Execution Copy

                        KINDER MORGAN ENERGY PARTNERS, L.P.
                             COMMON UNIT OPTION PLAN


Section 1.     Purposes of the Plan.

      The Partnership  Agreement  provides that the General Partner may adopt on
behalf of Kinder  Morgan Energy  Partners,  L.P.  (the  "Partnership")  employee
benefit plans (including,  without  limitation,  plans involving the issuance of
Units),  for the benefit of employees of the General Partner.  The Kinder Morgan
Energy  Partners,  L.P.  Common  Unit  Option  Plan (the  "Plan") is intended to
encourage  selected  key  personnel of the  Partnership  and its  Affiliates  to
develop a proprietary interest in the growth and performance of the Partnership,
to generate an increased  incentive to  contribute to the  Partnership's  future
success  and  prosperity,  and to link a part of the  compensation  for such key
personnel to the ongoing success and performance of the Partnership.

Section 2.    Administration of the Plan.

      2.1.  The Plan  shall be  administered  by the Board of  Directors  of the
General Partner (the "Board") acting as an administrative committee of the whole
or by another administrative committee comprised solely of not less than two (2)
non-employee  Directors  of the  Board  (in  each  case  the  "Committee").  The
Committee  shall have all of the powers  and duties  specified  for it under the
Plan,  including,  without  limitation,  the selection of  Participants  and the
determination  of Awards to be granted to each  Participant.  The  Committee may
from time to time establish rules and procedures for the  administration  of the
Plan which are not  inconsistent  with the  provisions of the Plan, and any such
rules and procedures shall be effective as if included in the Plan.

      2.2. A majority of the members of the Committee shall  constitute a quorum
for the transaction of business.  All action taken by the Committee at a meeting
shall be by the vote of a majority  of those  present at such  meeting,  but any
action may be taken by the  Committee  without a meeting  upon  written  consent
signed by all of the  members of the  Committee.  Members of the  Committee  may
participate   in  a  meeting  by  means  of  conference   telephone  or  similar
communications  equipment  by means of which all  persons  participating  in the
meeting can hear or see the comments of one another.  No member of the Committee
shall vote on any matter  directly  affecting the amounts payable under the Plan
to such member.

      2.3.  Subject to the terms of the Plan and  applicable  law, the Committee
shall have sole power, authority and discretion to: (i) designate  Participants;
(ii)  determine  the types of Awards to be  granted to a  Participant  under the
Plan;  (iii)  determine  the  number of Common  Units to be  covered  by or with
respect to which  payments,  rights,  or other  matters are to be  calculated in
connection  with Awards;  (iv)  determine the terms and conditions of any Award;
(v) determine whether,  to what extent,  under what circumstances and how Awards
may be settled or exercised  in cash,  Common  Units,  other  securities,  other
Awards, or other property,  or may be canceled,  forfeited,  or suspended;  (vi)
interpret,  construe and  administer  the Plan and any  instrument  or agreement
relating to an Award made under the Plan; (vii) establish,  amend,  suspend,  or
waive such


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rules and regulations and appoint such agents as it shall deem  appropriate for
the proper  administration  of the Plan;  (viii) make a determination  as to the
right of any person to receive  payment of an Award or other  benefit;  and (ix)
make any other  determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan.

      2.4. Unless otherwise  expressly  provided in the Plan, all  designations,
determinations, interpretations, and other decisions with respect to the Plan or
any Award shall be within the sole  discretion of the Committee,  may be made at
any time, and shall be final, conclusive, and binding upon all Persons.

Section 3.  Common Units Available For Awards

3.1.  Common Units Available.

      (i) The aggregate  number of Common Units  available  for granting  Awards
      under the Plan shall be Two Hundred Fifty Thousand (250,000) Common Units,
      subject to  adjustment as provided in Section 3.2.  Further,  if after the
      effective  date of the Plan,  any Common Units covered by an Award granted
      under the Plan,  or to which an Award  relates,  are  forfeited,  or if an
      Award  otherwise  terminates  without the  delivery of Common  Units or of
      other  consideration,  then the Common Units  covered by such Award (or to
      which such Award relates,  or the number of Common Units otherwise counted
      against the aggregate number of Common Units available under the Plan with
      respect  to  such  Award,   to  the  extent  of  any  such  forfeiture  or
      termination) shall again be available for granting Awards under the Plan.

      (ii) For purposes of this Section 3, if an Award is  denominated in Common
      Units,  the number of Common Units covered by such Award, or to which such
      Award relates, shall be counted on the date of grant of such Award against
      the aggregate  number of Common Units  available for granting Awards under
      the Plan;  provided,  however,  that  Awards  that  operate in tandem with
      (whether  granted  simultaneously  with or at a different time from) other
      Awards may be  counted  or not  counted  under  procedures  adopted by the
      Committee in order to avoid double counting.

      (iii) Any Common  Units  delivered  pursuant to an Award may  consist,  in
      whole or in part,  of Common Units owned or authorized to be issued by the
      Partnership.

3.2.  Adjustments.

      (i) In the event that the Committee shall determine that any  distribution
      (whether in the form of cash,  Common  Units,  other  securities  or other
      property),    recapitalization,    unit   split,   reverse   unit   split,
      reorganization,  merger, consolidation,  split-up, spin-off,  combination,
      repurchase  or  exchange  of  Common  Units  or  other  securities  of the
      Partnership, issuance of warrants or other rights to purchase Common Units
      or other  securities of the Partnership  (or other similar  transaction or
      event)  affects the Common Units such that an  adjustment is determined by
      the  Committee  to  be  appropriate  in  order  to  prevent   dilution  or
      enlargement  of the  benefits or  potential  benefits  intended to be made
      available under the Plan, then the

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      Committee may, subject to Section  3.2(ii),  in such manner as it may deem
      equitable,  adjust any or all of (a) the  number and type of Common  Units
      (or other securities or property) which thereafter may be made the subject
      of Awards, (b) the number and type of Common Units (or other securities or
      property) subject to outstanding Awards, and (c) the grant,  purchase,  or
      exercise price with respect to any Award, or, if deemed appropriate,  make
      provision for a cash payment to the holder of an  outstanding  Award;  and
      provided  further,  that the number of Common  Units  subject to any Award
      denominated in Common Units shall always be a whole number.

      (ii) If, and  whenever,  prior to the  expiration  of a grant  theretofore
      made,  the  Partnership  shall effect a subdivision  or  consolidation  of
      Common Units,  the number of Common Units with respect to which such grant
      may  thereafter be exercised (a) in the event of an increase in the number
      of outstanding  Common Units shall be  proportionately  increased,  for an
      outstanding  Option  Award the  purchase  price per  Common  Unit shall be
      proportionately reduced, and (b) in the event of a reduction in the number
      of  outstanding  Common  Units shall be  proportionately  reduced,  for an
      outstanding  Option  Award the  purchase  price per  Common  Unit shall be
      proportionately increased.

Section 4.  Eligibility

      Any  Employee,  including  any  officer  of  the  Partnership  or  of  any
Affiliate,  who is not a  member  of  the  Committee  shall  be  eligible  to be
designated a Participant. Grants may be made to the same individual on more than
one occasion.  Grants shall also be made to non-employee  directors  pursuant to
the provisions of Section 5.2.

Section 5.  Awards

5.1.   Options.   The  Committee  is  hereby  authorized  to  grant  Options  to
Participants  other than  non-employee  directors  with the following  terms and
conditions  and  with  such  additional  terms  and  conditions,  which  are not
inconsistent with the provisions of the Plan, as the Committee shall determine:

      (i) Exercise Price.  The per Common Unit purchase price of an Option shall
      not be less  than the Fair  Market  Value of a Common  Unit on the date of
      grant of such Option.

      (ii) Time and Method of Exercise.  Subject to the provisions  contained in
      the Plan and in a Participant's Award Agreement,  exercisable Common Units
      under an Option may be  exercised in whole or in part from time to time by
      request  to  the  Partnership.  Payment  of the  exercise  price  and  any
      applicable tax  withholding  amounts must be made at the time of exercise,
      in whole or in part, by delivery of a cashier's check, Common Units, other
      property  acceptable to and approved in advance by the  Committee,  or any
      combination  thereof  having a fair  market  value equal to such amount or
      part  thereof  provided  that the fair  market  value of  Common  Units so
      delivered  shall be  equal to the  closing  price of the  Common  Units as
      reported by the New York Stock  Exchange on the date of actual  receipt by
      the  Partnership  of the  notice  exercising  the Option or, if no closing
      prices are so reported

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      on such  day,  on the last  preceding  day on  which  such  prices  are so
      reported.  An Option may be exercised  through a broker financed  exercise
      pursuant to the  provisions of Regulation T of the Federal  Reserve Board.
      If the Partnership receives payment of the purchase price for the exercise
      of the Option  through a broker  financed  exercise  before the end of the
      third business day following the broker's  execution of the sale of Common
      Units for the financed  exercise,  the exercise  shall be effective at the
      time of such sale.  Otherwise,  the exercise  shall be effective  when the
      Partnership receives payment of the purchase price.

      (iii) No Incentive  Stock Options.  No Option granted under the Plan shall
      be an Incentive  Stock Option as defined under Section 422 of the Code, or
      any  successor   provision  thereto,   and  any  regulations   promulgated
      thereunder.

      (iv) Award Agreement. Each grant of Options shall be evidenced by an Award
      Agreement which shall specify the term of the Option as well as provisions
      relating to exercise and termination.

      (v) Limit on Size of Option Grants. No individual shall be granted Options
      totaling  more  than Ten  Thousand  (10,000)  Common  Units in any  single
      calendar year.

      (vi) Status as Unitholder.  Unless and until a certificate or certificates
      representing  such Common Units shall have been issued by the  Partnership
      to the  Participant,  the Participant (or the person permitted to exercise
      an Option in the event of the Participant's death or incapacity) shall not
      be or  have  any  of the  rights  or  privileges  of a  unitholder  of the
      Partnership  with respect to the Common Units  acquirable upon an exercise
      of an Option.

5.2.  Grants to Non-Employee Directors.

      (i) Each  Director  of the  General  Partner who is not an employee of the
      General  Partner,  on the first day of the month  following  the effective
      date of the  Plan,  shall  receive  an Option to  purchase  five  thousand
      (5,000)  Common  Units.   Thereafter,   each   individual  who  becomes  a
      non-employee  Director of the General Partner,  and who has not previously
      been  granted an option  pursuant to this Section 5.2, on the first day of
      the month  following the date he or she becomes a Director,  shall receive
      an Option to purchase five thousand (5,000) Common Units.

      (ii) The per Common  Unit  purchase  price of such an Option  shall be the
      Fair Market Value of a Common Unit on the date of grant of such Option.

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      (iii) An Option granted hereunder to a non-employee  Director shall become
      exercisable determined by the number of full years as of and from the date
      of grant according to the following provisions:

                                    Percentage of
           Number of                Common Units
           Full Years               Exercisable
           --------------------     --------------    
           0 (Date of Grant)             0%
           1                            40%
           2                            60%
           3                            80%
           4                           100%

      No less than four  hundred  (400)  Common  Units,  or the total  remaining
      exercisable Common Units if fewer, may be exercised at any one time.

      (iv) Each  Option  shall  expire  seven  (7) years  from the date of grant
      thereof, but shall be subject to earlier termination as follows.  Options,
      to the extent exercisable as of the date a non-employee Director ceases to
      serve as a Director of the Company,  must be exercised within three months
      of  such  date  unless  such  event  results  from  death,  Disability  or
      Retirement,   in  which  case  such   Options  may  be  exercised  by  the
      non-employee Director,  his or her legal representative,  heir or devisee,
      as the case may be, within one (1) year from the date of death, Disability
      or  Retirement;  provided,  however,  that no such event shall  extend the
      normal expiration date of such Options.

      (v) Upon exercise of the Option,  delivery of a certificate for fully paid
      Common Units shall be made at the corporate  office of the General Partner
      in  Houston,  Texas to the  non-employee  Director  exercising  the Option
      either at such time during  ordinary  business  hours not more than thirty
      (30) days from the date of receipt of the notice by the General Partner as
      shall be designated in such notice,  or at such time,  place and manner as
      may be agreed upon by the General  Partner and the  non-employee  Director
      exercising the Option.

      (vi) To the extent they are not in conflict  with the  provisions  of this
      Section  5.2,  the  provisions  of Section 5.1 and 5.3 shall apply to each
      Option granted hereunder to a non-employee Director.

5.3.  General.

      (i) No Cash Consideration for Awards.  Except as otherwise provided in the
      Plan,  Awards  shall  be  granted  for no cash  consideration  or for such
      minimal cash consideration as may be required by applicable law.

      (ii)  Awards  May  Be  Granted  Separately  or  Together.  Awards,  in the
      discretion of the  Committee,  may be granted  either alone or in addition
      to, or in tandem with any other

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      Award or any award granted under any other plan of the  Partnership or any
      Affiliate.  Awards  granted in addition to or in tandem with other Awards,
      or in addition to or in tandem with awards granted under any other plan of
      the  Partnership or any Affiliate,  may be granted either at the same time
      as or at a  different  time from the grant of such other  Awards or awards
      granted under any other plan of the Partnership or any Affiliate.

      (iii) Limits on Transfer of Awards.  No Award and no right under any Award
      shall be assignable,  alienable, saleable or transferable by a Participant
      other than:

         (a)  by will or by the laws of descent and distribution;

         (b)  pursuant  to a  "domestic  relations  order" as defined in Section
         414(p) of the Code;

         (c) by transfer by an  eligible  Participant,  subject to such rules as
         the Committee may adopt to preserve the purposes of the Plan (including
         limiting  such  transfer to  Participants  who are  directors or senior
         executives), to:

             (I)  a member of his or her Immediate Family,

             (II) a trust solely for the benefit of the  Participant  and his or
             her immediate Family, or

             (III)  a  partnership  or  limited  liability  company  whose  only
             partners or members are the  Participant  and his or her  Immediate
             Family members,

         (d) by  designation,  in a manner  established by the  Committee,  of a
         beneficiary or  beneficiaries to exercise the rights of the Participant
         and to receive any  property  distributable  with  respect to any Award
         upon the death of the Participant.

      Each transferee described in (b) and (c) above is hereafter referred to as
      a  "Permitted  Transferee",  provided  that the  Committee  is notified in
      writing  of the  terms  and  conditions  of any  transfer  intended  to be
      described  in (b) or (c) and the  Committee  determines  that the transfer
      complies  with  the  requirements  of the Plan  and the  applicable  Award
      Agreement. Any purported assignment, alienation, pledge, attachment, sale,
      transfer or  encumbrance  that does not qualify under (a), (b), (c) or (d)
      shall  be void  and  unenforceable  against  the  Partnership.  "Immediate
      Family" means, with respect to a particular Participant, the Participant's
      spouse, children or grandchildren  (including adopted and stepchildren and
      grandchildren).

      The terms and provisions of an Award  Agreement  shall be binding upon the
      beneficiaries,  executors and administrators of the Participant and on the
      Permitted  Transferees of the  Participant  (including the  beneficiaries,
      executors and  administrators of the Permitted  Transferees),  except that
      Permitted  Transferees  shall not reassign any Award other than by will or
      by the laws of descent and distribution.  An Award shall be exercised only
      by  the  Participant  (or  his  or  her  attorney  in  fact  or  guardian)
      (including, in the case of a transferred

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      Award, by a Permitted  Transferee),  or, in the case of the  Participant's
      death, by the Participant's executor or administrator  (including,  in the
      case of a  transferred  Award,  by the  executor or  administrator  of the
      Permitted Transferee),  and all exercises of an Award shall be accompanied
      by  sufficient  payment,  as determined  by the  Partnership,  to meet its
      withholding  tax  obligation  on such  exercise  or by other  arrangements
      satisfactory to the Committee to provide for such payment.

      (iv) Term of Awards.  The term of each Award  shall be for such  period as
      may be determined by the Committee;  provided,  however,  that in no event
      shall the term of any  Option  exceed a period of ten (10)  years from the
      date of its grant.

      (v) Rule  16b-3.  It is  intended  that the Plan and any  Award  made to a
      Person  subject to Section 16 of the  Securities  Exchange Act of 1934, as
      amended,  meet all of the  requirements of Rule 16b-3. If any provision of
      the Plan or any such Award would  disqualify the Plan or such Award under,
      or would  otherwise not comply with,  Rule 16b-3,  such provision or Award
      shall be construed or deemed amended to conform to Rule 16b-3.

      (vi) Status of Common Units. The Partnership intends to register for issue
      under the Securities Act of 1933, as amended ("The Act"), the Common Units
      acquirable   pursuant  to  Awards  under  the  Plan,   and  to  keep  such
      registration  effective throughout the period any Awards are in effect. In
      the absence of such effective  registration or an available exemption from
      registration  under the Act, delivery of Common Units acquirable  pursuant
      to Awards  under the Plan  shall be  delayed  until  registration  of such
      Common Units is effective or an exemption from registration  under the Act
      is available.  The Partnership  intends to use reasonable efforts to avoid
      any such delay. In the event exemption from registration  under the Act is
      available,   a  Participant  (or  a   Participant's   estate  or  personal
      representative in the event of the Participant's death or incapacity),  if
      requested  by the  Partnership  to do so, will  execute and deliver to the
      Partnership  in writing an agreement  containing  such  provisions  as the
      Partnership may require to assure  compliance  with applicable  securities
      laws. No sale or disposition of Common Units acquired pursuant to an Award
      under  the  Plan by a  Participant  shall  be made  in the  absence  of an
      effective  registration  statement with respect to such Common Units under
      the Act unless an opinion of counsel  satisfactory to the Partnership that
      such sale or disposition will not constitute a violation of the Act or any
      other  applicable  securities laws is first obtained.  In the event that a
      Participant  proposes to sell or otherwise dispose of Common Units in such
      a manner that an exception from the  registration  requirements of the Act
      is  unavailable  for such sale or  disposition,  and upon  request  to the
      Partnership  by the  Participant,  the  Partnership,  at its sole cost and
      expense,  shall cause a  registration  statement  to be prepared and filed
      with respect to such sale or disposition by the  Participant and shall use
      its  reasonable  efforts  to have  such  registration  statement  declared
      effective,  and, in connection  therewith,  shall execute and deliver such
      documents as shall be necessary, including without limitation,  agreements
      providing for the  indemnification  of underwriters for any loss or damage
      incurred in connection with such sale or disposition.

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      (vii) Common Unit Certificates. All certificates for Common Units or other
      securities  delivered under the Plan pursuant to any Award or the exercise
      thereof  shall  be  subject  to  such  stop  transfer   orders  and  other
      restrictions  as the  Committee may deem  advisable  under the Plan or the
      rules,  regulations and other  requirements of the Securities and Exchange
      Commission,  any trading  exchange  upon which such Common  Units or other
      securities are then listed and any applicable  Federal or state securities
      laws,  and the  Committee  may cause a legend or  legends to be put on any
      such  certificates  to make  appropriate  reference to such  restrictions,
      including, but not limited to, the provisions of Subsection 5.3(vi).

Section 6.  Amendment And Termination

Except to the extent prohibited by applicable law and unless otherwise expressly
provided in an Award Agreement or in the Plan:

6.1.  Amendments to the Plan.  The Board of Directors of the General  Partner in
its  discretion  may  terminate  the Plan at any time with respect to any Common
Units for which a grant has not theretofore been made. The Board of Directors of
the General  Partner shall have the right to alter or amend the Plan or any part
thereof  from time to time;  provided,  that no change in any grant  theretofore
made may be made  which  would  impair the  rights of the  recipient  of a grant
without the consent of such recipient.

6.2.  Adjustments of Awards Upon the Occurrence of Certain  Unusual
      or Nonrecurring Events.

      A. Except as  otherwise  expressly  provided  herein,  the issuance by the
Partnership of securities,  for cash, property,  labor or services,  upon direct
sale,  upon the  exercise of rights or warrants to subscribe  therefor,  or upon
conversion of units or  obligations  of the  Partnership  convertible  into such
securities, and in any case whether or not for fair value, shall not affect, and
no  adjustment  by reason  thereof  shall be made with respect to, the number of
Common Units  subject to Options  theretofore  granted or the purchase  price or
grant price per Common Unit, if applicable.

      B. Any  adjustment  provided  for in Section  3.2 or Section  6.2 shall be
subject to any Partnership  unitholder  action or approval as may be required by
law.

6.3.  Correction of Defects,  Omissions and  Inconsistencies.  The Committee may
correct any defect,  supply any omission,  or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem desirable in the
establishment or administration of the Plan.

Section 7.  General Provisions

7.1. No Rights to Awards.  No Employee,  Participant  or other Person shall have
any claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Employees,  Participants, or holders or beneficiaries
of Awards  under the Plan.  The terms and  conditions  of Awards need not be the
same with respect to each Participant.

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7.2. Withholding. The Partnership or any Affiliate is authorized (i) to withhold
from any Award  granted,  its exercise,  or any payment due or any transfer made
under any Award or under the Plan the  amount  (in  cash,  Common  Units,  other
securities, other Awards, or other property) of withholding taxes due in respect
of an Award, its exercise,  or any payment or transfer under such Award or under
the Plan,  and (ii) to take such other  action,  including  but not  limited to,
acceptance of already owned Common Units  (including  Common Units acquired from
the exercise of an Option),  as may be necessary to satisfy all  obligations for
the  withholding  of such  taxes.  Further,  each  Participant  shall be  solely
responsible for the payment of all taxes relating to the Participant's Award and
exercise thereof, in excess of the amount of any such taxes withheld.

7.3. No Limit on Other Compensation Arrangements.  Nothing contained in the Plan
shall prevent the  Partnership  or any Affiliate  from adopting or continuing in
effect other or additional  compensation  arrangements and such arrangements may
be either generally applicable or applicable only in specific cases.

7.4. No Right To  Employment.  The grant of an Award shall not be  construed  as
giving a Participant  the right to be retained in the employ of the  Partnership
or any  Affiliate.  Further,  the  Partnership  or an Affiliate  may at any time
dismiss a  Participant  from  employment,  free from any  liability or any claim
under the Plan unless otherwise  expressly  provided in the Plan or in any Award
Agreement.

7.5.  Governing Law. The validity,  construction  and effect of the Plan and any
rules and  regulations  relating to the Plan shall be  determined  in accordance
with applicable Federal law, and to the extent not preempted  thereby,  with the
laws of the State of Texas, excluding any conflict of law provisions.

7.6. Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any
person or Award, or would  disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable  laws.  If it cannot be so construed or deemed  amended
without,  in the determination of the Committee,  materially altering the intent
of  the  Plan  or the  Award,  such  provision  shall  be  stricken  as to  such
jurisdiction,  Person or Award and the  remainder of the Plan and any such Award
shall remain in full force and effect.

7.7. No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed  to  create  a  trust  or  separate  fund of any  kind or a  fiduciary
relationship  between the  Partnership or any Affiliate and a Participant or any
other Person. To the extent that any Person acquires a right to receive payments
from the Partnership or any Affiliate  pursuant to an Award, such right shall be
no greater than the right of any unsecured  general  creditor of the Partnership
or any Affiliate.

7.8. No Fractional  Common Units. No fractional  Common Units shall be issued or
delivered  pursuant to the Plan or any Award,  and the Committee shall determine
whether cash, other  securities,  or other property shall be paid or transferred
in lieu of any fractional  Common Units, or whether such fractional Common Units
or any rights thereto shall be canceled, terminated or

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otherwise eliminated.  In addition, no fractional Common Units shall be accepted
by the Partnership in payment of the exercise price of an Option.

7.9.  Headings.  Headings are given to the Sections and  Subsections of the Plan
solely as a convenience  to  facilitate  reference.  Such headings  shall not be
deemed in any way material or relevant to the construction or  interpretation of
the Plan or any provision thereof.

7.10.  No  Limitation.  The  existence of the Plan and the grants of Awards made
hereunder  shall not affect in any way the right or power of the General Partner
or the unitholders of the Partnership (or any Affiliate,  as applicable) to make
or authorize any adjustment, recapitalization, reorganization or other change in
the capital  structure  or business of the  Partnership  or any  Affiliate,  any
merger or consolidation  of the Partnership or any Affiliate,  any issue of debt
or equity securities ahead of or affecting Common Units or the rights thereof or
pertaining  thereto,  the  dissolution or liquidation of the  Partnership or any
Affiliate  or any  sale or  transfer  of all or any part of  Partnership  or any
Affiliate's assets or business, or any other corporate act or proceeding.

7.11. No Right to Retention. Neither the Plan, nor any Award granted pursuant to
the Plan,  is a contract or agreement  that the  Partnership  will  continue the
employment or retain the services of any Participant for any period of time.

7.12. Securities Laws. Each Award granted under the Plan shall be subject to the
requirement  that if at any  time  the  Partnership  or  General  Partner  shall
determine, in its discretion, that the listing, registration or qualification of
the Common Units subject to such grant upon any securities exchange or under any
state or federal  law,  or that the  consent  or  approval  of any  governmental
regulatory  body,  is necessary or desirable as a condition of, or in connection
with, such grant or the issue or purchase of units thereunder,  such grant shall
be subject to the  condition  that such  listing,  registration,  qualification,
consent or approval  shall have been effected or obtained free of any conditions
not acceptable to the Partnership or General Partner.

Section 8.  Effective Date Of The Plan

The Plan  shall be  effective  as of the date of its  approval  by the  Board of
Directors of the General Partner.

Section 9.  Term Of The Plan

No Award shall be granted under the Plan after the earlier of (i) ten (10) years
from the date of approval of the Plan by the Board of  Directors  of the General
Partner  pursuant  to  Section 8 or (ii)  termination  of the Plan  pursuant  to
Section 6.1. However,  unless otherwise  expressly provided in the Plan or in an
applicable Award Agreement, any Award theretofore granted may extend beyond such
date, and any authority of the Committee to amend, alter,  suspend,  discontinue
or terminate any such Award, or to waive any conditions or rights under any such
Award,  and the  authority of the Board of  Directors of the General  Partner to
amend the Plan, shall extend beyond such date.

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Section 10.  Definitions

As used in the Plan,  the  following  terms  shall have the  meanings  set forth
below:

(a)  "Affiliate" shall mean (i) the General Partner and any entity that directly
     or through one or more  intermediaries  either controls or is controlled by
     the Partnership, (ii) any entity in which the Partnership has a significant
     equity  interest as  determined  by the  Committee,  (iii) with  respect to
     matters  relating to Rule 16b-3,  as the term  "affiliate"  is used in Rule
     16b-3 and (iv) as used in Section 7.2 and in the term  "Associate,"  as the
     term "affiliate" is defined in Rule 12b-2 under the Securities Exchange Act
     of 1934, as amended, or any successor rule or regulation.

(b)  "Associate" is used to indicate a relationship  with a specified person and
     shall mean (i) any corporation,  partnership or other organization to which
     such  specified  person  is an  officer  or  partner  or  is,  directly  or
     indirectly,  the Beneficial Owner of ten percent (10%) or more of any class
     of  equity  securities,  (ii)  any  trust  or other  estate  in which  such
     specified person has a substantial  beneficial interest or as to which such
     specified  person  serves as  trustee or in a similar  fiduciary  capacity,
     (iii) any relative or spouse of such specified  person,  or any relative of
     such  spouse,  who has the same home as such  specified  person or who is a
     Director or officer of the Partnership or any of its parents or Affiliates,
     and (iv) any person who is a director or officer of such  specified  person
     or any of its  parents or  Affiliates  (other than the  Partnership  or any
     wholly owned subsidiary of the Partnership).

(c)  "Award" shall mean any Option granted under the Plan.

(d)  "Award  Agreement"  shall mean any  written  agreement,  contract  or other
     instrument or document evidencing any Award granted under the Plan.

(e)  "Beneficial  Owner"  shall be defined by  reference to Rule 13d-3 under the
     Securities  Exchange  Act of 1934,  as amended,  or any  successor  rule or
     regulation;  provided,  however,  and without  limitation,  any individual,
     corporation,  partnership,  group,  association  or other  person or entity
     which has the  right to  acquire  any  voting  security  at any time in the
     future,  whether  such right is  contingent  or  absolute,  pursuant to any
     agreement,  arrangement  or  understanding  or upon  exercise of conversion
     rights, warrants or options, or otherwise, shall be the Beneficial Owner of
     such voting security.

(f)  "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
     to time.

(g)  "Committee" shall have the meaning set forth in Section 2.1.

(h)  "Common  Unit"  shall  have the same  meaning  as "Unit" is defined in  the
     Partnership Agreement.

(i)  "Disability"  shall mean,  with respect to a  Participant  in the Plan,  an
     injury or illness to or of a Participant  for which the  Committee  makes a
     determination that the Participant is

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     permanently  and  totally  unable  to  perform  his or her  duties  for the
     Partnership  or an  Affiliate  as a  result of any  medically  determinable
     physical or mental  impairment as  supported by a written  medical  opinion
     satisfactory to the Committee by a  physician selected by the Committee, or
     if earlier, the date the Participant  becomes entitled to receive long term
     disability  benefits under the long  term  disability plan sponsored by the
     Partnership or an Affiliate for its  employees generally.

(j)  "Employee"  shall  mean  any  person  employed  by the  Partnership  or any
     Affiliate.

(k)  "Fair Market  Value" shall mean,  with respect to any property  (including,
     without  limitation,  any Common Units or other  securities),  the value of
     such  property  determined  by such  methods  or  procedures  as  shall  be
     established from time to time by the Committee;  provided,  that so long as
     the  closing  price of  Common  Units  is  reported  by the New York  Stock
     Exchange,  Fair Market  Value with  respect to Common Units on a particular
     date shall mean such closing  price of Common Units as so reported for such
     date (or, if no prices are quoted for that date,  as so quoted for the last
     preceding date for which such prices were so quoted).

(l)  "General Partner" shall mean Kinder Morgan G.P., Inc.

(m)  "Involuntary   Termination"  shall  mean  termination  of  a  Participant's
     employment  as an Employee  with the  Partnership  or an  Affiliate  at the
     election of the Partnership or Affiliate, provided that such termination is
     not  Termination  for Cause.  Involuntary  Termination  shall not include a
     transfer of assignment or location of a Participant  where the  Participant
     is employed by the  Partnership  or an Affiliate  both before and after the
     transfer.

(n)  "Option"  shall  mean  the  opportunity  to  purchase  Common  Units of the
     Partnership pursuant to an Award granted under Section 5 of the Plan.

(o)  "Participant"  shall mean an  Employee  or other  individual  described  in
     Section 4 designated to be granted an Award under the Plan.

(p)  "Partnership   Agreement"  shall  mean  the  Second  Amended  And  Restated
     Agreement of Limited  Partnership Of Kinder Morgan Energy  Partners,  L.P.,
     dated as of January 14, 1998.

(q)  "Person" shall mean any individual, corporation,  partnership, association,
     joint-stock company,  trust,  unincorporated  organization or government or
     political subdivision thereof.

(r)  "Retirement"  shall mean with respect to an Employee of the  Partnership or
     an Affiliate,  termination  of  employment,  other than a  Termination  for
     Cause, after attainment of age 55 with at least 5 years of service.

(s)  "Rule  16b-3"  shall  mean Rule 16b-3  promulgated  by the  Securities  and
     Exchange  Commission under the Securities  Exchange Act of 1934, as amended
     from time to time.

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(t)  "Termination  for  Cause"  shall mean  termination  of  Participant  by the
     Partnership or an Affiliate  because of  Participant's  (i) conviction of a
     felony which in the  reasonable,  good faith opinion of the Committee would
     have an adverse impact on the reputation or business of the  Partnership or
     an Affiliate;  (ii) willful  refusal  without proper legal cause to perform
     Participant's  duties and  responsibilities;  (iii)  willfully  engaging in
     conduct which Participant has reason to know is materially injurious to the
     Partnership  or an Affiliate;  or (iv) failure to meet clearly  established
     and  reasonable  performance  objectives  or standards  established  by the
     Partnership or an Affiliate for Participant's job position. The Committee's
     determination  of the reason for a Participant's  termination of employment
     shall be conclusive and binding.

(u)  Any terms or provisions  used herein which are defined in Sections 83, 421,
     422 or 424 of the Code, or the regulations thereunder,  or in Rule 16b-3 of
     the Securities Exchange Act of 1934, as amended, shall have the meanings as
     therein defined.

     Executed this 6th day of March, 1998


                                    KINDER MORGAN ENERGY PARTNERS, L.P.

                                    By: KINDER MORGAN G.P., INC.,
                                        its General Partner


                                    By: /s/ Michael C. Morgan
                                    Name: Michael C. Morgan
                                    Title: Vice President
  
Attest:

/s/ Clare H. Doyle
Secretary

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