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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 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 001-33556
 
 SPECTRA ENERGY PARTNERS, LP
  
 Delaware
    
    41-2232463(State or other jurisdiction of incorporation)
    
    (IRS Employer Identification No.)
 
  
 
 o þ
  o o þ
 o þ




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##### Table of Contents



SPECTRA ENERGY PARTNERS, LP
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 2007
  PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    4Combined Statements of Operations for the three and six months ended June 30, 2007 and 2006
    
    
    4Combined Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    5Combined Statements of Cash Flows for the six months ended June 30, 2007 and 2006
    
    
    7Combined Statements of Parent Net Equity and Comprehensive Income for the six months ended June 30, 2007 and 2006
    
    
    8Notes to Combined Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 6. Exhibits
    
    
    23Signatures
    
    
    24Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  
    
    state and federal legislative and regulatory initiatives that affect cost and
investment recovery, have an effect on rate structure, and affect the speed at and
degree to which competition enters the natural gas industries;
    
    the outcomes of litigation and regulatory investigations, proceedings or
inquiries;
    
    the weather and other natural phenomena, including the economic, operational
and other effects of hurricanes and storms;
    
    the timing and extent of changes in interest rates;
    
    general economic conditions, including any potential effects arising from
terrorist attacks and any consequential hostilities or other hostilities;
    
    changes in environmental, safety and other laws and regulations;
    
    the results of financing efforts, including the ability to obtain financing on
favorable terms, which can be affected by various factors, including credit ratings and
general economic conditions;
    
    growth in opportunities, including the timing and success of efforts to develop
domestic pipeline, storage, and other infrastructure projects and the effects of
competition;
    
    the performance of natural gas transmission and storage facilities;
    
    the effect of accounting pronouncements issued periodically by accounting
standard-setting bodies;
    
    conditions of the capital markets and equity markets during the periods covered
by the forward-looking statements; and
    
    the ability to successfully complete merger, acquisition or divestiture plans;
regulatory or other limitations imposed as a result of a merger, acquisition or
divestiture; and the success of the business following a merger, acquisition or
divestiture.
  
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
  SPECTRA ENERGY PARTNERS PREDECESSOR
 
 COMBINED STATEMENTS OF OPERATIONS
 (Unaudited)
 (In thousands)
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating RevenuesTransportation of natural gas
    
    $
    23,614
    
    
    $
    18,390
    
    
    $
    48,564
    
    
    $
    39,382Storage of liquefied natural gas and other
    
    
    (3
    )
    
    
    2
    
    
    
    1,480
    
    
    
    1,231Total operating revenues
    
    
    23,611
    
    
    
    18,392
    
    
    
    50,044
    
    
    
    40,613Operating ExpensesOperating, maintenance and other
    
    
    (144
    )
    
    
    (4,530
    )
    
    
    6,761
    
    
    
    5,956Depreciation and amortization
    
    
    4,995
    
    
    
    4,745
    
    
    
    9,964
    
    
    
    9,499Property and other taxes
    
    
    1,081
    
    
    
    (484
    )
    
    
    954
    
    
    
    1,123Total operating expenses
    
    
    5,932
    
    
    
    (269
    )
    
    
    17,679
    
    
    
    16,578Operating Income
    
    
    17,679
    
    
    
    18,661
    
    
    
    32,365
    
    
    
    24,035Other Income and ExpensesEquity in earnings of unconsolidated affiliates
    
    
    11,650
    
    
    
    10,981
    
    
    
    23,035
    
    
    
    18,040Other income and expenses, net
    
    
    235
    
    
    
    331
    
    
    
    247
    
    
    
    666Total other income and expenses
    
    
    11,885
    
    
    
    11,312
    
    
    
    23,282
    
    
    
    18,706Interest Income
    
    
    11
    
    
    
    6
    
    
    
    20
    
    
    
    10Interest Expense
    
    
    2,128
    
    
    
    2,065
    
    
    
    4,284
    
    
    
    4,132Earnings Before Income Taxes
    
    
    27,447
    
    
    
    27,914
    
    
    
    51,383
    
    
    
    38,619Income Tax Expense
    
    
    5,858
    
    
    
    6,142
    
    
    
    10,591
    
    
    
    7,354Net Income
    
    $
    21,589
    
    
    $
    21,772
    
    
    $
    40,792
    
    
    $
    31,265
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SPECTRA ENERGY PARTNERS PREDECESSOR
 
 COMBINED BALANCE SHEETS
 (Unaudited)
 (In thousands)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent AssetsReceivables
    
    $
    14,510
    
    
    $
    16,790Taxes receivable
    
    
    1,052
    
    
    
    1,488Inventory
    
    
    1,270
    
    
    
    2,460Other
    
    
    2,301
    
    
    
    38Total current assets
    
    
    19,133
    
    
    
    20,776Investments and Other AssetsInvestments in unconsolidated affiliates
    
    
    462,477
    
    
    
    442,793Goodwill
    
    
    118,293
    
    
    
    118,293Total investments and other assets
    
    
    580,770
    
    
    
    561,086Property, Plant and EquipmentCost
    
    
    807,502
    
    
    
    800,053Less accumulated depreciation and amortization
    
    
    115,664
    
    
    
    108,233Net property, plant and equipment
    
    
    691,838
    
    
    
    691,820Regulatory Assets and Deferred Debits
    
    
    10,725
    
    
    
    10,900Total Assets
    
    $
    1,302,466
    
    
    $
    1,284,582
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SPECTRA ENERGY PARTNERS PREDECESSOR
COMBINED BALANCE SHEETS
(Unaudited)
(In thousands)
 June 30,
    
    
    December 31,2007
    
    
    2006LIABILITIES AND PARENT NET EQUITYCurrent LiabilitiesAccounts payable
    
    $
    1,860
    
    
    $
    2,237Taxes accrued
    
    
    10,682
    
    
    
    6,756Interest accrued
    
    
    357
    
    
    
    357Accrued liabilities
    
    
    4,021
    
    
    
    8,917Natural gas imbalance payables
    
    
    607
    
    
    
    4,470Other
    
    
    5,182
    
    
    
    2,810Total current liabilities
    
    
    22,709
    
    
    
    25,547Long-term Debt
    
    
    150,000
    
    
    
    150,000Deferred Credits and Other LiabilitiesDeferred income taxes
    
    
    118,674
    
    
    
    113,011Other
    
    
    1,935
    
    
    
    6,899Total deferred credits and other liabilities
    
    
    120,609
    
    
    
    119,910Commitments and ContingenciesParent Net EquityParent net investment
    
    
    1,005,515
    
    
    
    985,333Accumulated other comprehensive income
    
    
    3,633
    
    
    
    3,792Total parent net equity
    
    
    1,009,148
    
    
    
    989,125Total Liabilities and Parent Net Equity
    
    $
    1,302,466
    
    
    $
    1,284,582
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SPECTRA ENERGY PARTNERS PREDECESSOR
 
 COMBINED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Six MonthsEnded June 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    40,792
    
    
    $
    31,265Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    9,964
    
    
    
    9,499Equity in earnings of unconsolidated affiliates
    
    
    (23,035
    )
    
    
    (18,040
    )Distributions received from equity investments
    
    
    3,675
    
    
    
    5,635Deferred income taxes
    
    
    5,726
    
    
    
    10,343Other
    
    
    (2,918
    )
    
    
    (9,762
    )Net cash provided by operating activities
    
    
    34,204
    
    
    
    28,940CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (13,100
    )
    
    
    (31,418
    )Investment expenditures
    
    
    (838
    )
    
    
    Other
    
    
    (11
    )
    
    
    157Net cash used in investing activities
    
    
    (13,949
    )
    
    
    (31,261
    )CASH FLOWS FROM FINANCING ACTIVITIESMembers dividends
    
    
    (12,500
    )
    
    
    Transfers from (to) parent, net
    
    
    (7,755
    )
    
    
    2,321Net cash provided by (used in) financing activities
    
    
    (20,255
    )
    
    
    2,321Net change in cash and cash equivalents
    
    
    
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    
  7




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SPECTRA ENERGY PARTNERS PREDECESSOR
 
 COMBINED STATEMENTS OF PARENT NET EQUITY AND COMPREHENSIVE INCOME
 (Unaudited)
 (In thousands)
 AccumulatedOtherParent Net
    
    
    ComprehensiveInvestment
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2006
    
    $
    985,333
    
    
    $
    3,792
    
    
    $
    989,125Net income
    
    
    40,792
    
    
    
    
    
    
    
    40,792Reclassification into earnings from cash flow hedges
    
    
    
    
    
    
    (159
    )
    
    
    (159
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    40,633Members dividends
    
    
    (12,500
    )
    
    
    
    
    
    
    (12,500
    )Transfers to affiliate
    
    
    (355
    )
    
    
    
    
    
    
    (355
    )Transfers to parent, net
    
    
    (7,755
    )
    
    
    
    
    
    
    (7,755
    )Balance at June 30, 2007
    
    $
    1,005,515
    
    
    $
    3,633
    
    
    $
    1,009,148Balance at December 31, 2005
    
    $
    891,586
    
    
    $
    4,110
    
    
    $
    895,696Net income
    
    
    31,265
    
    
    
    
    
    
    
    31,265Reclassification into earnings from cash flow hedges
    
    
    
    
    
    
    (159
    )
    
    
    (159
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    31,106Transfers from affiliate
    
    
    8,506
    
    
    
    
    
    
    
    8,506Transfers from parent, net
    
    
    2,321
    
    
    
    
    
    
    
    2,321Balance at June 30, 2006
    
    $
    933,678
    
    
    $
    3,951
    
    
    $
    937,629
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SPECTRA ENERGY PARTNERS PREDECESSOR
 
 Notes to Combined Financial Statements
 (Unaudited)
 1. Description of Business and Basis of Presentation
      Use of Estimates
 Income Taxes
  9




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2. Transactions with Affiliates
   Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,Combined Statements of Operations
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Operating, maintenance and other
    
    $
    1,460
    
    
    $
    1,413
    
    
    $
    2,664
    
    
    $
    3,406
 June 30,
    
    
    December 31,Combined Balance Sheets
    
    2007
    
    
    2006(In thousands)Natural gas imbalance receivable
    
    $
    3,608
    
    
    $
    4,615Taxes receivable
    
    
    1,052
    
    
    
    1,488Prepaid insurance
    
    
    718
    
    
    
    Accounts payable
    
    
    418
    
    
    
    2,115Natural gas imbalance payable
    
    
    607
    
    
    
    3,367Taxes accrued
    
    
    8,119
    
    
    
    3,337
  3. Business Segments
     10




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Business Segment Data
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Operating RevenuesEast Tennessee
    
    $
    23,611
    
    
    $
    18,392
    
    
    $
    50,044
    
    
    $
    40,613Total reportable segment
    
    
    23,611
    
    
    
    18,392
    
    
    
    50,044
    
    
    
    40,613Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating revenues
    
    $
    23,611
    
    
    $
    18,392
    
    
    $
    50,044
    
    
    $
    40,613Segment EBITEast Tennessee
    
    $
    17,925
    
    
    $
    18,998
    
    
    $
    32,632
    
    
    $
    24,711Total reportable segment EBIT
    
    
    17,925
    
    
    
    18,998
    
    
    
    32,632
    
    
    
    24,711Other
    
    
    11,650
    
    
    
    10,981
    
    
    
    23,035
    
    
    
    18,040Total reportable segment and other EBIT
    
    
    29,575
    
    
    
    29,979
    
    
    
    55,667
    
    
    
    42,751Interest expense
    
    
    2,128
    
    
    
    2,065
    
    
    
    4,284
    
    
    
    4,132Earnings before income taxes
    
    $
    27,447
    
    
    $
    27,914
    
    
    $
    51,383
    
    
    $
    38,619
 June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Segment
AssetsEast Tennessee
    
    $
    839,989
    
    
    $
    841,789Total reportable segment
    
    
    839,989
    
    
    
    841,789Other
    
    
    462,477
    
    
    
    442,793Total assets
    
    $
    1,302,466
    
    
    $
    1,284,582
 
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4. Comprehensive Income
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income
    
    $
    21,589
    
    
    $
    21,772
    
    
    $
    40,792
    
    
    $
    31,265Reclassification into
earnings from cash flow
hedges (a)
    
    
    (80
    )
    
    
    (80
    )
    
    
    (159
    )
    
    
    (159
    )Total comprehensive income
    
    $
    21,509
    
    
    $
    21,692
    
    
    $
    40,633
    
    
    $
    31,106
 
 (a)
    
    Net of $29 thousand income tax expense for each of the three-month periods ended June 30, 2007 and 2006, and
$57 thousand for each of the six-month periods ended June 30, 2007 and 2006. 5. Investments in Unconsolidated Affiliates and Related Transactions
  Investments in Unconsolidated Affiliates
 June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Gulfstream
    
    $
    191,830
    
    
    $
    186,354Market Hub
    
    
    270,647
    
    
    
    256,439Total assets
    
    $
    462,477
    
    
    $
    442,793
 Equity in Earnings of Unconsolidated Affiliates
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Gulfstream
    
    $
    4,284
    
    
    $
    4,745
    
    
    $
    8,472
    
    
    $
    7,076Market Hub
    
    
    7,366
    
    
    
    6,236
    
    
    
    14,563
    
    
    
    10,964Total
    
    $
    11,650
    
    
    $
    10,981
    
    
    $
    23,035
    
    
    $
    18,040
 Summarized Financial Information of Unconsolidated Affiliates
(Presented
at the 100% Ownership Level)
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,Gulfstream
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Operating Revenues
    
    $
    46,197
    
    
    $
    48,179
    
    
    $
    84,167
    
    
    $
    87,378Operating Expenses
    
    
    17,347
    
    
    
    15,935
    
    
    
    26,592
    
    
    
    33,372Net Income
    
    $
    17,452
    
    
    $
    19,545
    
    
    $
    34,546
    
    
    $
    29,040
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Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,Market Hub
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Operating Revenues
    
    $
    23,516
    
    
    $
    19,730
    
    
    $
    44,333
    
    
    $
    36,361Operating Expenses
    
    
    7,895
    
    
    
    6,757
    
    
    
    13,336
    
    
    
    13,900Net Income
    
    
    14,610
    
    
    
    12,472
    
    
    
    29,125
    
    
    
    21,929
 6. Debt
 Long-term Debt.
 Restrictive Debt Covenants.
 New Credit Facility.
 7. Commitments and Contingencies
 Environmental.
 Litigation and Legal Proceedings.
 8. New Accounting Pronouncements
  Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty
in Income Taxesan Interpretation of FASB Statement No. 109
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FSP FIN 48-1 Definition of Settlement in FASB Interpretation No. 48.
  SFAS No. 157, Fair Value Measurements.
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
 9. Subsequent Events
 Closing
on IPO.
 New Credit Facility.
 Income taxes.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 INTRODUCTION
  Executive Overview
  RESULTS OF OPERATIONS
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,Increase
    
    
    
    
    
    
    
    
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    2007
    
    
    2006
    
    
    (Decrease)(In thousands)Operating revenues
    
    $
    23,611
    
    
    $
    18,392
    
    
    $
    5,219
    
    
    $
    50,044
    
    
    $
    40,613
    
    
    $
    9,431Operating expenses
    
    
    5,932
    
    
    
    (269
    )
    
    
    6,201
    
    
    
    17,679
    
    
    
    16,578
    
    
    
    1,101Operating income
    
    
    17,679
    
    
    
    18,661
    
    
    
    (982
    )
    
    
    32,365
    
    
    
    24,035
    
    
    
    8,330Equity in earnings of
unconsolidated affiliates
    
    
    11,650
    
    
    
    10,981
    
    
    
    669
    
    
    
    23,035
    
    
    
    18,040
    
    
    
    4,995Other income and expenses, net
    
    
    246
    
    
    
    337
    
    
    
    (91
    )
    
    
    267
    
    
    
    676
    
    
    
    (409
    )Interest expense
    
    
    2,128
    
    
    
    2,065
    
    
    
    63
    
    
    
    4,284
    
    
    
    4,132
    
    
    
    152Earnings before income taxes
    
    
    27,447
    
    
    
    27,914
    
    
    
    (467
    )
    
    
    51,383
    
    
    
    38,619
    
    
    
    12,764Income tax expense
    
    
    5,858
    
    
    
    6,142
    
    
    
    (284
    )
    
    
    10,591
    
    
    
    7,354
    
    
    
    3,237Net income
    
    $
    21,589
    
    
    $
    21,772
    
    
    $
    (183
    )
    
    $
    40,792
    
    
    $
    31,265
    
    
    $
    9,527Adjusted EBITDA (a)(b)
    
    $
    22,674
    
    
    $
    23,406
    
    
    $
    (732
    )
    
    $
    42,329
    
    
    $
    33,534
    
    
    $
    8,795Cash available for distribution (b)(c)
    
    $
    24,241
    
    
    $
    24,338
    
    
    $
    (97
    )
    
    $
    59,975
    
    
    $
    45,621
    
    
    $
    14,354
 
 (a)
    
    Adjusted EBITDA is defined as net income plus interest expense, income taxes, and
depreciation and amortization, less equity in earnings of Gulfstream and Market Hub, interest
income, and other income and expenses, net, which primarily includes non-cash allowance for
funds used during construction (AFUDC).(b)
    
    For a reconciliation of this measure to its most directly comparable financial measures
calculated and presented in accordance with GAAP, see Reconciliation of Non-GAAP Measures.(c)
    
    Cash available for distribution is defined as Adjusted EBITDA plus cash available for
distribution from Gulfstream and Market Hub, less net cash paid for interest expense and
maintenance capital expenditures. Cash available for distribution does not reflect changes in
working capital balances. 
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Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
 Operating Revenues
 Operating Expenses
 
    
    an $8.9 million increase due to the capitalization in the second
quarter of 2006 of project development costs for Jewell Ridge that
were previously expensed,
    
    a $1.2 million increase in expenses from East Tennessees Jewell Ridge and
Piedmont expansion projects that were placed into service during the fourth quarter of 2006,
and
    
    a $1.6 million increase in miscellaneous taxes primarily as a result of the
favorable resolution in the 2006 second quarter of ad valorem tax matters, partially offset
by
    
    a $6.8 million net decrease from higher net pipeline fuel recoveries by East
Tennessee in the 2007 period compared to the 2006 period.
 Equity in Earnings of Unconsolidated Affiliates
 Three MonthsEnded June 30,Gulfstream
    

2007
    
    

2006(In thousands)Operating Revenues
    
    $
    46,197
    
    
    $
    48,179Operating Expenses
    
    
    17,347
    
    
    
    15,935Gain on Sales of Other Assets, net
    
    
    
    
    
    
    78Other Income and Expenses
    
    
    673
    
    
    
    (583
    )Interest Expense
    
    
    12,071
    
    
    
    12,194Net Income
    
    $
    17,452
    
    
    $
    19,545The Companys 24.5% share
    
    $
    4,284
    
    
    $
    4,745
 Gulfstream  Owned 24.5%
  
    
    a $1.9 million decrease in revenues driven primarily by a decrease in
short-term interruptible transportation revenues associated with milder temperatures in the
second quarter 2007, and
    
    a $1.4 million increase in expenses primarily related to $0.6 million of
project development costs related to the its Phase IV expansion project and a $0.5
million increase in legal and insurance costs, partially offset by
    
    a $1.2 million increase in other income and expenses, net primarily due to
a 2006 charge related to a sales and use tax matter.
 Three MonthsEnded June 30,Market Hub
    

2007
    
    

2006(In thousands)Operating Revenues
    
    $
    23,516
    
    
    $
    19,730Operating Expenses
    
    
    7,773
    
    
    
    6,757Other Income and Expenses
    
    
    (29
    )
    
    
    Interest Expense
    
    
    982
    
    
    
    501Net Income
    
    $
    14,732
    
    
    $
    12,472The Companys 50% share
    
    $
    7,305
    
    
    $
    6,236
 16




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##### Table of Contents



Market Hub  Owned 50%
  
    
    a $3.8 million increase in revenues driven primarily by a $3.0 million
increase in short-term interruptible storage revenues due to higher demand and a $0.8
million increase in firm storage revenues associated with the additional Egan storage
capacity that was placed in service during the third quarter of 2006, partially offset
by
    
    a $1.0 million increase in expenses driven primarily by an increase in
property tax expense as a result of the favorable resolution in the 2006 second quarter
of ad valorem tax matters, and
    
    a $0.5 million increase in interest expense related to
interest on customer collateral held.
 Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
 Operating Revenues
 Operating Expenses
 
    
    a $5.7 million increase due to the capitalization in the second quarter of 2006
of project development costs for Jewell Ridge that were previously
expensed, and
    
    a $2.4 million increase in operating expenses from East Tennessees Jewell Ridge
and Piedmont expansion projects that were placed into service during the fourth quarter of
2006, partially offset by
    
    a $6.8 million net decrease from higher net pipeline fuel recoveries by East
Tennessee in the 2007 period compared to the 2006 period.
 Equity in Earnings of Unconsolidated Affiliates
 Six MonthsEnded June 30,Gulfstream
    

2007
    
    

2006(In thousands)Operating Revenues
    
    $
    84,167
    
    
    $
    87,378Operating Expenses
    
    
    26,592
    
    
    
    33,372Gain on Sales of Other Assets, net
    
    
    
    
    
    
    78Other Income and Expenses
    
    
    1,166
    
    
    
    (639
    )Interest Expense
    
    
    24,195
    
    
    
    24,405Net Income
    
    $
    34,546
    
    
    $
    29,040The Companys 24.5% share
    
    $
    8,472
    
    
    $
    7,076
 Gulfstream  Owned 24.5%
  
    
    a $6.8 million decrease in expenses primarily related to
an $8.1 million
favorable resolution of ad valorem tax matters in 2007, partially
offset by a $1.0 million increase in legal and insurance costs, and
    
    a $1.8 million increase in other income and expenses, net primarily due to
first quarter 2006 charge related to a sales and use tax matter, partially offset by
    
    a $3.2 million decrease in revenues driven primarily by a decrease in
short-term interruptible transportation associated with milder temperatures in 2007.
 17




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##### Table of Contents



Six MonthsEnded June 30,Market Hub
    

2007
    
    

2006(In thousands)Operating Revenues
    
    $
    44,333
    
    
    $
    36,361Operating Expenses
    
    
    13,336
    
    
    
    13,900Other Income and Expenses
    
    
    129
    
    
    
    Interest Expense
    
    
    2,001
    
    
    
    532Net Income
    
    $
    29,125
    
    
    $
    21,929The Companys 50% share
    
    $
    14,563
    
    
    $
    10,964
 Market Hub  Owned 50%
  
    
    an $8.0 million increase in revenues primarily due to
$3.7 million increase in the
demand for short-term interruptible storage services and a $4.3 million increase related
to new firm storage revenues associated with the additional Egan storage capacity that
was placed in service during the third quarter 2006, and
    
    a $0.6 million decrease in operating expenses, primarily driven by a $0.7
million reduction in property and other taxes due to the favorable resolution of ad
valorem tax matters in 2007, partially offset by
    
    a $1.4 million increase in interest expense related to interest on customer
collateral held.
 Income Tax Expense
 Adjusted EBITDA
   
    
    the financial performance of assets without regard to
financing methods, capital structure or historical cost basis;
    
    the ability of assets to generate cash sufficient to pay
interest on indebtedness and to make distributions to
partners; and
    
    operating performance and return on invested capital as
compared to those of other publicly traded limited
partnerships that own energy infrastructure assets, without
regard to financing methods and capital structure.
 Cash Available for Distribution
   18




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##### Table of Contents



Reconciliation of Non-GAAP Measures
 Reconciliation of Non-GAAP Adjusted EBITDA and Cash Available for Distribution to GAAP Net
Income
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands )Net
income
    
    $
    21,589
    
    
    $
    21,772
    
    
    $
    40,792
    
    
    $
    31,265Add:Interest expense
    
    
    2,128
    
    
    
    2,065
    
    
    
    4,284
    
    
    
    4,132Income tax expense
    
    
    5,858
    
    
    
    6,142
    
    
    
    10,591
    
    
    
    7,354Depreciation and amortization
    
    
    4,995
    
    
    
    4,745
    
    
    
    9,964
    
    
    
    9,499Less:Interest income
    
    
    11
    
    
    
    6
    
    
    
    20
    
    
    
    10Equity in earnings of Gulfstream
    
    
    4,284
    
    
    
    4,745
    
    
    
    8,472
    
    
    
    7,076Equity in earnings of Market Hub
    
    
    7,366
    
    
    
    6,236
    
    
    
    14,563
    
    
    
    10,964Other income
and expenses, net
    
    
    235
    
    
    
    331
    
    
    
    247
    
    
    
    666Adjusted EBITDA
    
    
    22,674
    
    
    
    23,406
    
    
    
    42,329
    
    
    
    33,534Add:Cash available for distribution
from Gulfstream
    
    
    2,996
    
    
    
    3,326
    
    
    
    11,848
    
    
    
    10,496Cash available for distribution
from Market Hub
    
    
    8,154
    
    
    
    6,659
    
    
    
    16,285
    
    
    
    12,004Less:Net cash paid for interest
expense (income), net
    
    
    4,290
    
    
    
    4,286
    
    
    
    4,299
    
    
    
    4,292Maintenance capital expenditures
    
    
    5,293
    
    
    
    4,767
    
    
    
    6,188
    
    
    
    6,121Cash available for distribution
    
    $
    24,241
    
    
    $
    24,338
    
    
    $
    59,975
    
    
    $
    45,621
 19




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##### Table of Contents



Reconciliation of Non-GAAP Adjusted EBITDA and Cash Available for Distribution to GAAP Net
Cash Provided by Operating Activities
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net cash provided by operating
activities
    
    $
    11,720
    
    
    $
    11,841
    
    
    $
    34,204
    
    
    $
    28,940Interest income
    
    
    (11
    )
    
    
    (6
    )
    
    
    (20
    )
    
    
    (10
    )Interest expense
    
    
    2,128
    
    
    
    2,065
    
    
    
    4,284
    
    
    
    4,132Income taxes
    
    
    1,418
    
    
    
    833
    
    
    
    4,865
    
    
    
    (2,989
    )Distributions received from
Gulfstream
    
    
    
    
    
    
    
    
    
    
    (3,675
    )
    
    
    (5,635
    )Other
    
    
    (105
    )
    
    
    1
    
    
    
    (104
    )
    
    
    (3
    )Changes in operating
working capital:Accounts receivable
    
    
    (2,092
    )
    
    
    755
    
    
    
    (378
    )
    
    
    2,489Other current assets
    
    
    (1,323
    )
    
    
    (3,027
    )
    
    
    (1,762
    )
    
    
    (2,714
    )Accounts payable
    
    
    893
    
    
    
    (3,319
    )
    
    
    377
    
    
    
    (1,412
    )Taxes accrued
    
    
    (2,187
    )
    
    
    (180
    )
    
    
    (3,926
    )
    
    
    3,488Other current liabilities
    
    
    4,571
    
    
    
    3,881
    
    
    
    1,261
    
    
    
    8,381Other, including changes in
noncurrent assets and liabilities
    
    
    7,662
    
    
    
    10,562
    
    
    
    7,203
    
    
    
    (1,133
    )Adjusted EBITDA
    
    
    22,674
    
    
    
    23,406
    
    
    
    42,329
    
    
    
    33,534Add:Cash available for distribution
from Gulfstream
    
    
    2,996
    
    
    
    3,326
    
    
    
    11,848
    
    
    
    10,496Cash available for distribution
from Market Hub
    
    
    8,154
    
    
    
    6,659
    
    
    
    16,285
    
    
    
    12,004Less:Net cash paid for interest
expense
(income), net
    
    
    4,290
    
    
    
    4,286
    
    
    
    4,299
    
    
    
    4,292Maintenance capital
expenditures
    
    
    5,293
    
    
    
    4,767
    
    
    
    6,188
    
    
    
    6,121Cash available for distribution
    
    $
    24,241
    
    
    $
    24,338
    
    
    $
    59,975
    
    
    $
    45,621
 20




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
    Operating Cash Flows
   Investing Cash Flows
  
    
    an $18.4 million reduction in expansion capital
expenditures in the 2007 period, primarily the result of the
completion of the Jewell Ridge expansion project in the fourth
quarter of 2006; partially offset by
    
    a $0.8 million increase in investment expenditures from
an infusion of capital to Gulfstream in June 2007.
  21




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##### Table of Contents



Financing Cash Flows
  Credit Facility.
 OTHER ISSUES
 New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   22




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##### Table of Contents



Changes in Internal Control over Financial Reporting
   
 PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits
  ExhibitNumber31.1
    
    Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 23




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##### Table of Contents



SIGNATURES
  SPECTRA ENERGY PARTNERS, LPDate: August 14, 2007
    /s/    C. Gregory HarperC. Gregory HarperPresident and Chief Executive Officer Date: August 14, 2007
    /s/    Lon C. Mitchell, Jr.Lon C. Mitchell, Jr.Vice President and Chief Financial Officer 24




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.