP limited
partnership itself had no tax liability and remanded the case to the FERC for further review. Further appellate review of theBP West Coastdecision is
discretionary with the courts, and the Partnership cannot predict whether it will occur.

The
Partnership's rates have been established under a variety of different circumstances including settlements and tariff indexing. Since an income tax allowance is only one of many
elements supporting a pipeline's rates for service, the Partnership cannot predict with certainty what rates it will be allowed to charge in the future, or the potential impacts of the BP West Coastdecision.

Parties
can challenge the rates on the Partnership's common carrier interstate liquids pipelines on the basis that those rates are not just and reasonable. Such a challenge could seek a
prospective change in the pipelines' rates, as well as reparations (i.e., damages for overcharges for specific shippers) for up to two years prior to
the date of the complaint. An income tax allowance is one of many elements supporting a pipeline's rates for service (others include, but are not limited to, equity investment, rate of return,
operation and maintenance expenses, depreciation and volumes). If a rate review process were to be initiated, and theBP West Coastdecision were
followed, the Partnership's rates for its interstate liquids pipelines would no longer include an income tax allowance. Depending on the conclusions reached with respect to the other various rate
elements, apart from the income tax allowance, such a ruling could reduce the Partnership's rates, which would impact the Partnership's results of operations and cash flows.

The
Court's decision on income tax allowance inBP West Coastdoes not address the rate methodology for interstate natural gas pipelines
regulated by the FERC. If the rationale in theBP West Coastdecision were extended to FERC regulated natural gas pipelines, the future rates charged by
the

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Partnership's
interstate natural gas pipelines may not include an income tax allowance. Such a change would be prospective only and would not include reparations for prior periods.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The
Partnership's earnings and cash flows associated with its Liquids systems are not significantly impacted by changes in commodity prices, as the Partnership does not own the crude oil
and NGLs it transports. However, the Partnership has commodity risk related to degradation losses associated with the fluctuating differentials between the price of heavy crude oil relative to light
crude oil. Furthermore, commodity prices may have a significant impact on the underlying supply of, and demand for, crude oil and NGLs that the Partnership transports.

A
portion of the Partnership's earnings and cash flows are exposed to movements in the prices of natural gas and NGLs. The Partnership has entered into hedge transactions to mitigate
exposure to movements in these prices. Pursuant to policies approved by the Board of Directors of the General Partner, the Partnership may not enter into derivative instruments for speculative
purposes. All financial derivative transactions must be undertaken with creditworthy counter parties.

The
change in value of the Partnership's financial derivatives in the second quarter of 2004 was relatively small compared to the same period in 2003. Despite the fact that the hedge
portfolio is largely comprised of long term fixed price forward sale agreements, the forward prices for that commodity did not change significantly quarter over quarter, leaving those valuations
relatively stable. The NGL and crude oil hedges were the derivatives that decreased slightly in value given the rising price environment for those commodities.

There
have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 2003, in Item 7A of the
Partnership's 2003 Form 10-K report.

ITEM 4. CONTROLS AND PROCEDURES

The
Partnership and Enbridge Inc. maintain systems of disclosure controls and procedures designed to provide reasonable assurance that the Partnership is able to record, process,
summarize and report the information required in the Partnership's annual and quarterly reports under the Securities Exchange Act of 1934. Management of the Partnership has evaluated the effectiveness
of its disclosure controls and procedures as of June 30, 2004. Based upon that evaluation, the Partnership's principal executive officer and principal financial officer concluded that its
disclosure controls and procedures are effective to accomplish their purpose. In conducting this assessment, management of the Partnership relied on similar evaluations conducted by employees of
Enbridge Inc. affiliates who provide certain treasury, accounting and other services on behalf of the Partnership. No significant changes were made to the Partnership's internal controls or
other factors that could significantly affect these controls subsequent to the date of their evaluation, nor were any corrective actions with respect to significant deficiencies and material
weaknesses necessary subsequent to that date.

During
the second quarter of 2004, there have been no changes in the Partnership's internal control over financial reporting that have materially affected, or are reasonably likely to
materially affect, the Partnership's internal control over financial reporting.

PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The
Partnership is a participant in various legal proceedings arising in the ordinary course of business. Some of these proceedings are covered, in whole or in part, by insurance. The
Partnership

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believes
that the outcome of all these proceedings will not, individually or in the aggregate, have a material adverse effect on the financial condition of the Partnership.

For
information regarding other legal proceedings arising in 2003 or with regard to which material developments were reported during 2003, see "Part I. Item 3. Legal Proceedings,"
in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2003.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



3.1

Certificate of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.1 to the Partnership's Registration Statement No. 33-43425)3.2

Certificate of Amendment to Certificate of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.2 to the Partnership's 2000 Form 10-K/A dated October 9, 2001)3.3

Third Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.1 to the Partnership's Quarterly Report on Form 10-Q filed November 14, 2002)4.1

Form of Certificate representing Class A Common Units (incorporated by reference to Exhibit 4.1 to the Partnership's 2000 Form 10-K/A dated October 9, 2001)31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




The
Partnership filed the following current reports on Form 8-K during the second quarter of 2004:

A
current report on form 8-K was filed on April 28, 2004, attaching a press release dated April 26, 2004, reporting financial results for the quarter
ended March 31, 2004 and attaching condensed consolidated financial statements of Enbridge Energy Partners, L.P. as of and for the quarter ended March 31, 2004.

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SIGNATURE

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.

| |  | ENBRIDGE ENERGY PARTNERS, L.P.(Registrant)
| |  | ------------------------------------------
| |  | By:                                       
| |  |                                           

Date:
August 6, 2004

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