##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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.)
 
  
 
 þ o
  o o þ
 o þ
 November 1, 2007.




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##### 



SPECTRA ENERGY PARTNERS, LP
FORM 10-Q FOR THE QUARTER ENDED
September 30, 2007
  PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    4Consolidated Statements of Operations
for the three and nine months ended September 30, 2007 and 2006
    
    
    4Consolidated Balance Sheets
as of September 30, 2007 and December 31, 2006
    
    
    5Consolidated Statements of Cash Flows
for the nine months ended September 30, 2007 and 2006
    
    
    7Consolidated Statements of Partners Capital / Parent Net Equity
for the nine months ended September 30, 2007 and 2006
    
    
    8Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 6. Exhibits
    
    
    29Signatures
    
    
    30
  2




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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 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.
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 SPECTRA ENERGY PARTNERS, LP
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (In millions, except per-unit amounts)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating RevenuesTransportation of natural gas
    
    $
    23.8
    
    
    $
    18.6
    
    
    $
    72.4
    
    
    $
    58.0Storage of liquefied natural gas and other
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    1.2Total operating revenues
    
    
    23.8
    
    
    
    18.6
    
    
    
    73.9
    
    
    
    59.2Operating ExpensesOperating, maintenance and other
    
    
    6.6
    
    
    
    6.2
    
    
    
    13.4
    
    
    
    12.2Depreciation and amortization
    
    
    7.5
    
    
    
    4.7
    
    
    
    17.5
    
    
    
    14.2Property and other taxes
    
    
    0.7
    
    
    
    1.6
    
    
    
    1.6
    
    
    
    2.7Total operating expenses
    
    
    14.8
    
    
    
    12.5
    
    
    
    32.5
    
    
    
    29.1Operating Income
    
    
    9.0
    
    
    
    6.1
    
    
    
    41.4
    
    
    
    30.1Other Income and ExpensesEquity in earnings of Gulfstream
    
    
    9.9
    
    
    
    5.0
    
    
    
    18.4
    
    
    
    12.1Equity in earnings of Market Hub
    
    
    8.6
    
    
    
    5.7
    
    
    
    23.1
    
    
    
    16.6Other income and expenses, net
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    1.1Total other income and expenses
    
    
    18.6
    
    
    
    11.1
    
    
    
    41.9
    
    
    
    29.8Interest Income
    
    
    2.8
    
    
    
    
    
    
    
    2.8
    
    
    
    Interest Expense
    
    
    6.5
    
    
    
    2.1
    
    
    
    10.8
    
    
    
    6.2Earnings Before Income Taxes
    
    
    23.9
    
    
    
    15.1
    
    
    
    75.3
    
    
    
    53.7Income Tax Expense (Benefit)
    
    
    (110.4
    )
    
    
    1.5
    
    
    
    (99.8
    )
    
    
    8.8Net Income
    
    $
    134.3
    
    
    $
    13.6
    
    
    $
    175.1
    
    
    $
    44.9Calculation of Limited Partners Interest in Net
Income:Net income(a)
    
    $
    23.8
    
    
    
    n/a
    (b)
    
    $
    23.8
    
    
    
    n/a
    (b)Less general partners interest in net income
    
    
    0.5
    
    
    
    n/a
    
    
    
    0.5
    
    
    
    n/aLimited partners interest in net income
    
    $
    23.3
    
    
    
    n/a
    
    
    $
    23.3
    
    
    
    n/aBasic and diluted net income per limited partner unit
    
    $
    0.35
    
    
    
    n/a
    
    
    $
    0.35
    
    
    
    n/aWeighted average limited partners units outstanding
 Basic and Diluted
    
    
    66.3
    
    
    
    n/a
    
    
    
    66.3
    
    
    
    n/a
 
 (a)
    
    Reflective of general and limited partners interest in net income since
the closing of the Companys initial
public offering. See Note 6 of Notes to Consolidated Financial Statements.(b)
    
    not applicable  4




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SPECTRA ENERGY PARTNERS, LP
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In millions)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    17.3
    
    
    $
    Short-term investments
    
    
    184.3
    
    
    
    Receivables, net
    
    
    12.5
    
    
    
    16.8Taxes receivable
    
    
    
    
    
    
    1.5Inventory
    
    
    1.8
    
    
    
    2.5Other
    
    
    0.6
    
    
    
    Total current assets
    
    
    216.5
    
    
    
    20.8Investments in Unconsolidated Affiliates
    
    
    490.8
    
    
    
    442.8Goodwill
    
    
    118.3
    
    
    
    118.3Property, Plant and EquipmentCost
    
    
    813.7
    
    
    
    800.0Less accumulated depreciation and amortization
    
    
    123.2
    
    
    
    108.2Net property, plant and equipment
    
    
    690.5
    
    
    
    691.8Regulatory Assets and Deferred Debits
    
    
    11.7
    
    
    
    10.9Total Assets
    
    $
    1,527.8
    
    
    $
    1,284.6
  5




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SPECTRA ENERGY PARTNERS, LP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except number of units)
 September 30,
    
    
    December 31,2007
    
    
    2006LIABILITIES AND PARTNERS CAPITAL / PARENT NET EQUITYCurrent LiabilitiesAccounts payable
    
    $
    7.8
    
    
    $
    2.2Taxes accrued
    
    
    3.0
    
    
    
    6.8Interest accrued
    
    
    3.9
    
    
    
    0.4Accrued liabilities
    
    
    2.5
    
    
    
    8.9Natural gas imbalance payables
    
    
    4.6
    
    
    
    4.5Other
    
    
    3.7
    
    
    
    2.8Total current liabilities
    
    
    25.5
    
    
    
    25.6Long-term Debt
    
    
    459.0
    
    
    
    150.0Deferred Credits and Other LiabilitiesDeferred income taxes
    
    
    8.2
    
    
    
    113.0Other
    
    
    2.4
    
    
    
    6.9Total deferred credits and other liabilities
    
    
    10.6
    
    
    
    119.9Commitments and ContingenciesPartners Capital / Parent Net EquityCommon units (44,640,245 units issued and outstanding at
September 30, 2007)
    
    
    703.4
    
    
    
    Subordinated units (21,638,730 units issued and outstanding at
September 30, 2007)
    
    
    306.5
    
    
    
    General partner units (1,352,421 units issued and outstanding at
September 30, 2007)
    
    
    19.2
    
    
    
    Parent net investment
    
    
    
    
    
    
    985.3Accumulated other comprehensive income
    
    
    3.6
    
    
    
    3.8Total partners capital / parent net equity
    
    
    1,032.7
    
    
    
    989.1Total Liabilities and Partners Capital / Parent Net Equity
    
    $
    1,527.8
    
    
    $
    1,284.6
  6




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SPECTRA ENERGY PARTNERS, LP
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In millions)
 Nine MonthsEnded September 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    175.1
    
    
    $
    44.9Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    17.5
    
    
    
    14.2Equity in earnings of unconsolidated affiliates
    
    
    (41.5
    )
    
    
    (28.7
    )Distributions received from equity investments
    
    
    9.1
    
    
    
    17.9Deferred income taxes
    
    
    (104.8
    )
    
    
    10.5Other
    
    
    (1.4
    )
    
    
    0.9Net cash provided by operating activities
    
    
    54.0
    
    
    
    59.7CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (19.1
    )
    
    
    (69.9
    )Investment expenditures
    
    
    (14.8
    )
    
    
    Purchases of available-for-sale securities
    
    
    (1,132.7
    )
    
    
    Proceeds from sales and maturities of available-for-sale securities
    
    
    948.4
    
    
    
    Other
    
    
    
    
    
    
    0.2Net cash used in investing activities
    
    
    (218.2
    )
    
    
    (69.7
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of long-term debt
    
    
    319.0
    
    
    
    Payments for the redemption of long-term debt
    
    
    (10.0
    )
    
    
    Proceeds from issuance of common units
    
    
    230.0
    
    
    
    Members dividends
    
    
    (12.5
    )
    
    
    Transfers from (to) parent
    
    
    (345.0
    )
    
    
    10.0Net cash provided by financing activities
    
    
    181.5
    
    
    
    10.0Net increase in cash and cash equivalents
    
    
    17.3
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    17.3
    
    
    $
    
  7




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SPECTRA ENERGY PARTNERS, LP
 
 CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL / PARENT NET EQUITY
 (Unaudited)
 (In millions)
 AccumulatedPartners Capital
    
    
    OtherParent Net
    
    
    Limited Partners
    
    
    General
    
    
    ComprehensiveInvestment
    
    
    Common
    
    
    Subordinated
    
    
    Partner
    
    
    Income
    
    
    TotalBalance at December 31, 2006
    
    $
    985.3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3.8
    
    
    $
    989.1Net income attributable to
the period January 1, 2007
through July 2, 2007
    
    
    151.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151.3Members distributions
    
    
    (12.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.5
    )Transfers to parent
    
    
    (348.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (348.8
    )Conversion to Spectra Energy
Partners, LP
    
    
    (775.3
    )
    
    
    457.7
    
    
    
    298.9
    
    
    
    18.7
    
    
    
    
    
    
    
    Issuance of common units
    
    
    
    
    
    
    230.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230.0Net income attributable to
the period July 3, 2007
through September 30, 2007
    
    
    
    
    
    
    15.7
    
    
    
    7.6
    
    
    
    0.5
    
    
    
    
    
    
    
    23.8Reclassification of cash
flow hedges into earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.2
    )Balance at September 30,
2007
    
    $
    
    
    
    $
    703.4
    
    
    $
    306.5
    
    
    $
    19.2
    
    
    $
    3.6
    
    
    $
    1,032.7Balance at December 31, 2005
    
    $
    891.6
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4.1
    
    
    $
    895.7Net income
    
    
    44.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44.9Transfer from affiliate
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.5Transfers from parent, net
    
    
    10.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.0Reclassification of cash
flow hedges into earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.2
    )Balance at September 30,
2006
    
    $
    955.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3.9
    
    
    $
    958.9
  8




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SPECTRA ENERGY PARTNERS, LP
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 1. General
 Nature of Operations.
 Initial Public Offering.
  Basis of Presentation.
   9




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Use of Estimates.
 2. Transactions with Affiliates
   Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,Consolidated Statements of Operations
    

2007
    
    2006
    
    2007
    
    2006(In millions)Operating, maintenance and other
    
    $
    0.7
    
    
    $
    1.0
    
    
    $
    3.4
    
    
    $
    4.4
 September 30,
    
    December 31,Consolidated Balance Sheets
    
    2007
    
    2006(In millions)Receivables
    
    $
    6.5
    
    
    $
    4.6Taxes receivable
    
    
    
    
    
    
    1.5Other current assets
    
    
    0.4
    
    
    
    Accounts payable
    
    
    4.9
    
    
    
    2.1Taxes accrued
    
    
    0.1
    
    
    
    3.3Natural gas imbalance payable
    
    
    
    
    
    
    3.4
  3. Income Taxes
  10




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4. Business Segments
      11




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Business Segment Data
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Operating
revenuesEast Tennessee
    
    $
    23.8
    
    
    $
    18.6
    
    
    $
    73.9
    
    
    $
    59.2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating revenues
    
    $
    23.8
    
    
    $
    18.6
    
    
    $
    73.9
    
    
    $
    59.2Segment
EBITEast Tennessee
    
    $
    10.1
    
    
    $
    6.5
    
    
    $
    42.8
    
    
    $
    31.2Other
    
    
    17.5
    
    
    
    10.7
    
    
    
    40.5
    
    
    
    28.7Total EBIT
    
    
    27.6
    
    
    
    17.2
    
    
    
    83.3
    
    
    
    59.9Interest income
    
    
    2.8
    
    
    
    
    
    
    
    2.8
    
    
    
    Interest expense
    
    
    6.5
    
    
    
    2.1
    
    
    
    10.8
    
    
    
    6.2Earnings before income taxes
    
    $
    23.9
    
    
    $
    15.1
    
    
    $
    75.3
    
    
    $
    53.7
 September 30,
    
    
    December 31,2007
    
    
    2006(In millions)Segment
assetsEast Tennessee
    
    $
    834.3
    
    
    $
    841.8Other
    
    
    693.5
    
    
    
    442.8Total assets
    
    $
    1,527.8
    
    
    $
    1,284.6
 5. Comprehensive Income
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net income
    
    $
    134.3
    
    
    $
    13.6
    
    
    $
    175.1
    
    
    $
    44.9Reclassification of cash flow hedges into earnings
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Total comprehensive income
    
    $
    134.2
    
    
    $
    13.5
    
    
    $
    174.9
    
    
    $
    44.7
 6. Earnings per Limited Partner Unit and Cash
Distributions
 (EITF
No. 03-6),
  12




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Three and NineMonths Ended(In millions, except per-unit amounts)
    
    September 30, 2007Net income (post-close of the IPO)
    
    $
    23.8Less general partners interest in net income
    
    
    0.5Limited partners interest in net income
    
    $
    23.3Net income allocable to common units
    
    $
    15.7Net income allocable to subordinated units
    
    
    7.6Limited partners interest in net income
    
    $
    23.3Weighted average limited partner units outstanding -
basic and dilutedCommon units
    
    
    44.7Subordinated units
    
    
    21.6Total
    
    
    66.3Net income per limited partner unit  basic and dilutedCommon units
    
    $
    0.35Subordinated units
    
    $
    0.35
   Available Cash.
 
    
    less the amount of cash reserves established by the general partner to:
 
    
    provide for the proper conduct of business,
    
    comply with applicable law, any debt instrument or other agreement, or
    
    provide funds for distributions to the unitholders and to the general partner for
any one or more of the next four quarters,
 
    
    plus, if the general partner so determines, all or a portion of cash on hand on the
date of determination of available cash for the quarter.
 13




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Subordinated Units.
 Incentive
Distribution Rights.
 Marginal PercentageTotal Quarterly Distribution
    
    Interest in DistributionsCommon andSubordinatedTarget Amount
    
    Unitholders
    
    General PartnerMinimum Quarterly
Distribution
    
    $0.30
    
    98%
    
    2%First Target Distribution
    
    up to $0.345
    
    98%
    
    2%Second Target Distribution
    
    above $0.345 up to $0.375
    
    85%
    
    15%Third Target Distribution
    
    above $0.375 up to $0.45
    
    75%
    
    25%Thereafter
    
    above $0.45
    
    50%
    
    50%
  7. Marketable Securities
  8. Goodwill
  9. Investments in Unconsolidated Affiliates and Related Transactions
  Investments in Unconsolidated Affiliates
 September 30,
    
    
    December 31,2007
    
    
    2006(In millions)Gulfstream
    
    $
    203.0
    
    
    $
    186.4Market Hub
    
    
    287.8
    
    
    
    256.4Total
    
    $
    490.8
    
    
    $
    442.8
 14




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Equity in Earnings of Unconsolidated Affiliates
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Gulfstream
    
    $
    9.9
    
    
    $
    5.0
    
    
    $
    18.4
    
    
    $
    12.1Market Hub
    
    
    8.6
    
    
    
    5.7
    
    
    
    23.1
    
    
    
    16.6Total
    
    $
    18.5
    
    
    $
    10.7
    
    
    $
    41.5
    
    
    $
    28.7
 Summarized Financial Information of Unconsolidated Affiliates
(Presented at the 100% Ownership Level)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)GulfstreamOperating revenues
    
    $
    56.9
    
    
    $
    51.6
    
    
    $
    141.1
    
    
    $
    139.0Operating income
    
    
    51.6
    
    
    
    32.3
    
    
    
    109.2
    
    
    
    86.3Net income
    
    
    40.2
    
    
    
    20.4
    
    
    
    74.8
    
    
    
    49.5Market
HubOperating revenues
    
    $
    24.8
    
    
    $
    21.0
    
    
    $
    69.1
    
    
    $
    57.4Operating income
    
    
    17.1
    
    
    
    12.3
    
    
    
    48.1
    
    
    
    34.8Net income
    
    
    17.1
    
    
    
    11.2
    
    
    
    46.2
    
    
    
    33.2
 10. Debt and Credit Facility
 Credit
    
    Outstanding as of September 30, 2007Facility
    
    
    
    
    
    RevolvingCredit Facility Summary
    

Expiration
Date
    
    Capacity
    
    Term Loan
    
    Loan
    
    Total(In millions)Spectra Energy Partners, LP
    
    May 2012
    
    $
    500.0
    
    
    $
    182.0
    (a)
    
    $
    127.0
    
    
    $
    309.0
 
 (a)
    
    Contains a covenant requiring the borrower to collateralize the term loan with qualifying investment
grade securities in an amount equal to or greater than the
outstanding principal amount of the loan. The terms of the credit facility allow for liquidation of collateral to fund capital expenditures
or certain acquisitions provided that an equal amount of term loan is converted to a revolving
loan.   15




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##### Table of Contents



East Tennessee Long-term Debt.
 11. Commitments and Contingencies
 Environmental.
 Litigation and Legal Proceedings.
 12. Equity-Based Compensation
    13. New Accounting Pronouncements
  FIN No. 48, Accounting for Uncertainty
in Income Taxesan Interpretation of FASB Statement
No. 109.
 16




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##### Table of Contents



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.
 14. Subsequent Event
  17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 INTRODUCTION
  Executive Overview
    RESULTS OF OPERATIONS
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,Increase
    
    
    
    
    
    
    
    
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    2007
    
    
    2006
    
    
    (Decrease)(In millions)Operating revenues
    
    $
    23.8
    
    
    $
    18.6
    
    
    $
    5.2
    
    
    $
    73.9
    
    
    $
    59.2
    
    
    $
    14.7Operating, maintenance and other
    
    
    7.3
    
    
    
    7.8
    
    
    
    (0.5
    )
    
    
    15.0
    
    
    
    14.9
    
    
    
    0.1Depreciation and amortization
    
    
    7.5
    
    
    
    4.7
    
    
    
    2.8
    
    
    
    17.5
    
    
    
    14.2
    
    
    
    3.3Operating income
    
    
    9.0
    
    
    
    6.1
    
    
    
    2.9
    
    
    
    41.4
    
    
    
    30.1
    
    
    
    11.3Equity in earnings of
unconsolidated affiliates
    
    
    18.5
    
    
    
    10.7
    
    
    
    7.8
    
    
    
    41.5
    
    
    
    28.7
    
    
    
    12.8Other income and expenses, net
    
    
    0.1
    
    
    
    0.4
    
    
    
    (0.3
    )
    
    
    0.4
    
    
    
    1.1
    
    
    
    (0.7
    )Interest income
    
    
    2.8
    
    
    
    
    
    
    
    2.8
    
    
    
    2.8
    
    
    
    
    
    
    
    2.8Interest expense
    
    
    6.5
    
    
    
    2.1
    
    
    
    4.4
    
    
    
    10.8
    
    
    
    6.2
    
    
    
    4.6Earnings before income taxes
    
    
    23.9
    
    
    
    15.1
    
    
    
    8.8
    
    
    
    75.3
    
    
    
    53.7
    
    
    
    21.6Income tax expense (benefit)
    
    
    (110.4
    )
    
    
    1.5
    
    
    
    (111.9
    )
    
    
    (99.8
    )
    
    
    8.8
    
    
    
    (108.6
    )Net income
    
    $
    134.3
    
    
    $
    13.6
    
    
    $
    120.7
    
    
    $
    175.1
    
    
    $
    44.9
    
    
    $
    130.2Adjusted EBITDA (a,b)
    
    $
    16.6
    
    
    $
    10.8
    
    
    $
    5.8
    
    
    $
    58.9
    
    
    $
    44.3
    
    
    $
    14.6Cash Available for Distribution (b,c)
    
    
    37.1
    
    
    
    24.1
    
    
    
    13.0
    
    
    
    97.1
    
    
    
    69.7
    
    
    
    27.4
 
 (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 (income), net and maintenance
capital expenditures. Cash Available for Distribution does not reflect
changes in working capital balances. 18




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##### Table of Contents



Three Months Ended September 30, 2007 as Compared to September 30, 2006
 Operating Revenues.
 Operating
Maintenance and Other.
 
    
    a $1.5 million increase due to lower capitalization of certain corporate overhead
expenses as a result of lower capital spending related to the Jewell Ridge expansion project
in 2007 as compared to the same period in 2006, and
    
    a $1.0 million increase in general and administrative costs associated with managing the
Company post-IPO, partially offset by
    
    a $1.5 million net decrease from higher net pipeline fuel recoveries by East Tennessee in
the 2007 period compared to the 2006 period, and
    
    a $1.0 million decrease in ad valorem taxes primarily as a result of favorable
valuations.
 Depreciation and Amortization
 Equity in Earnings of Unconsolidated Affiliates
 Three Months Ended September 30,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)GulfstreamOperating revenues
    
    $
    56.9
    
    
    $
    51.6
    
    
    $
    5.3Operating, maintenance and other
    
    
    (2.2
    )
    
    
    11.8
    
    
    
    (14.0
    )Depreciation and amortization
    
    
    7.5
    
    
    
    7.6
    
    
    
    (0.1
    )Other income
and expenses, net
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.2Interest expense
    
    
    12.0
    
    
    
    12.2
    
    
    
    (0.2
    )Net income
    
    $
    40.2
    
    
    $
    20.4
    
    
    $
    19.8The Companys 24.5% share
    
    $
    9.9
    
    
    $
    5.0
    
    
    $
    4.9
 Gulfstream  Owned 24.5%
   
    
    a $5.3 million increase in revenues driven by a higher demand for interruptible
services as a result of warmer weather compared to the 2006 third quarter, and
    
    a $14.0 million decrease in expenses primarily resulting from $7.0 million of
capitalization of previously expensed project development costs of Phase IV in the third
quarter of 2007 as compared to $4.0 million of project development costs expensed in the
third quarter of 2006, and $2.5 million in decreased ad valorem taxes primarily due to
favorable 2007 tax rates.
 19




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##### Table of Contents



Three Months Ended September 30,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Market HubOperating revenues
    
    $
    24.8
    
    
    $
    21.0
    
    
    $
    3.8Operating, maintenance and other
    
    
    5.2
    
    
    
    6.8
    
    
    
    (1.6
    )Depreciation and amortization
    
    
    2.4
    
    
    
    1.9
    
    
    
    0.5Other income and expenses, net
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Interest income
    
    
    0.9
    
    
    
    
    
    
    
    0.9Interest expense
    
    
    0.9
    
    
    
    1.1
    
    
    
    (0.2
    )Net income
    
    $
    17.1
    
    
    $
    11.2
    
    
    $
    5.9The Companys 50% share
    
    $
    8.6
    
    
    $
    5.7
    
    
    $
    2.9
 Market Hub  Owned 50%
  
    
    a $3.8 million increase in revenues driven by an increase in short-term interruptible
storage revenues due to higher demand,
    
    a $1.6 million decrease in operating expenses primarily due to lower corporate costs, and
    
    a $0.9 million increase in interest income on higher cash balances, partially offset by
    
    a $0.5 million increase in depreciation primarily due to an Egan expansion project
placed in service in 2006.
 Interest Income.
 Interest Expense.
 Income Tax Expense (Benefit).
 Nine Months Ended September 30, 2007 as Compared to September 30, 2006
 Operating Revenues.
 Operating, Maintenance and Other.
 
    
    a $5.7 million increase due to the capitalization of previously expensed project
development costs for Jewell Ridge in the second quarter of 2006,
    
    a $2.6 million increase due to lower capitalization of certain corporate overhead
expenses as a result of lower capital spending comparing 2007 to 2006, and
    
    a $1.9 million increase in pipeline integrity costs in the 2007 period, partially offset
by
    
    a $10.2 million decrease from higher net pipeline fuel recoveries by East Tennessee in
the 2007 period compared to the 2006 period.
 20




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##### Table of Contents



Depreciation and
Amortization
 Equity in Earnings of Unconsolidated Affiliates.
 Nine Months Ended September 30,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)GulfstreamOperating revenues
    
    $
    141.1
    
    
    $
    139.0
    
    
    $
    2.1Operating, maintenance and other
    
    
    9.2
    
    
    
    30.0
    
    
    
    (20.8
    )Depreciation and amortization
    
    
    22.7
    
    
    
    22.8
    
    
    
    (0.1
    )Gain (loss) on sales of other assets, net
    
    
    
    
    
    
    0.1
    
    
    
    (0.1
    )Other income and expenses, net
    
    
    1.8
    
    
    
    (0.2
    )
    
    
    2.0Interest expense
    
    
    36.2
    
    
    
    36.6
    
    
    
    (0.4
    )Net income
    
    $
    74.8
    
    
    $
    49.5
    
    
    $
    25.3The Companys 24.5% share
    
    $
    18.4
    
    
    $
    12.1
    
    
    $
    6.3
 Gulfstream  Owned 24.5%
  
    
    a $2.1 million increase in revenues related to short-term firm transportation,
    
    a $20.8 million decrease in expenses primarily resulting from $2.8 million of
net capitalization of previously expensed project development costs of Phase IV in 2007
compared to $8.1 million in project development costs expensed in 2006, and a $10.5
million decrease in ad valorem taxes primarily as a result of favorable valuations, and
    
    a $2.0 million increase in other income and expenses, net primarily due to a first
quarter 2006 charge related to a sales and use tax matter.
 Nine Months Ended September 30,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Market HubOperating revenues
    
    $
    69.1
    
    
    $
    57.4
    
    
    $
    11.7Operating, maintenance and other
    
    
    14.4
    
    
    
    16.9
    
    
    
    (2.5
    )Depreciation and amortization
    
    
    6.6
    
    
    
    5.7
    
    
    
    0.9Other income and expenses, net
    
    
    0.1
    
    
    
    
    
    
    
    0.1Interest income
    
    
    0.9
    
    
    
    
    
    
    
    0.9Interest expense
    
    
    2.9
    
    
    
    1.6
    
    
    
    1.3Net income
    
    $
    46.2
    
    
    $
    33.2
    
    
    $
    13.0The Companys 50% share
    
    $
    23.1
    
    
    $
    16.6
    
    
    $
    6.5
 21




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##### Table of Contents



Market Hub  Owned 50%
  
    
    an $11.7 million increase in revenues primarily due to a $7.1 million increase in the
demand for short-term interruptible storage services and a $4.4 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 $2.5 million decrease in operating expenses, primarily driven by a $2.2 million
increase in fuel recovery and a $1.0 million reduction in property and other taxes due
to the favorable resolution of ad valorem tax matters in 2007, partially offset by a
$0.5 million increase related to the expansion project placed into service in the fourth
quarter of 2006, partially offset by
    
    a $0.9 million increase in depreciation primarily due to an Egan expansion project
placed in service in 2006.
 Interest Income.
 Interest Expense.
 Income Tax Expense (Benefit).
 Cash Available for Distribution
     22




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##### Table of Contents



Calculation and Reconciliation of
Non-GAAP Cash Available for Distribution and Adjusted EBITDA
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net income
    
    $
    134.3
    
    
    $
    13.6
    
    
    $
    175.1
    
    
    $
    44.9Add:Interest expense
    
    
    6.5
    
    
    
    2.1
    
    
    
    10.8
    
    
    
    6.2Income tax
expense (benefit)
    
    
    (110.4
    )
    
    
    1.5
    
    
    
    (99.8
    )
    
    
    8.8Depreciation and amortization
    
    
    7.5
    
    
    
    4.7
    
    
    
    17.5
    
    
    
    14.2Less:Interest income
    
    
    2.8
    
    
    
    
    
    
    
    2.8
    
    
    
    Equity in earnings of Gulfstream
    
    
    9.9
    
    
    
    5.0
    
    
    
    18.4
    
    
    
    12.1Equity in earnings of Market Hub
    
    
    8.6
    
    
    
    5.7
    
    
    
    23.1
    
    
    
    16.6Other income, net
    
    
    
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    1.1Adjusted EBITDA
    
    
    16.6
    
    
    
    10.8
    
    
    
    58.9
    
    
    
    44.3Add:Cash Available for Distribution from Gulfstream
    
    
    14.0
    
    
    
    9.5
    
    
    
    25.9
    
    
    
    20.0Cash Available for Distribution from Market Hub
    
    
    9.7
    
    
    
    5.7
    
    
    
    25.9
    
    
    
    17.7Less:Cash paid for interest expense, net
    
    
    1.0
    
    
    
    
    
    
    
    5.2
    
    
    
    4.3Maintenance capital expenditures
    
    
    2.2
    
    
    
    1.9
    
    
    
    8.4
    
    
    
    8.0Cash Available for Distribution
    
    $
    37.1
    
    
    $
    24.1
    
    
    $
    97.1
    
    
    $
    69.7
 23




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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
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net cash provided by operating activities
    
    $
    19.8
    
    
    $
    30.8
    
    
    $
    54.0
    
    
    $
    59.7Interest income
    
    
    (2.8
    )
    
    
    
    
    
    
    (2.8
    )
    
    
    Interest expense
    
    
    6.5
    
    
    
    2.1
    
    
    
    10.8
    
    
    
    6.2Income tax expense  current
    
    
    0.2
    
    
    
    1.3
    
    
    
    5.0
    
    
    
    (1.7
    )Distributions received from Gulfstream
    
    
    (5.4
    )
    
    
    (12.3
    )
    
    
    (9.1
    )
    
    
    (17.9
    )Changes in operating working capital and other
    
    
    (1.7
    )
    
    
    (11.1
    )
    
    
    1.0
    
    
    
    (2.0
    )Adjusted EBITDA
    
    
    16.6
    
    
    
    10.8
    
    
    
    58.9
    
    
    
    44.3Add:Cash Available for Distribution from Gulfstream
    
    
    14.0
    
    
    
    9.5
    
    
    
    25.9
    
    
    
    20.0Cash Available for Distribution from Market Hub
    
    
    9.7
    
    
    
    5.7
    
    
    
    25.9
    
    
    
    17.7Less:Cash paid for interest expense, net
    
    
    1.0
    
    
    
    
    
    
    
    5.2
    
    
    
    4.3Maintenance capital expenditures
    
    
    2.2
    
    
    
    1.9
    
    
    
    8.4
    
    
    
    8.0Cash Available for Distribution
    
    $
    37.1
    
    
    $
    24.1
    
    
    $
    97.1
    
    
    $
    69.7
 24




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##### Table of Contents



Gulfstream Calculation and Reconciliation of Non-GAAP Cash Available for Distribution and
Adjusted EBITDA
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)GulfstreamNet income
    
    $
    40.2
    
    
    $
    20.4
    
    
    $
    74.8
    
    
    $
    49.5Add:Interest expense
    
    
    12.0
    
    
    
    12.2
    
    
    
    36.2
    
    
    
    36.6Depreciation and amortization
    
    
    7.5
    
    
    
    7.6
    
    
    
    22.7
    
    
    
    22.8Less:Other income (expenses), net
    
    
    0.6
    
    
    
    0.4
    
    
    
    1.8
    
    
    
    (0.2
    )Adjusted EBITDA  100%
    
    
    59.1
    
    
    
    39.8
    
    
    
    131.9
    
    
    
    109.1Less:Cash paid for interest expense, net
    
    
    1.1
    
    
    
    0.9
    
    
    
    25.3
    
    
    
    26.9Maintenance capital expenditures
    
    
    0.7
    
    
    
    0.1
    
    
    
    0.9
    
    
    
    0.5Cash Available for Distribution  100%
    
    $
    57.3
    
    
    $
    38.8
    
    
    $
    105.7
    
    
    $
    81.7Adjusted EBITDA  24.5%
    
    $
    14.5
    
    
    $
    9.8
    
    
    $
    32.3
    
    
    $
    26.7Cash Available for Distribution  24.5%
    
    
    14.0
    
    
    
    9.5
    
    
    
    25.9
    
    
    
    20.0
 Market Hub Calculation and Reconciliation of Non-GAAP Cash Available for Distribution and
Adjusted EBITDA
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Market HubNet income
    
    $
    17.1
    
    
    $
    11.2
    
    
    $
    46.2
    
    
    $
    33.2Add:Interest expense
    
    
    0.9
    
    
    
    1.1
    
    
    
    2.9
    
    
    
    1.6Depreciation and amortization
    
    
    2.4
    
    
    
    1.9
    
    
    
    6.6
    
    
    
    5.7Less:Interest income
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    Other income (expenses), net
    
    
    (0.1
    )
    
    
    
    
    
    
    0.1
    
    
    
    Adjusted EBITDA  100%
    
    
    19.6
    
    
    
    14.2
    
    
    
    54.7
    
    
    
    40.5Less:Maintenance capital expenditures
    
    
    0.3
    
    
    
    2.9
    
    
    
    2.9
    
    
    
    5.1Cash Available for Distribution  100%
    
    $
    19.3
    
    
    $
    11.3
    
    
    $
    51.8
    
    
    $
    35.4Adjusted EBITDA  50%
    
    $
    9.8
    
    
    $
    7.1
    
    
    $
    27.4
    
    
    $
    20.3Cash Available for Distribution  50%
    
    
    9.7
    
    
    
    5.7
    
    
    
    25.9
    
    
    
    17.7
 25




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
    Operating Cash Flows
   Investing Cash Flows
  
    
    net purchases of investment-grade securities totaling $184.3 million that are held as
collateral for the term portion of the $500.0 million credit facility and
    
    a $14.8 million increase in investment expenditures from infusions of capital to Gulfstream
and Market Hub in 2007, partially offset by
    
    a $50.8 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.
  26




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##### Table of Contents



Financing Cash Flows
  
    
    $309.0 million in issuances of long-term debt, net of redemptions in 2007, and
    
    $230.0 million of net cash received upon issuance of common units to the public in the IPO,
partially offset by
    
    a cash distribution of $345.0 million to Spectra Energy on July 2, 2007 compared to
transfers from Spectra Energy of $10.0 million in 2006, and
    
    members dividends of $12.5 million in 2007.
 Credit Facility.
 Cash Distributions.
 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
  27




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##### Table of Contents



Changes in Internal Control over Financial Reporting
   28




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors.
  
 Item 4. Submission of
Matters to a Vote of Security Holders.
  
 Item 6.
Exhibits.
  ExhibitNumber10.1
    
    First Amendment to Credit Agreement, dated as of September 30,
2007, by and among Spectra Energy Partners OLP, LP, as the
Borrower, Spectra Energy Partners, LP, as Parent Guarantor and
Wachovia Bank, National Association, as Administrative Agent, and
the other lenders party thereto (previously filed as Exhibit 10.1
to Spectra Energy Partners, LPs Form 8-K dated October 11, 2007).31.1
    
    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.
 29




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##### Table of Contents



SIGNATURES
  SPECTRA ENERGY PARTNERS, LP
By:  Spectra Energy Partners (DE) GP, LP,
        its general partner
By: Spectra Energy Partners GP, LLC,
        its general partnerDate: November 14, 2007
    /s/  C. Gregory HarperC. Gregory HarperPresident and Chief Executive Officer
Spectra Energy Partners GP, LLCDate: November 14, 2007
    /s/  Lon C. Mitchell, Jr.Lon C. Mitchell, Jr.Vice President and Chief Financial Officer
Spectra Energy Partners GP, LLC 30