Table of Contents







UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549




F
O R M   10-Q




[X]QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d)


OF THE SECURITIESEXCHANGEACT OF 1934




For
the quarterly period ended September 30,
2009




or




[   ]TRANSITIONREPORT PURSUANT TO SECTION 13 OR
15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934




For
the transition period from _____to_____




Commission
file number:  1-06446







KINDER
MORGAN, INC.


(Exact
name of registrant as specified in its charter)







Kansas
            
            48-0290000(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)







500
Dallas Street, Suite 1000, Houston, Texas 77002


(Address
of principal executive offices)(zip code)


Registrant’s
telephone number, including area code: 713-369-9000







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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes [  ] No
[   ]




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Securities Exchange Act of 1934.  Large accelerated filer [ ]
Accelerated filer [   ] Non-accelerated filer [X] Smaller
reporting company [   ]




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of 1934).  Yes
[   ] No [X]




Number
of outstanding shares of Common stock, $0.01 par value, as of October 30, 2009
was 100 shares.


Kinder
Morgan, Inc. Form 10-Q










KINDER MORGAN, INC. AND SUBSIDIARIES


TABLE
OF CONTENTS


Page
                NumberPART I.  FINANCIAL
      INFORMATIONItem 1.
              Financial Statements
      (Unaudited)
              3Consolidated Statements of Operations - Three and
      Nine Months Ended September 30, 2009 and 2008
              3Consolidated Balance Sheets - September 30, 2009 and
      December 31, 2008
              4Consolidated Statements of Cash Flows - Nine Months
      Ended September 30, 2009 and 2008
              5Notes to Consolidated Financial
      Statements
              6Item 2.
              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
              50General and Basis of
      Presentation
              50Critical Accounting Policies and
      Estimates
              50Results of Operations
              51Financial Condition
              68Recent Accounting
      Pronouncements
              72Information Regarding Forward-Looking
      Statements
              73Item 3.
              Quantitative and Qualitative Disclosures About
      Market Risk
              74Item 4.
              Controls and Procedures
              75PART II.  OTHER
    INFORMATIONItem 1.
              Legal Proceedings
              75Item 1A.
              Risk Factors
              75Item 2.
              Unregistered Sales of Equity Securities and Use
      of Proceeds
              75Item 3.
              Defaults Upon Senior Securities
              75Item 4.
              Submission of Matters to a Vote of
      Security Holders
              75Item 5.
              Other Information
              75Item 6.
              Exhibits
              76Signature
              77






2
 Kinder
Morgan, Inc. Form 10-Q


PART I.  FINANCIAL INFORMATION





Item 1.  Financial
Statements.





KINDER MORGAN, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
Millions)


(Unaudited)





Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008RevenuesNatural
      gas sales
            
            $
            686.2
            
            
            $
            2,183.3
            
            
            $
            2,291.8
            
            
            $
            6,369.8Services
            
            
            690.2
            
            
            
            700.9
            
            
            
            2,003.7
            
            
            
            2,187.5Product
      sales and other
            
            
            335.9
            
            
            
            412.4
            
            
            
            939.0
            
            
            
            1,194.8Total
      Revenues
            
            
            1,712.3
            
            
            
            3,296.6
            
            
            
            5,234.5
            
            
            
            9,752.1Operating
      Costs, Expenses and OtherGas
      purchases and other costs of sales
            
            
            665.2
            
            
            
            2,179.2
            
            
            
            2,240.3
            
            
            
            6,433.9Operations
      and maintenance
            
            
            286.0
            
            
            
            360.8
            
            
            
            815.4
            
            
            
            977.4Depreciation,
      depletion and amortization
            
            
            255.5
            
            
            
            217.2
            
            
            
            777.1
            
            
            
            651.0General
      and administrative
            
            
            92.2
            
            
            
            85.9
            
            
            
            269.2
            
            
            
            264.0Taxes,
      other than income taxes
            
            
            36.4
            
            
            
            48.0
            
            
            
            98.8
            
            
            
            151.6Other
      expense (income)
            
            
            (14.2
            )
            
            
            7.2
            
            
            
            (14.1
            )
            
            
            4.5Goodwill
      impairment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,033.3Total
      Operating Costs, Expenses and Other
            
            
            1,321.1
            
            
            
            2,898.3
            
            
            
            4,186.7
            
            
            
            12,515.7Operating
      Income (Loss)
            
            
            391.2
            
            
            
            398.3
            
            
            
            1,047.8
            
            
            
            (2,763.6
            )Other
      Income (Expense)Earnings
      from equity investments
            
            
            65.0
            
            
            
            42.9
            
            
            
            159.9
            
            
            
            141.9Interest,
      net
            
            
            (139.6
            )
            
            
            (141.5
            )
            
            
            (419.8
            )
            
            
            (493.8
            )Interest
      income (expense) – deferrable interest debentures
            
            
            (0.5
            )
            
            
            (0.5
            )
            
            
            (1.6
            )
            
            
            5.6Other,
      net
            
            
            13.0
            
            
            
            4.4
            
            
            
            43.9
            
            
            
            18.1Total
      Other Income (Expense)
            
            
            (62.1
            )
            
            
            (94.7
            )
            
            
            (217.6
            )
            
            
            (328.2
            )Income
      (Loss) from Continuing Operations Before Income Taxes
            
            
            329.1
            
            
            
            303.6
            
            
            
            830.2
            
            
            
            (3,091.8
            )Income
      Taxes
            
            
            (99.6
            )
            
            
            (87.9
            )
            
            
            (247.2
            )
            
            
            (194.4
            )Income
      (Loss) from Continuing Operations
            
            
            229.5
            
            
            
            215.7
            
            
            
            583.0
            
            
            
            (3,286.2
            )Income
      (Loss) from Discontinued Operations, net of tax
            
            
            (0.1
            )
            
            
            (0.2
            )
            
            
            0.4
            
            
            
            (0.6
            )Net
      Income (Loss)
            
            
            229.4
            
            
            
            215.5
            
            
            
            583.4
            
            
            
            (3,286.8
            )Net
      Income attributable to Noncontrolling Interests
            
            
            (106.6
            )
            
            
            (106.8
            )
            
            
            (215.5
            )
            
            
            (359.4
            )Net
      Income (Loss) attributable to Kinder Morgan, Inc.
            
            $
            122.8
            
            
            $
            108.7
            
            
            $
            367.9
            
            
            $
            (3,646.2
            )





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


3
 Kinder
Morgan, Inc. Form 10-Q


KINDER MORGAN, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(In
Millions, except Shares)


(Unaudited)





September
      30,
              2009
            
            
            December
      31,
              2008ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            226.1
            
            
            $
            118.6Restricted
      deposits
            
            
            50.0
            
            
            
            -Accounts,
      notes and interest receivable, net
            
            
            717.9
            
            
            
            992.5Inventories
            
            
            56.6
            
            
            
            44.2Gas
      imbalances
            
            
            15.7
            
            
            
            14.1Gas
      in underground storage
            
            
            51.9
            
            
            
            -Fair
      value of derivative contracts
            
            
            24.4
            
            
            
            115.2Other
      current assets
            
            
            56.0
            
            
            
            32.6Total
      Current Assets
            
            
            1,198.6
            
            
            
            1,317.2Property,
      plant and equipment, net
            
            
            16,582.5
            
            
            
            16,109.8Investments
            
            
            3,405.8
            
            
            
            1,827.4Notes
      receivable
            
            
            189.9
            
            
            
            178.1Goodwill
            
            
            4,737.4
            
            
            
            4,698.7Other
      intangibles, net
            
            
            241.4
            
            
            
            251.5Fair
      value of derivative contracts
            
            
            433.3
            
            
            
            828.0Deferred
      charges and other assets
            
            
            217.0
            
            
            
            234.2Total
      Assets
            
            $
            27,005.9
            
            
            $
            25,444.9LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesCurrent
      portion of debt
            
            $
            206.7
            
            
            $
            302.5Cash
      book overdrafts
            
            
            34.7
            
            
            
            45.2Accounts
      payable
            
            
            438.7
            
            
            
            849.8Accrued
      interest
            
            
            120.6
            
            
            
            241.9Accrued
      taxes
            
            
            89.0
            
            
            
            152.1Deferred
      revenues
            
            
            65.1
            
            
            
            41.2Gas
      imbalances
            
            
            8.2
            
            
            
            12.4Fair
      value of derivative contracts
            
            
            198.3
            
            
            
            129.5Accrued
      other current liabilities
            
            
            165.0
            
            
            
            240.1Total
      Current Liabilities
            
            
            1,326.3
            
            
            
            2,014.7Long-Term
      Liabilities and Deferred CreditsLong-term
      debtOutstanding
            
            
            12,994.5
            
            
            
            11,020.1Deferrable
      interest debentures
            
            
            35.7
            
            
            
            35.7Preferred
      interest in general partner of Kinder Morgan Energy
    Partners
            
            
            100.0
            
            
            
            100.0Value
      of interest rate swaps
            
            
            612.0
            
            
            
            971.0Total
      Long-term debt
            
            
            13,742.2
            
            
            
            12,126.8Deferred
      income taxes
            
            
            2,081.9
            
            
            
            2,081.3Asset
      retirement obligations
            
            
            84.1
            
            
            
            74.0Fair
      value of derivative contracts
            
            
            298.0
            
            
            
            92.2Other
      long-term liabilities and deferred credits
            
            
            531.8
            
            
            
            579.0Total
      Long-Term Liabilities and Deferred Credits
            
            
            16,738.0
            
            
            
            14,953.3Total
      Liabilities
            
            
            18,064.3
            
            
            
            16,968.0Commitments
      and Contingencies (Notes 4 and 11)Stockholders’
      EquityCommon
      stock – authorized and outstanding – 100 shares, par value
      $0.01 per share
            
            
            -
            
            
            
            -Additional
      paid-in capital
            
            
            7,835.0
            
            
            
            7,810.0Retained
      deficit
            
            
            (3,284.4
            )
            
            
            (3,352.3
            )Accumulated
      other comprehensive loss
            
            
            (131.2
            )
            
            
            (53.4
            )Total
      Kinder Morgan, Inc. Stockholder’s Equity
            
            
            4,419.4
            
            
            
            4,404.3Noncontrolling
      interests
            
            
            4,522.2
            
            
            
            4,072.6Total
      Stockholders’ Equity
            
            
            8,941.6
            
            
            
            8,476.9Total
      Liabilities and Stockholders’ Equity
            
            $
            27,005.9
            
            
            $
            25,444.9





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


4
 Kinder
Morgan, Inc. Form 10-Q


KINDER MORGAN, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
Millions)


(Unaudited)


Nine Months Ended September 30,2009
              
              
              2008Cash
      Flows From Operating ActivitiesNet
      Income (loss)
              
              $
              583.4
              
              
              $
              (3,286.8
              )Adjustments
      to reconcile net income to net cash provided by operating
      activitiesLoss
      from goodwill impairment
              
              
              -
              
              
              
              4,033.3Loss
      on early extinguishment of debt
              
              
              -
              
              
              
              23.6Depreciation,
      depletion and amortization
              
              
              777.1
              
              
              
              651.0Amortization
      of excess cost of equity investments
              
              
              4.3
              
              
              
              4.3Deferred
      income taxes
              
              
              51.3
              
              
              
              46.4Income
      from the allowance for equity funds used during
    construction
              
              
              (22.6
              )
              
              
              -(Income)
      loss from the sale or casualty of property, plant and equipment and other
      net assets
              
              
              (14.1
              )
              
              
              4.4Earnings
      from equity investments
              
              
              (164.2
              )
              
              
              (146.2
              )Mark-to-market
      interest rate swap gain
              
              
              -
              
              
              
              (19.8
              )Distributions
      from equity investments
              
              
              184.5
              
              
              
              185.0Proceeds
      from (payment for) termination of interest rate swap
      agreements
              
              
              146.0
              
              
              
              (2.5
              )Pension
      contributions in excess of expense
              
              
              (11.1
              )
              
              
              -Changes
      in components of working capitalAccounts
      receivable
              
              
              215.5
              
              
              
              (55.5
              )Other
      current assets
              
              
              (73.4
              )
              
              
              1.0Inventories
              
              
              (11.8
              )
              
              
              (7.3
              )Accounts
      payable
              
              
              (342.5
              )
              
              
              (89.3
              )Accrued
      interest
              
              
              (121.3
              )
              
              
              (145.3
              )Accrued
      liabilities
              
              
              (143.1
              )
              
              
              (81.0
              )Accrued
      taxes
              
              
              (77.8
              )
              
              
              (502.3
              )Rate
      reparations, refunds and other litigation reserve
    adjustments
              
              
              (15.5
              )
              
              
              (10.7
              )Other,
      net
              
              
              (46.0
              )
              
              
              (18.5
              )Cash
      flows provided by continuing operations
              
              
              918.7
              
              
              
              583.8Net
      cash flows provided by (used in) discontinued operations
              
              
              0.1
              
              
              
              (0.7
              )Net
      Cash Provided by Operating Activities
              
              
              918.8
              
              
              
              583.1Cash
      Flows From Investing ActivitiesProceeds
      from sale of 80% interest in NGPL PipeCo LLC, net of $1.1
      cash sold
              
              
              -
              
              
              
              2,899.3Proceeds
      from NGPL PipeCo LLC restricted cash
              
              
              -
              
              
              
              3,106.4Acquisitions
      of assets
              
              
              (27.5
              )
              
              
              (16.4
              )Repayments
      from customers
              
              
              109.6
              
              
              
              -Capital
      expenditures
              
              
              (1,076.4
              )
              
              
              (1,922.8
              )Sale
      or casualty of property, plant and equipment, and other net assets net of
      removal costs
              
              
              9.8
              
              
              
              113.3(Investments
      in) net proceeds from margin deposits
              
              
              (13.2
              )
              
              
              40.3Investments
      in restricted deposits
              
              
              (39.9
              )
              
              
              -Contributions
      to investments
              
              
              (1,619.6
              )
              
              
              (342.1
              )Distributions
      from equity investments
              
              
              15.9
              
              
              
              92.5Natural
      gas stored underground and natural gas liquids line-fill
              
              
              -
              
              
              
              (2.5
              )Net
      Cash Provided by (Used in) Investing Activities
              
              
              (2,641.3
              )
              
              
              3,968.0Cash
      Flows From Financing ActivitiesIssuance
      of debt
              
              
              6,617.7
              
              
              
              7,980.4Payment
      of debt
              
              
              (4,735.0
              )
              
              
              (12,581.7
              )Repayments
      from related party
              
              
              2.5
              
              
              
              2.7Discount
      on early extinguishment of debt
              
              
              -
              
              
              
              69.2Debt
      issue costs
              
              
              (14.8
              )
              
              
              (14.3
              )(Decrease)
      Increase in cash book overdrafts
              
              
              (10.4
              )
              
              
              43.5Cash
      dividends
              
              
              (300.0
              )
              
              
              -Contributions
      from noncontrolling interests
              
              
              815.5
              
              
              
              385.0Distributions
      to noncontrolling interests
              
              
              (550.2
              )
              
              
              (463.3
              )Other,
      net
              
              
              (0.3
              )
              
              
              8.9Net
      Cash Provided by (Used in) Financing Activities
              
              
              1,825.0
              
              
              
              (4,569.6
              )Effect
      of exchange rate changes on cash and cash equivalents
              
              
              5.0
              
              
              
              (3.5
              )Increase
      (Decrease) in Cash and Cash Equivalents
              
              
              107.5
              
              
              
              (22.0
              )Cash
      and Cash Equivalents, beginning of period
              
              
              118.6
              
              
              
              148.6Cash
      and Cash Equivalents, end of period
              
              $
              226.1
              
              
              $
              126.6Noncash
      Investing and Financing ActivitiesAssets
      acquired by the assumption or incurrence of liabilities
              
              $
              3.7
              
              
              $
              3.4Interest
      expense recognized from the early extinguishment of debt
              
              
              -
              
              
              
              87.5Subordinated
      notes acquired by exchange of preferred equity interest
              
              
              -
              
              
              
              111.4Assets
      acquired by contributions from noncontrolling interests
              
              $
              5.0
              
              
              $
              -Supplemental
      Disclosures of Cash Flow InformationCash
      paid during the period for interest (net of capitalized
      interest)
              
              $
              555.9
              
              
              $
              623.0Cash
      paid during the period for income taxes
              
              $
              317.2
              
              
              $
              622.9





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


5
 Kinder
Morgan, Inc. Form 10-Q


KINDER MORGAN, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1.  General




Organization




We
are a large energy transportation and storage company, operating or owning an
interest in approximately 37,000 miles of pipelines and approximately 170
terminals.  We have both regulated and nonregulated
operations.  We also own all the common equity of the general partner
of, and a significant limited partner interest in, Kinder Morgan Energy
Partners, L.P., a publicly traded pipeline limited partnership.  We
are a wholly owned subsidiary of Kinder Morgan Holdco LLC, a private company
(formerly Knight Holdco LLC).  Our executive offices are located at
500 Dallas Street, Suite 1000, Houston, Texas 77002 and our telephone number is
(713) 369-9000.  Unless the context requires otherwise, references to
“we,” “us,” “our,” or the “Company” are intended to mean Kinder Morgan, Inc. and
its consolidated subsidiaries.  Unless the context requires otherwise,
references to “Kinder Morgan Energy Partners” and “KMP” are intended to mean
Kinder Morgan Energy Partners, L.P. and its consolidated
subsidiaries.




Kinder
Morgan Management, LLC, referred to in this report as “Kinder Morgan Management”
or “KMR,” is a publicly traded Delaware limited liability
company.  Kinder Morgan G.P., Inc., the general partner of Kinder
Morgan Energy Partners and a wholly owned subsidiary of ours, owns all of Kinder
Morgan Management’s voting shares.  Kinder Morgan Management, pursuant
to a delegation of control agreement, has been delegated, to the fullest extent
permitted under Delaware law, all of Kinder Morgan G.P., Inc.’s power and
authority to manage and control the business and affairs of Kinder Morgan Energy
Partners, subject to Kinder Morgan G.P., Inc.’s right to approve certain
transactions.




As
further disclosed in Note 1 of Notes to Consolidated Financial Statements in our
Annual Report on Form 10-K for the year ended December 31, 2008 (“2008 Form
10-K”), on May 30, 2007, Kinder Morgan, Inc. merged with a wholly owned
subsidiary of Kinder Morgan Holdco LLC, with Kinder Morgan, Inc. continuing as
the surviving legal entity and subsequently renamed Knight Inc.  On
July 15, 2009, the Company’s name was changed back to Kinder Morgan,
Inc.  This transaction is referred to in this report as “the Going
Private transaction.”  Effective with the closing of the Going Private
transaction, all of our assets and liabilities were recorded at their estimated
fair market values based on an allocation of the aggregate purchase price paid
in the Going Private transaction.




Basis
of Presentation




We
have prepared our accompanying unaudited interim consolidated financial
statements under the rules and regulations of the Securities and Exchange
Commission (“SEC”).  Under such SEC rules and regulations, we have
condensed or omitted certain information and notes normally included in
financial statements prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”).  We believe,
however, that our disclosures are adequate to make the information presented not
misleading.  Our consolidated financial statements reflect normal
adjustments, and also recurring adjustments that are, in the opinion of
management, necessary for a fair presentation of our financial results for the
interim periods and certain amounts from prior periods have been reclassified to
conform to the current presentation.  Interim results are not
necessarily indicative of results for a full year; accordingly, you should read
these interim consolidated financial statements in conjunction with our
consolidated financial statements and related notes included in our 2008 Form
10-K.




Our
accounting records are maintained in United States dollars and all references to
dollars are United States dollars, except where stated
otherwise.  Canadian dollars are designated as C$.  Our
consolidated financial statements include the accounts of Kinder Morgan, Inc.
and our majority-owned subsidiaries, as well as those of Kinder Morgan Energy
Partners, Kinder Morgan Management and Triton Power Company
LLC.  Investments in jointly owned operations in which we hold a 50%
or less interest (other than Kinder Morgan Energy Partners, Kinder Morgan
Management and Triton Power Company LLC, because we have the ability to exercise
significant control over their operating and financial policies) are accounted
for under the equity method.  All significant intercompany
transactions and balances have been eliminated.




Notwithstanding
the consolidation of Kinder Morgan Energy Partners and its subsidiaries into our
financial statements, we are not liable for, and our assets are not available to
satisfy, the obligations of Kinder Morgan Energy




6
 Kinder
Morgan, Inc. Form 10-Q


Partners
and/or its subsidiaries and vice versa, except as discussed in the following
paragraph.  Responsibility for payments of obligations reflected in
our or Kinder Morgan Energy Partners’ financial statements is a legal
determination based on the entity that incurs the liability.




In
conjunction with Kinder Morgan Energy Partners’ acquisition of certain natural
gas pipelines from us, we agreed to indemnify Kinder Morgan Energy Partners with
respect to approximately $733.5 million of its debt.  We would be
obligated to perform under this indemnity only if Kinder Morgan Energy Partners’
assets were unable to satisfy its obligations.




The
Financial Accounting Standards Board’s Accounting Standards
Codification




In
this report, we refer to the Financial Accounting Standards Board as the FASB
and the FASB’s issued Statements of Financial Accounting Standards as
SFAS.




In
June 2009, the FASB voted to approve its Accounting Standards Codification as
the single source of GAAP recognized by the FASB to be applied by
nongovernmental entities.  All other accounting literature not
included in the Codification is considered nonauthoritative.  In this
report, we refer to the FASB Accounting Standards Codification as the
Codification.  It became effective for us on September 30, 2009, and
although the adoption of the Codification did not have any direct effect on our
consolidated financial statements, it does affect the way we reference GAAP in
our financial statements and in our accounting policies.




The
FASB now communicates new accounting standards via a new document called an
Accounting Standards Update (“ASU”).  Each ASU is a transient
document—not considered authoritative in its own right—and serves only to update
the Codification by detailing the specific amendments to the Codification and
explaining the historical basis for conclusions of a new
standard.  The FASB will organize the content of each ASU using the
same topics and section headings as those used in the
Codification.  For more information on Codification updates and other
recent accounting pronouncements, see Note 13.




Noncontrolling
Interests




On
January 1, 2009, we adopted certain provisions concerning the accounting and
reporting for noncontrolling interests included within the “Consolidation” Topic
of the Codification.  A noncontrolling interest, sometimes referred to
as a minority interest, is the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent.




Specifically,
these provisions establish accounting and reporting standards that require (i)
the ownership interests in subsidiaries held by parties other than the parent to
be clearly identified, labeled, and presented in the consolidated balance sheet
within equity, but separate from the parent’s equity and (ii) the equity amount
of consolidated net income attributable to the parent and to the noncontrolling
interest to be clearly identified and presented on the face of the consolidated
statement of operations.  Accordingly, our
consolidated net income and comprehensive income are now determined without
deducting amounts attributable to our noncontrolling interests.




The
adopted provisions apply prospectively, with the exception of the presentation
and disclosure requirements, which must be applied retrospectively for all
periods presented.In
addition, on September 18, 2009, we filed a Current Report on Form 8-K to update
certain sections of our 2008 Form 10-K solely to reflect the retrospective
presentation and disclosure requirements for noncontrolling
interests.  The Form 8-K included Item 6 “Selected Financial Data,”
Item 7 “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and Item 8 “Financial Statements and Supplementary
Data.”  For those sections updated, we also changed our name from
Knight Inc. to Kinder Morgan, Inc. to reflect our July 15, 2009 name
change.  No other items from our 2008 Form 10-K were adjusted or
otherwise revised.  The Form 8-K did not reflect any subsequent
information or events other than the adoption of presentation and disclosure
requirements for noncontrolling interests and our name
change.  Accordingly, whenever we refer in this report to disclosure
contained in our 2008 Form 10-K, such references also apply to the relevant Form
10-K items included in the Form 8-K.




7
 Kinder
Morgan, Inc. Form 10-Q


Pensions
and Other Postretirement Benefits




The
Codification’s “Defined Benefit Plans—General” Subtopic provides the accounting
and disclosure requirements for the pension and other postretirement benefit
plans sponsored by our subsidiaries.  Effective December 31, 2009,
certain provisions of this Subtopic will require additional disclosure of
pension and postretirement benefit plan assets regarding (i) investment asset
classes, (ii) fair value measurement of assets, (iii) investment strategies,
(iv) asset risk and (v) rate-of-return assumptions.  Currently, we do
not expect these provisions to have a material impact on our consolidated
financial statements.




Subsequent
Events




Effective
June 30, 2009, the Codification’s “Subsequent Events” Topic requires us to
disclose the date through which we evaluate subsequent events and the basis for
that date.  For this report, we have evaluated subsequent events,
which are events or transactions that occurred after September 30, 2009 through
November 13, 2009, the date we issued the accompanying Consolidated Financial
Statements.




2.  Acquisitions,
Joint Ventures and Divestitures




Acquisitions




General




The
provisions of the Codification’s Topic 805, “Business Combinations,” are to be
effective prospectively for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008.  Accordingly, we adopted the provisions of
Topic 805 on January 1, 2009.Topic 805 requires that (i) the acquisition method of accounting be used
for all business combinations and (ii) an acquirer be identified for each
business combination.  It applies to all transactions or other events
in which an entity (the acquirer) obtains control of one or more businesses (the
acquiree), including combinations achieved without the transfer of
consideration.  The adoption of Topic 805 did not have a material
impact on our consolidated financial statements.




Significant
provisions of Topic 805 concern principles and requirements for how an acquirer
(i) recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, (ii) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase and (iii) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
Topic also amends the provisions related to the initial recognition and
measurement, subsequent measurement and disclosure of assets and liabilities
arising from contingencies in a business combination.  It requires
that acquired contingencies in a business combination be recognized at fair
value on the acquisition date if fair value can be reasonably estimated during
the allocation period.  Otherwise, companies would typically account
for the acquired contingencies in accordance with the provisions of the
“Contingencies” Topic of the Codification.




Megafleet
Towing Co., Inc. Assets




Effective
April 23, 2009, Kinder Morgan Energy Partners acquired certain terminals assets
from Megafleet Towing Co., Inc. for an aggregate consideration of approximately
$21.7 million.  The consideration included $18.0 million in cash and
an obligation to pay additional cash consideration on April 23, 2014 (five years
from the acquisition date) contingent upon the purchased assets providing Kinder
Morgan Energy Partners an agreed-upon amount of earnings, as defined by the
purchase and sale agreement, during the five year period.  The
contingent consideration had a fair value of $3.7 million as of the acquisition
date and there has been no change in the fair value during the post-acquisition
period ended September 30, 2009.




The
acquired assets primarily consist of nine marine vessels that provide towing and
harbor boat services along the Gulf coast, the Intracoastal Waterway, and the
Houston Ship Channel.  The acquisition complements and expands Kinder
Morgan Energy Partners’ existing Gulf Coast and Texas petroleum coke terminal
operations, and all of the acquired assets are included in the Terminals–KMP
reportable segment.  Kinder Morgan Energy Partners allocated $7.1
million of the combined purchase price to “Property, plant and equipment, net,”
$4.0 million to




8
 Kinder
Morgan, Inc. Form 10-Q


“Other
intangibles net,” and the remaining $10.6 million to
“Goodwill.”  Kinder Morgan Energy Partners believes the primary item
that generated the goodwill is the value of the synergies created between the
acquired assets and its pre-existing terminal assets (resulting from the
increase in services now offered by its Texas petroleum coke operations), and we
expect that approximately $5.0 million of goodwill will be deductible for tax
purposes.




Joint
Ventures




Rockies
Express Pipeline




Rockies
Express Pipeline LLC (“Rockies Express”) is the sole owner of the Rockies
Express natural gas pipeline system.  The final portion of Rockies
Express-East, consisting of approximately 195 miles of 42-inch diameter pipe
extending to Clarington, Ohio, went into service on November 12, 2009, which is
considered the Rockies Express project completion.  West2East Pipeline
LLC (“West2East”) owns all of the member interests in Rockies Express, and
West2East is owned 51% by Kinder Morgan Energy Partners, 25% by Sempra Pipelines
& Storage (“Sempra”) and 24% by ConocoPhillips.  By the end of
2009, the member interests and voting rights in West2East will
change:  Kinder Morgan Energy Partners will own 50% and ConocoPhillips
will own 25%.  In addition, at that time West2East will merge with
Rockies Express.  Rockies Express will be the surviving company that
will be owned 50% by Kinder Morgan Energy Partners and 25% by both Sempra and
ConocoPhillips.


During
the three and nine months ended September 30, 2009, Kinder Morgan Energy
Partners made capital contributions of $642.1 million and $1,075.6 million,
respectively, to West2East to partially fund construction costs for the Rockies
Express pipeline system and to fund the repayment of senior notes by Rockies
Express which matured in August 2009.  For more information on this
additional contribution, see Note 4 “Debt—Contingent Debt—Rockies Express
Pipeline LLC Debt.”




Midcontinent
Express Pipeline




Kinder
Morgan Energy Partners owns a 50% equity interest in Midcontinent Express
Pipeline LLC (“Midcontinent Express”) the sole owner of the Midcontinent Express
natural gas pipeline system.  Energy Transfer Partners, L.P. owns the
remaining 50% equity ownership interest.  During the three and nine
months ended September 30, 2009, Kinder Morgan Energy Partners made capital
contributions of $131.5 million and $464.5 million, respectively, to
Midcontinent Express to partially fund construction costs for the Midcontinent
Express pipeline system.  Construction of the pipeline was completed
and the pipeline was placed in service on August 1, 2009.  In January
2008, in conjunction with the signing of additional binding transportation
commitments, Midcontinent Express entered into an option agreement with a
subsidiary of MarkWest Energy Partners, L.P. (“Mark West”) providing it a
one-time right to purchase a 10% ownership interest in Midcontinent
Express.  In September 2009, MarkWest declined to exercise this
option.




Fayetteville
Express Pipeline




Kinder
Morgan Energy Partners owns a 50% equity interest in Fayetteville Express
Pipeline LLC (“Fayetteville Express”), the sole owner of the Fayetteville
Express natural gas pipeline system.  During the three and nine months
ended September 30, 2009, Kinder Morgan Energy Partners made capital
contributions of $39.0 million and $70.2 million, respectively, to Fayetteville
Express to partially fund certain pre-construction pipeline costs for the
Fayetteville Express pipeline system.




We
included all of the cash contributions to the three joint ventures described
above as increases to “Investments” in the accompanying interim Consolidated
Balance Sheet as of September 30, 2009, and as “Contributions to investments” in
the accompanying interim Consolidated Statement of Cash Flows for the nine
months ended September 30, 2009.  We use the equity method of
accounting for each of the three investments, and as of September 30, 2009, the
carrying value of the investments in West2East, Midcontinent Express, and
Fayetteville Express were $1,559.5 million, $468.4 million, and $80.2
million, respectively.




In
addition, on January 1, 2009, we also adopted certain provisions included within
the “Investments—Equity Method and Joint Ventures” Topic of the
Codification.  These provisions clarify certain accounting and
impairment considerations involving equity method investments.  The
adoption of these provisions did not have any impact on our consolidated
financial statements.  For more information on these joint ventures,
see Note 12.




9
 Kinder
Morgan, Inc. Form 10-Q


Pro
Forma Information




Pro
forma consolidated statement of operations information that gives effect to all
of the acquisitions that have been made and all of the joint ventures that have
been entered into since January 1, 2008 as if they had occurred as of January 1,
2008 is not presented because it would not be materially different from the
information presented in the accompanying interim Consolidated Statements of
Operations.




Acquisitions
Subsequent to September 30, 2009




Crosstex
Energy, L.P. Natural Gas Treating Business




On
August 31, 2009, Kinder Morgan Energy Partners announced that it had entered
into a partnership interest purchase and sales agreement to acquire the natural
gas treating business from Crosstex Energy, L.P. and Crosstex Energy, Inc. for
an aggregate consideration of approximately $266 million, subject to certain
working capital and other closing adjustment provisions.  The acquired
assets primarily consist of approximately 290 natural gas amine-treating and
dew-point control plants and related equipment and are used to remove impurities and
liquids from natural gas in order to meet pipeline quality
specifications.  The assets arepredominantly located in Texas
and Louisiana, with additional facilities located in Mississippi, Oklahoma,
Arkansas and Kansas.




The
acquisition makes Kinder Morgan Energy Partners the largest provider of
contract-provided treating plants in the United States (“U.S.”) and complements
and expands the existing natural gas treating operations currently being offered
by Kinder Morgan Energy Partners’ Texas intrastate natural gas pipeline
group.  All of the acquired assets will be included in the Natural Gas
Pipelines–KMP reportable segment.  On October 1, 2009, the transaction
closed.  The acquired entity is now named Kinder Morgan Treating,
L.P.




GMX
Resources Inc. Natural Gas Gathering Business




On
October 16, 2009, Kinder Morgan Energy Partners announced that it had entered
into a definitive purchase agreement to acquire a 40% ownership interest in the
natural gas gathering and compression business of GMX Resources Inc. (“GMXR”)
for an aggregate consideration of approximately $36 million.  The
transaction closed effective November 1, 2009.




The
gas gathering business provides service to GMXR’s exploration and production
activities in its Cotton Valley Sands and Haynesville/Bossier Shale horizontal
well developments located in east Texas.  GMXR’s wholly owned
subsidiary, Endeavor Pipeline Inc., will continue to act as operator of the
system.  The acquisition will complement Kinder Morgan Energy
Partners’ existing natural gas transportation business located in the state of
Texas and all of the acquired investment will be included in the Natural Gas
Pipelines–KMP business segment.




Divestitures




Cypress
Pipeline




On
July 14, 2009 Kinder Morgan Energy Partners received notice from Westlake
Petrochemicals LLC that it was exercising an option it held to purchase 50% of
the Cypress Pipeline.  As of September 30, 2009, the net assets of
Kinder Morgan Energy Partners’ Cypress Pipeline totaled approximately $21.2
million.  The sale of 50% of the Cypress Pipeline will not have a
material impact on our results of operations or cash flows.




NGPL
PipeCo LLC




On
February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC
(formerly MidCon Corp.), which owns Natural Gas Pipeline of America and certain
affiliates, collectively referred to as “NGPL PipeCo LLC,” to Myria Acquisition
Inc. (“Myria”) for approximately $2.9 billion.  We also received $3.0
billion of cash previously held in escrow related to a notes offering by NGPL
PipeCo LLC in December 2007, the net proceeds of which were distributed to us
principally as repayment of intercompany indebtedness and partially as a
dividend, immediately prior to the closing of the sale to
Myria.  Pursuant to the purchase agreement, Myria acquired all 800
Class B shares and we retained all 200 Class A shares of NGPL PipeCo
LLC.  We continue to operate NGPL PipeCo LLC’s assets pursuant to a
15-year operating agreement; see Note 9 for more information regarding this
operating agreement.  The total proceeds from this sale of $5.9 billion
were used to pay off the entire outstanding balances of our




10
 Kinder
Morgan, Inc. Form 10-Q


senior
secured credit facility’s Tranche A and Tranche B term loans, to repurchase
$1.67 billion of our outstanding debt securities and to reduce balances
outstanding under our $1.0 billion revolving credit facility.






3.  Intangibles




Goodwill




We
evaluate goodwill for impairment on May 31 of each year.  For this
purpose, we have six reporting units as follows: (i) Products Pipelines–KMP
(excluding associated terminals), (ii) Products Pipelines Terminals–KMP
(evaluated separately from Products Pipelines for goodwill purposes), (iii)
Natural Gas Pipelines–KMP, (iv) CO2; (v)
Terminals–KMP and (vi) Kinder Morgan Canada–KMP.




There
were no impairment charges resulting from the May 31, 2009 impairment testing,
and there have been no events indicating an impairment subsequent to that
date.  The fair value of each reporting unit was determined from the
present value of the expected future cash flows from the applicable reporting
unit (inclusive of a terminal value calculated using market multiples between
six and ten times cash flows) discounted at a rate of 9.0%.  The fair
value of each reporting unit was determined on a stand-alone basis from the
perspective of a market participant and represented the price that would be
received to sell the unit as a whole in an orderly transaction between market
participants at the measurement date.




Changes
in the carrying amount of our goodwill for the nine months ended September 30,
2009 are summarized as follows (in millions):




Products
              Pipelines–KMP
            
            
            Natural
      Gas
              Pipelines–KMP
            
            
            CO2–KMP
            
            
            Terminals–KMP
            
            
            Kinder
      Morgan
              Canada–KMP
            
            
            TotalBalance
      as of December 31, 2008
            
            $
            850.0
            
            
            $
            1,349.2
            
            
            $
            1,521.7
            
            
            $
            774.2
            
            
            $
            203.6
            
            
            $
            4,698.7Acquisitions
      and purchase price adjustments.
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10.6
            
            
            
            -
            
            
            
            10.6Currency
      translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            28.1
            
            
            
            28.1Balance
      as of September 30, 2009
            
            $
            850.0
            
            
            $
            1,349.2
            
            
            $
            1,521.7
            
            
            $
            784.8
            
            
            $
            231.7
            
            
            $
            4,737.4





In
addition, we identify any premium or excess cost we pay over our proportionate
share of the underlying fair value of net assets acquired and accounted for as
investments under the equity method of accounting.  This premium or
excess cost is referred to as equity method goodwill and is also not subject to
amortization but rather to impairment testing.  No event or change in
circumstances that may have a significant adverse effect on the fair value of
our equity investments has occurred during the first nine months of 2009, and as
ofboth September
30, 2009 and December 31, 2008, we reported $138.2 million in equity method
goodwill within the caption “Investments” in the accompanying interim
Consolidated Balance Sheets.




11
 Kinder
Morgan, Inc. Form 10-Q


Other
Intangibles




Excluding
goodwill, our other intangible assets include customer relationships, contracts
and agreements, lease value, technology-based assets and other long-term
assets.  These intangible assets have definite lives, are being
amortized on a straight-line basis over their estimated useful lives, and are
reported separately as “Other intangibles, net” in the accompanying interim
Consolidated Balance Sheets.  Following is information related to our
intangible assets subject to amortization (in millions):




September 30,
              2009
            
            
            December 31,
              2008Customer
      relationships, contracts and agreementsGross
      carrying amount
            
            $
            272.5
            
            
            $
            270.9Accumulated
      amortization
            
            
            (44.0
            )
            
            
            (30.3
            )Net
      carrying amount
            
            
            228.5
            
            
            
            240.6Technology-based
      assets, lease value and otherGross
      carrying amount
            
            
            14.1
            
            
            
            11.7Accumulated
      amortization
            
            
            (1.2
            )
            
            
            (0.8
            )Net
      carrying amount
            
            
            12.9
            
            
            
            10.9Total
      other intangibles, net
            
            $
            241.4
            
            
            $
            251.5





For
the three and nine months ended September 30, 2009, the amortization expense on
our intangibles totaled $4.6 million and $14.1 million, respectively, and for
the same prior year periods, the amortization expense on our intangibles totaled
$4.8 million and $14.5 million, respectively.  As of September 30,
2009, the weighted average amortization period for our intangible assets was
approximately 15.9 years.  Our estimated amortization expense for
these assets for each of the next five fiscal years (2010 – 2014) is
approximately $17.3 million, $17.1 million, $16.9 million, $16.8 million and
$16.7 million, respectively.




In
addition, on January 1, 2009, we adopted certain provisions included within the
“General Intangibles Other than Goodwill” Subtopic of the
Codification.  These provisions introduce factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset.  The adoption of these
provisions did not have any impact on our consolidated financial
statements.






4.  Debt




Notwithstanding
the consolidation of Kinder Morgan Energy Partners and its subsidiaries into our
financial statements, we are not liable for, and our assets are not available to
satisfy, the obligations of Kinder Morgan Energy Partners and/or its
subsidiaries and vice versa, except as discussed
following.  Responsibility for payments of obligations reflected in
our or Kinder Morgan Energy Partners’ financial statements is a legal
determination based on the entity that incurs the liability.  In
conjunction with Kinder Morgan Energy Partners’ acquisition of certain natural
gas pipelines from us, we agreed to indemnify Kinder Morgan Energy Partners with
respect to approximately $733.5 million of its debt.  We would be
obligated to perform under this indemnity only if Kinder Morgan Energy Partners’
assets were unable to satisfy its obligations.




We
classify our debt based on the contractual maturity dates of the underlying debt
instruments or as of the earliest put date available to the holders of the
applicable debt.  As of September 30, 2009, our outstanding short-term
debt was $206.7 million, and our outstanding long-term debt (excluding the value
of interest rate swap agreements, the preferred interest in the G.P. of Kinder
Morgan Energy Partners, and the deferrable interest debentures issued to
subsidiary trusts) was $12,994.5 million.




As
of September 30, 2009, our outstanding short-term debt balance consisted of (i)
$50.0 million in outstanding borrowings under our senior secured credit
facility, (ii) a $1.1 million current portion of our 6.50% series Debentures,
Due 2013, (iii) $110 million in outstanding borrowings under Kinder Morgan
Energy Partners’ bank credit facility (discussed below), (iv) $23.7 million in
principal amount of tax-exempt bonds that mature on April 1,




12
 Kinder
Morgan, Inc. Form 10-Q


2024,
but are due on demand pursuant to certain standby purchase agreement provisions
contained in the bond indenture (Kinder Morgan Energy Partners’ subsidiary
Kinder Morgan Operating L.P. “B” is the obligor on the bonds), (v) a $9.8
million portion of a 5.40% long-term note payable (Kinder Morgan Energy
Partners’ subsidiaries Kinder Morgan Operating L.P. “A” and Kinder Morgan Canada
Company are the obligors on the note), (vi) a $6.8 million portion of 5.23%
senior notes (Kinder Morgan Energy Partners’ subsidiary Kinder Morgan Texas
Pipeline, L.P. is the obligor on the notes) and (vii) $5.3 million in principal
amount of adjustable rate industrial development revenue bonds that mature on
January 1, 2010 (the bonds were issued by the Illinois Development Finance
Authority and Kinder Morgan Energy Partners’ subsidiary Arrow Terminals L.P. is
the obligor on the bonds).




Credit
Facilities




September
      30, 2009Short-term
              Notes
      Payable
            
            
            Commercial
              Paper
              Outstanding
            
            
            Weighted-
              Average
              Interest
      Rate(In
      millions)Kinder
      Morgan, Inc. – Secured debt(a)
            
            $
            50.0
            
            
            $
            -
            
            
            
            1.38
            %Kinder
      Morgan Energy Partners – Unsecured debt(b)
            
            $
            110.0
            
            
            $
            -
            
            
            
            0.85
            %


____________


(a)
            The
      average short-term debt outstanding (and related weighted-average interest
      rate) was $39.1 million (1.85%) and $73.6 million (2.13%) during the three
      and nine months ended September 30,
2009.


(b)
            The
      average short-term debt outstanding (and related weighted-average interest
      rate) was $522.0 million (1.25%) and $427.8 million (1.62%) during the
      three and nine months ended September 30,
2009.




Kinder
Morgan, Inc.’s $1.0 billion six-year senior secured credit facility matures on
May 30, 2013 and includes a sublimit of $300 million for the issuance of letters
of credit and a sublimit of $50 million for swingline loans.  Kinder
Morgan, Inc. does not have a commercial paper program.  Kinder Morgan,
Inc. had $8.8million
outstanding under its credit facility at December 31, 2008.




Kinder
Morgan Energy Partners’ $1.85 billion unsecured bank credit facility is with a
syndicate of financial institutions, and Wachovia Bank, National Association is
the administrative agent.  The credit facility permits Kinder Morgan
Energy Partners to obtain bids for fixed rate loans from members of the lending
syndicate and the facility can be amended to allow for borrowings of up to $2.0
billion.  Interest on Kinder Morgan Energy Partners’ credit facility
accrues at its option at a floating rate equal to either (i) the administrative
agent’s base rate (but not less than the Federal Funds Rate, plus 0.5%), or (ii)
LIBOR, plus a margin, which varies depending upon the credit rating of its
long-term senior unsecured debt.




The
outstanding balance under Kinder Morgan Energy Partners credit facility was $110
million as of September 30, 2009.  As of December 31, 2008, there were
no borrowings under the credit facility.  Kinder Morgan Energy
Partners’ credit facility matures August 18, 2010 and currently it plans to
negotiate a renewal of the credit facility before its maturity
date.  Borrowings under Kinder Morgan Energy Partners’ credit facility
can be used for partnership purposes and as a backup for its commercial paper
program.




During
the first quarter of 2009, following Lehman Brothers Holdings Inc.’s filing for
bankruptcy protection in September 2008, Kinder Morgan Energy Partners amended
the credit facility to remove Lehman Brothers Commercial Bank as a lender, thus
reducing the borrowing capacity under the facility by $63.3
million.  The commitments of the other banks remain unchanged, and the
facility is not defaulted.




Additionally,
as of September 30, 2009, the amount available for borrowing under Kinder Morgan
Energy Partners’ credit facility was reduced byan aggregate amount of
$264.2 million, consisting of(i) a $100 million
letter of credit that supports certain proceedings with the California Public
Utilities Commission involving refined products tariff charges on the intrastate
common carrier operations of Kinder Morgan Energy Partners’ Pacific operations’
pipelines in the state of California, (ii) a combined $90.8 million in three
letters of credit that support tax-exempt bonds, (iii) a combined $35.0 million
in two letters of credit that support Kinder Morgan Energy Partners’ hedging of
commodity price risks associated with the sale of natural gas, natural gas
liquids and crude oil, (iv) a $21.4 million letter of credit that supports
Kinder Morgan Energy Partners’ indemnification obligations on the Series D note
borrowings of Cortez Capital Corporation and (v) a combined $17.0 million in
other letters of credit




13
 Kinder
Morgan, Inc. Form 10-Q


supporting
other obligations of Kinder Morgan Energy Partners and its
subsidiaries.




Commercial
Paper Program




On
October 13, 2008, Standard & Poor’s Rating Services lowered Kinder Morgan
Energy Partners’ short-term credit rating to A-3 from
A-2.  Additionally, on May 6, 2009, Moody’s Investor Services, Inc.
downgraded Kinder Morgan Energy Partners’ commercial paper rating to Prime-3
from Prime-2 and assigned a negative outlook to its long-term credit
rating.  As a result of these revisions and current commercial paper
market conditions, Kinder Morgan Energy Partners is currently unable to access
commercial paper borrowings, and as of both September 30, 2009 and December 31,
2008, it had no commercial paper borrowings.  However, Kinder Morgan
Energy Partners expects that its financing and liquidity needs will continue to
be met through borrowings made under its bank credit facility described
above.




Senior
Notes




On
February 1, 2009, Kinder Morgan Energy Partners paid $250 million to retire the
principal amount of its 6.30% senior notes that matured on that
date.  Kinder Morgan Energy Partners borrowed the necessary funds
under its bank credit facility.




On
May 14, 2009, Kinder Morgan Energy Partners completed a public offering of
senior notes.  It issued a total of $1 billion in principal amount of
senior notes in two separate series, consisting of $300 million of 5.625% notes
due February 15, 2015, and $700 million of 6.85% notes due February 15,
2020.  Kinder Morgan Energy Partners received proceeds from the
issuance of the notes, after underwriting discounts and commissions, of $993.3
million, and it used the proceeds to reduce the borrowings under its bank credit
facility.




On
September 16, 2009, Kinder Morgan Energy Partners completed an additional public
offering of senior notes. It issued a total of $1 billion in principal amount of
senior notes in two separate series, consisting of $400 million of 5.80% notes
due March 1, 2021, and $600 million of 6.50% notes due September 1,
2039.  Kinder Morgan Energy Partners received proceeds from the
issuance of the notes, after underwriting discounts and commissions, of $987.4
million, and it used the proceeds to reduce the borrowings under its bank credit
facility.




Kinder
Morgan Operating L.P. “A” and Kinder Morgan Canada




Effective
January 1, 2007, Kinder Morgan Energy Partners acquired the remaining
approximately 50.2% interest in the Cochin pipeline system that it did not
already own.  As part of the purchase price consideration, two of its
subsidiaries issued a long-term note payable to the seller having a fair value
of $42.3 million.  It valued the debt equal to the present value of
amounts to be paid, determined using an annual interest rate of
5.40%.  Kinder Morgan Energy Partners’ subsidiaries Kinder Morgan
Operating L.P. “A” and Kinder Morgan Canada Company are the obligors on the
note, and the principal amount of the note, along with interest, is due in five
annual installments of $10.0 million beginning March 31, 2008.  The
final payment is due March 31, 2012.  As of December 31, 2008, the net
present value (representing the outstanding balance) of the note was $36.6
million.  Kinder Morgan Energy Partners paid the second installment on
March 31, 2009, and as of September 30, 2009, the net present value of the note
was $27.8 million.




Interest
Rate Swaps




Information
on interest rate swaps is contained in Note 6, “Risk Management – Interest Rate
Risk Management.”




Contingent
Debt




The
following contingent debt disclosures pertain to certain types of guarantees or
indemnifications Kinder Morgan Energy Partners has made and cover certain types
of guarantees included within debt agreements, even if the likelihood of
requiring its performance under such guarantee is remote.  The
following is a description of Kinder Morgan Energy Partners’ contingent debt
agreements as of September 30, 2009.




14
 Kinder
Morgan, Inc. Form 10-Q


Cortez
Pipeline Company Debt




Pursuant
to a certain Throughput and Deficiency Agreement, the partners of Cortez
Pipeline Company (Kinder Morgan CO2 Company,
L.P. – 50% partner; a subsidiary of Exxon Mobil Corporation – 37% partner; and
Cortez Vickers Pipeline Company – 13% partner) are required, on a several,
proportional percentage ownership basis, to contribute capital to Cortez
Pipeline Company in the event of a cash deficiency.  Furthermore, due
to Kinder Morgan Energy Partners’ indirect ownership of Cortez Pipeline Company
through Kinder Morgan CO2 Company,
L.P., it severally guarantees 50% of the debt of Cortez Capital Corporation, a
wholly-owned subsidiary of Cortez Pipeline Company.




As
of September 30, 2009, the debt facilities of Cortez Capital Corporation
consisted of (i) $42.9 million of Series D notes due May 15, 2013, (ii) a $125
million short-term commercial paper program and (iii) a $125 million committed
revolving credit facility due December 22, 2009 (to support the above-mentioned
$125 million commercial paper program).  Cortez is currently in the
process of refinancing the $125 million credit facility and it expects to close
on a refinancing in the fourth quarter of 2009.  As of September 30,
2009, in addition to the $42.9 million of outstanding Series D notes, Cortez
Capital Corporation had outstanding borrowings of $109.5 million under its
credit facility.  Accordingly, as of September 30, 2009, our
contingent share of Cortez’s debt was $76.2 million (50% of total guaranteed
borrowings).




With
respect to Cortez Capital Corporation’s Series D notes, the average interest
rate on the notes is 7.14%, and the outstanding $42.9 million principal amount
of the notes is due in four equal annual installments of approximately $10.7
million beginning May 2010.  Shell Oil Company (“Shell”) shares Kinder
Morgan Energy Partners’ several guaranty obligations jointly and severally;
however, Kinder Morgan Energy Partners is obligated to indemnify Shell for
liabilities it incurs in connection with such guaranty.  As of
September 30, 2009, JP Morgan Chase has issued a letter of credit on Kinder
Morgan Energy Partners’ behalf in the amount of $21.4 million to secure its
indemnification obligations to Shell for 50% of the $42.9 million in principal
amount of Series D notes outstanding as of that date.




Nassau
County, Florida Ocean Highway and Port Authority Debt




Kinder
Morgan Energy Partners has posted a letter of credit as security for borrowings
under Adjustable Demand Revenue Bonds issued by the Nassau County, Florida Ocean
Highway and Port Authority.  The bonds were issued for the purpose of
constructing certain port improvements located in Fernandino Beach, Nassau
County, Florida.  Kinder Morgan Energy Partners’ subsidiary, Nassau
Terminals LLC, is the operator of the marine port facilities.  The
bond indenture is for 30 years and allows the bonds to remain outstanding until
December 1, 2020.  Principal payments on the bonds are made on the
first of December each year and corresponding reductions are made to the letter
of credit.  As of September 30, 2009, this letter of credit had a face
amount of $21.2 million.




Rockies
Express Pipeline LLC Debt




Pursuant
to certain guaranty agreements, all three member owners of West2East (which owns
all of the member interests in Rockies Express) have agreed to guarantee,
severally in the same proportion as their percentage ownership of the member
interests in West2East, borrowings under Rockies Express’$2.0 billion five-year,
unsecured revolving credit facility (due April 28, 2011) and Rockies Express’
$2.0 billion commercial paper program.  The three member owners and
their respective ownership interests consist of the following: Kinder Morgan
Energy Partners’ subsidiary Kinder Morgan W2E Pipeline LLC – 51%, a subsidiary
of Sempra Energy – 25%, and a subsidiary of ConocoPhillips – 24%.




Borrowings
under the Rockies Express commercial paper program and/or its credit facility
were primarily used to finance the construction of the Rockies Express
interstate natural gas pipeline and to pay related expenses.  The
credit facility, which can be amended to allow for borrowings of up to $2.5
billion, supports borrowings under the commercial paper program, and borrowings
under the commercial paper program reduce the borrowings allowed under the
credit facility.  Lehman Brothers Commercial Bank was a lending bank
with a $41.0 million commitment under Rockies Express’ $2.0 billion credit
facility, and during the first quarter of 2009, Rockies Express amended its
facility to remove Lehman Brothers Commercial Bank as a lender, thus reducing
the borrowing capacity under the facility by $41.0 million.  However,
the commitments of the other banks remain unchanged, and the facility is not
defaulted.




15
 Kinder
Morgan, Inc. Form 10-Q


In
October 2008, Standard & Poor’s Rating Services lowered Rockies Express’
short-term credit rating to A-3 from A-2.  As a result of this
revision and current commercial paper market conditions, Rockies Express is
unable to access commercial paper borrowings; however, it expects that its
financing and liquidity needs will continue to be met through both borrowings
made under its long-term bank credit facility and contributions by its equity
investors.  As of September 30, 2009, Rockies Express had outstanding
borrowings of $1,871.5 million under its credit
facility.  Accordingly, as of September 30, 2009, Kinder Morgan Energy
Partners’ contingent share of Rockies Express’ debt was $954.5 million (51% of
total guaranteed borrowings).




Additionally,
on August 20, 2009, Rockies Express paid $600 million to retire the principal
amount of its floating rate senior notes that matured on that
date.  It obtained the necessary funds to repay these senior notes
from contributions received from its equity investors, including $306.0 million
received from Kinder Morgan Energy Partners (51% of total principal
repayments).




Midcontinent
Express Pipeline LLC Debt




Pursuant
to certain guaranty agreements, each of the two member owners of Midcontinent
Express have agreed to guarantee, severally in the same proportion as their
percentage ownership of the member interests in Midcontinent Express, borrowings
under its $1.4 billion three year, unsecured revolving credit facility, entered
into on February 29, 2008 and due February 28, 2011.  The facility is
with a syndicate of financial institutions with The Royal Bank of Scotland plc
as the administrative agent.  Borrowings under the credit facility are
used to finance the construction of the Midcontinent Express pipeline system and
to pay related expenses.Midcontinent Express is
an equity method investee of Kinder Morgan Energy Partners, and the two member
owners and their respective ownership interests consist of the following: Kinder
Morgan Energy Partners’ subsidiary Kinder Morgan Operating L.P. “A” – 50%, and
Energy Transfer Partners, L.P. – 50%.




Lehman
Brothers Commercial Bank was a lending bank with a $100 million commitment to
the Midcontinent Express $1.4 billion credit facility, and following Lehman
Brothers Holdings Inc.’s bankruptcy filing (discussed above), Lehman Brothers
Commercial Bank has not met its obligations to lend under the credit facility,
effectively reducing borrowing capacity under this facility by $100
million.  The commitments of the other banks remain unchanged and the
facility is not defaulted.  As of September 30, 2009, Midcontinent
Express had outstanding borrowings of $371.6 million under its three-year credit
facility.  Accordingly, as of September 30, 2009, Kinder Morgan Energy
Partners’ contingent share of Midcontinent Express’ debt was $185.8 million (50%
of total borrowings).




Furthermore,
the credit facility can be used for the issuance of letters of credit to support
the construction of the Midcontinent Express pipeline system, and as of
September 30, 2009, a letter of credit having a face amount of $33.3 million was
issued under the credit facility.  Accordingly, as of September 30,
2009, Kinder Morgan Energy Partners’ contingent responsibility with regard to
this outstanding letter of credit was $16.7 million (50% of total face
amount).




In November 2009,
Midcontinent Express reduced the capacity on its credit facility from $1.4
billion to $255 million after completing the permanent long-term financing
discussed below.  On September 16, 2009, Midcontinent Express
completed a private offering of senior notes.  It issued an aggregate
of $800 million in principal amount of fixed rate senior notesunder an
indenture between itself and U.S. Bank National Association, as trustee, in a
private transaction that was not subject to the registration requirements of the
Securities Act of 1933, but instead was subject to the requirements of Rule 144A
under the Act.  Midcontinent Express received net proceeds of $793.9
million from this offering, after deducting the initial purchasers’ discount and
estimated offering expenses, and the net proceeds from the sale of the notes
were used to repay borrowings under its revolving credit
facility.




The
indenture provided for the issuance of two separate series of notes, as follows
(i) $350
million in principal amount of 5.45% senior notes due September 15, 2014; and
(ii) $450 million in principal amount of 6.70% senior notes due September 15,
2019.  Interest on the notes will be paid semiannually on March
15 and September 15 of each year, commencing on March 15, 2010.  All
payments of principal and interest in respect of the notes are the sole
obligation of Midcontinent Express.  Noteholders will have no recourse
against us, Kinder Morgan Energy Partners, Energy Transfer Partners, or against
any of our or their respective officers, directors, employees, members,
managers, unitholders or affiliates for any failure by Midcontinent Express to
perform or comply with its obligations pursuant to the notes or the
indenture.




16
 Kinder
Morgan, Inc. Form 10-Q


For
additional information regarding our debt facilities and our contingent debt
agreements, see Note 14 of the Notes to the Consolidated Financial Statements
included in our 2008 Form 10-K.




Kinder
Morgan G.P., Inc. Preferred Shares




On
October 21, 2009, Kinder Morgan G.P., Inc.’s board of directors declared a
quarterly cash distribution on its Series A Fixed-to-Floating Rate Term
Cumulative Preferred Stock of $20.825 per share, which will be paid on November
18, 2009 to shareholders of record as of October 30, 2009.  On July
15, 2009, Kinder Morgan G.P., Inc.’s board of directors declared a quarterly
cash distribution on its Series A Fixed-to-Floating Rate Term Cumulative
Preferred Stock of $20.825 per share that was paid on August 18, 2009 to
shareholders of record as of July 31, 2009.




5.  Stockholders'
Equity




The
following tables set forth for the respective periods (i) changes in the
carrying amounts of our Stockholders’ Equity attributable to both us and our
noncontrolling interests, including our comprehensive income (loss) net of tax,
and (ii) associated tax amounts included in the respective components of other
comprehensive income (loss) (in millions):




Three
      Months Ended September 30,2009
            
            
            2008Kinder
              Morgan,
      Inc.
            
            
            Noncontrolling
      interests
            
            
            Total
            
            
            Kinder
              Morgan,
      Inc.
            
            
            Noncontrolling
      interests
            
            
            TotalBeginning
      Balance
            
            $
            4,398.0
            
            
            $
            4,375.7
            
            
            $
            8,773.7
            
            
            $
            3,461.4
            
            
            $
            2,872.0
            
            
            $
            6,333.4Impact
      from equity transactions of Kinder Morgan Energy Partners
            
            
            3.5
            
            
            
            (5.6
            )
            
            
            (2.1
            )
            
            
            -
            
            
            
            -
            
            
            
            -A-1
      and B unit amortization
            
            
            1.9
            
            
            
            -
            
            
            
            1.9
            
            
            
            1.9
            
            
            
            -
            
            
            
            1.9Distributions
      to noncontrolling interests
            
            
            -
            
            
            
            (191.4
            )
            
            
            (191.4
            )
            
            
            -
            
            
            
            (162.4
            )
            
            
            (162.4
            )Contributions
      from noncontrolling interests
            
            
            -
            
            
            
            146.0
            
            
            
            146.0
            
            
            
            -
            
            
            
            0.2
            
            
            
            0.2Cash
      dividends
            
            
            (150.0
            )
            
            
            -
            
            
            
            (150.0
            )
            
            
            -
            
            
            
            -
            
            
            
            -Other
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.3
            )
            
            
            (0.3
            )Comprehensive
      incomeNet
      Income
            
            
            122.8
            
            
            
            106.6
            
            
            
            229.4
            
            
            
            108.7
            
            
            
            106.8
            
            
            
            215.5Other
      comprehensive income (loss), net of taxChange
      in fair value of derivatives utilized for hedging purposes
            
            
            19.1
            
            
            
            25.6
            
            
            
            44.7
            
            
            
            543.5
            
            
            
            604.5
            
            
            
            1,148.0Reclassification
      of change in fair value of derivatives to net income
            
            
            (7.1
            )
            
            
            8.2
            
            
            
            1.1
            
            
            
            (70.5
            )
            
            
            83.6
            
            
            
            13.1Foreign
      currency translation adjustments
            
            
            31.1
            
            
            
            56.9
            
            
            
            88.0
            
            
            
            (22.8
            )
            
            
            (30.4
            )
            
            
            (53.2
            )Adjustments
      to pension and
              other postretirement benefit
      plan liabilities
            
            
            0.1
            
            
            
            0.2
            
            
            
            0.3
            
            
            
            0.1
            
            
            
            0.3
            
            
            
            0.4Total
      other comprehensive income
            
            
            43.2
            
            
            
            90.9
            
            
            
            134.1
            
            
            
            450.3
            
            
            
            658.0
            
            
            
            1,108.3Total
      comprehensive income
            
            
            166.0
            
            
            
            197.5
            
            
            
            363.5
            
            
            
            559.0
            
            
            
            764.8
            
            
            
            1,323.8Ending
      Balance
            
            $
            4,419.4
            
            
            $
            4,522.2
            
            
            $
            8,941.6
            
            
            $
            4,022.3
            
            
            $
            3,474.3
            
            
            $
            7,496.6(Tax)
      Tax Benefit Included in Other Comprehensive Income, Net of
      Tax:Change
      in fair value of derivatives utilized for hedging purposes
            
            $
            (8.4
            )
            
            $
            (3.9
            )
            
            $
            (12.3
            )
            
            $
            (401.4
            )
            
            $
            (67.7
            )
            
            $
            (469.1
            )Reclassification
      of change in fair value of derivatives to net income
            
            
            7.2
            
            
            
            (0.8
            )
            
            
            6.4
            
            
            
            63.2
            
            
            
            (7.4
            )
            
            
            55.8Foreign
      currency translation adjustments
            
            
            (26.1
            )
            
            
            (5.6
            )
            
            
            (31.7
            )
            
            
            11.1
            
            
            
            3.0
            
            
            
            14.1Adjustments
      to pension and other postretirement benefit
      plan liabilities
            
            
            (0.1
            )
            
            
            -
            
            
            
            (0.1
            )
            
            
            0.1
            
            
            
            -
            
            
            
            0.1Tax
      included in total other comprehensive income
            
            $
            (27.4
            )
            
            $
            (10.3
            )
            
            $
            (37.7
            )
            
            $
            (327.0
            )
            
            $
            (72.1
            )
            
            $
            (399.1
            )





17
 Kinder
Morgan, Inc. Form 10-Q





Nine
      Months Ended September 30,2009
            
            
            2008Kinder
              Morgan,
      Inc.
            
            
            Noncontrolling
      interests
            
            
            Total
            
            
            Kinder
              Morgan,
      Inc.
            
            
            Noncontrolling
      interests
            
            
            TotalBeginning
      Balance
            
            $
            4,404.3
            
            
            $
            4,072.6
            
            
            $
            8,476.9
            
            
            $
            7,821.5
            
            
            $
            3,314.0
            
            
            $
            11,135.5Impact
      from equity transactions of Kinder Morgan Energy Partners
            
            
            19.3
            
            
            
            (30.2
            )
            
            
            (10.9
            )
            
            
            (16.0
            )
            
            
            (15.4
            )
            
            
            (31.4
            )A-1
      and B unit amortization
            
            
            5.7
            
            
            
            -
            
            
            
            5.7
            
            
            
            5.7
            
            
            
            -
            
            
            
            5.7Distributions
      to noncontrolling interests
            
            
            -
            
            
            
            (550.8
            )
            
            
            (550.8
            )
            
            
            -
            
            
            
            (464.3
            )
            
            
            (464.3
            )Contributions
      from noncontrolling interests
            
            
            -
            
            
            
            820.5
            
            
            
            820.5
            
            
            
            -
            
            
            
            385.0
            
            
            
            385.0Kinder
      Morgan Energy Partners’ Express pipeline system
      acquisition adjustment
            
            
            -
            
            
            
            3.1
            
            
            
            3.1
            
            
            
            -
            
            
            
            -
            
            
            
            -Cash
      dividends
            
            
            (300.0
            )
            
            
            -
            
            
            
            (300.0
            )
            
            
            -
            
            
            
            -
            
            
            
            -Other
            
            
            -
            
            
            
            (0.8
            )
            
            
            (0.8
            )
            
            
            -
            
            
            
            4.7
            
            
            
            4.7Comprehensive
      income (loss)Net
      income
            
            
            367.9
            
            
            
            215.5
            
            
            
            583.4
            
            
            
            (3,646.2
            )
            
            
            359.4
            
            
            
            (3,286.8
            )Other
      comprehensive income (loss), net of taxChange
      in fair value of derivatives utilized for hedging purposes
            
            
            (76.3
            )
            
            
            (110.7
            )
            
            
            (187.0
            )
            
            
            (253.5
            )
            
            
            (338.5
            )
            
            
            (592.0
            )Reclassification
      of change in fair value of derivatives to net income
            
            
            (42.0
            )
            
            
            14.2
            
            
            
            (27.8
            )
            
            
            140.9
            
            
            
            277.9
            
            
            
            418.8Foreign
      currency translation adjustments
            
            
            41.3
            
            
            
            89.9
            
            
            
            131.2
            
            
            
            (31.5
            )
            
            
            (50.3
            )
            
            
            (81.8
            )Adjustments
      to pension and
              other postretirement benefit
      plan liabilities
            
            
            (0.8
            )
            
            
            (1.1
            )
            
            
            (1.9
            )
            
            
            1.4
            
            
            
            1.8
            
            
            
            3.2Total
      other comprehensive loss
            
            
            (77.8
            )
            
            
            (7.7
            )
            
            
            (85.5
            )
            
            
            (142.7
            )
            
            
            (109.1
            )
            
            
            (251.8
            )Total
      comprehensive income (loss)
            
            
            290.1
            
            
            
            207.8
            
            
            
            497.9
            
            
            
            (3,788.9
            )
            
            
            250.3
            
            
            
            (3,538.6
            )Ending
      Balance
            
            $
            4,419.4
            
            
            $
            4,522.2
            
            
            $
            8,941.6
            
            
            $
            4,022.3
            
            
            $
            3,474.3
            
            
            $
            7,496.6(Tax)
      Tax Benefit Included in Other Comprehensive Income (Loss),
      Net of Tax:Change
      in fair value of derivatives utilized for hedging purposes
            
            $
            47.2
            
            
            $
            11.5
            
            
            $
            58.7
            
            
            $
            149.9
            
            
            $
            34.7
            
            
            $
            184.6Reclassification
      of change in fair value of derivatives to net income
            
            
            26.2
            
            
            
            (1.5
            )
            
            
            24.7
            
            
            
            (82.4
            )
            
            
            (28.5
            )
            
            
            (110.9
            )Foreign
      currency translation adjustments
            
            
            (40.4
            )
            
            
            (9.3
            )
            
            
            (49.7
            )
            
            
            22.5
            
            
            
            5.2
            
            
            
            27.7Adjustments
      to pension and other postretirement benefit
      plan liabilities
            
            
            0.5
            
            
            
            0.1
            
            
            
            0.6
            
            
            
            (0.8
            )
            
            
            (0.2
            )
            
            
            (1.0
            )Tax
      benefit included in total other comprehensive loss
            
            $
            33.5
            
            
            $
            0.8
            
            
            $
            34.3
            
            
            $
            89.2
            
            
            $
            11.2
            
            
            $
            100.4





During
the first nine months of both 2009 and 2008, there were no material changes in
our ownership interests in subsidiaries, in which we retained a controlling
financial interest.




On
February 17, 2009, May 18, 2009 and August 17, 2009, we paid cash dividends on
our common stock of $50.0 million, $100.0 million, and $150.0 million,
respectively, to our sole stockholder, which then made dividends to Kinder
Morgan Holdco LLC.  Our Board of Directors declared a dividend of
$350.0 million on October 21, 2009 that will be paid on November 16,
2009.




18
 Kinder
Morgan, Inc. Form 10-Q


Noncontrolling
Interests




The
caption “Noncontrolling interests” in the accompanying interim Consolidated
Balance Sheets consists of interests in the following subsidiaries:




September 30,
              2009
            
            
            December 31,
              2008(In
      millions)Kinder
      Morgan Energy Partners
            
            $
            2,597.6
            
            
            $
            2,198.2Kinder
      Morgan Management
            
            
            1,864.2
            
            
            
            1,826.5Triton
      Power Company LLC
            
            
            49.8
            
            
            
            39.0Other
            
            
            10.6
            
            
            
            8.9$
            4,522.2
            
            
            $
            4,072.6





Kinder
Morgan Energy Partners’ Common Units




On
January 16, 2009, Kinder Morgan Energy Partners entered into an equity
distribution agreement with UBS Securities LLC (“UBS”).  According to
the provisions of this agreement, Kinder Morgan Energy Partners may offer and
sell from time to time common units having an aggregate offering value of up to
$300 million through UBS, as sales agent.  Sales of the units will be
made by means of ordinary brokers’ transactions on the New York Stock Exchange
at market prices, in block transactions or as otherwise agreed between Kinder
Morgan Energy Partners and UBS.  Under the terms of this agreement,
Kinder Morgan Energy Partners also may sell common units to UBS as principal for
its own account at a price agreed upon at the time of the sale.  Any
sale of common units to UBS as principal would be pursuant to the terms of a
separate agreement between Kinder Morgan Energy Partners and UBS.




This
equity distribution agreement provides Kinder Morgan Energy Partners the right,
but not the obligation, to sell common units in the future, at prices it deems
appropriate.  Kinder Morgan Energy Partners retains at all times
complete control over the amount and the timing of each sale, and it will
designate the maximum number of common units to be sold through UBS, on a daily
basis or otherwise as it and UBS agree.  UBS will then use its
reasonable efforts to sell, as Kinder Morgan Energy Partners’ sales agent and on
its behalf, all of the designated common units.  Kinder Morgan Energy
Partners may instruct UBS not to sell common units if the sales cannot be
effected at or above the price designated by it in any such
instruction.  Either Kinder Morgan Energy Partners or UBS may suspend
the offering of common units pursuant to the agreement by notifying the other
party.  During the three and nine months ended September 30, 2009,
Kinder Morgan Energy Partners issued 1,962,811 and 4,519,558, respectively, of
its common units pursuant to this agreement.  After commissions of $1.3
million and $3.6 million, respectively, for the three and nine month periods,
Kinder Morgan Energy Partners received net proceeds from the issuance of these
common units of approximately $103.0 million and $227.6 million,
respectively.  Kinder Morgan Energy Partners used the proceeds to
reduce the borrowings under its bank credit facility.  For more
information concerning offerings subsequent to September 30, 2009, see “Subsequent Event”
below.




Kinder
Morgan Energy Partners also completed two separate underwritten public offerings
of its common units in the first nine months of 2009, discussed following, and
in April 2009, it issued 105,752 common units—valued at $5.0 million—as the
purchase price for additional ownership interests in certain oil and gas
properties.




In
Kinder Morgan Energy Partners’ first 2009 public offering, completed in March,
it issued 5,666,000 of its common units at a price of $46.95 per unit, less
underwriting commissions and expenses.  Kinder Morgan Energy Partners
received net proceeds of $258.0 million for the issuance of these common
units.  In its second offering, completed in July, Kinder Morgan
Energy Partners issued 6,612,500 common units at a price of $51.50 per unit,
less underwriting commissions and expenses, and received net proceeds of $329.9
million for the issuance of these common units.  Kinder Morgan Energy
Partners used the proceeds from each of these two public offerings to reduce the
borrowings under its bank credit facility.




These
issuances during the nine months ended September 30, 2009, collectively, had the
associated effects of increasing our (i) noncontrolling interests associated
with Kinder Morgan Energy Partners by $790.3 million (ii) accumulated deferred
income taxes by $10.9 million and (iii) additional paid-in capital by $19.3
million.




19
 Kinder
Morgan, Inc. Form 10-Q


Kinder MorganManagement, LLC




On
August 14, 2009, Kinder Morgan Management made a share distribution of 0.022146
shares per outstanding share (1,814,650 total shares) to shareholders of record
as of July 31, 2009, based on the $1.05 per common unit distribution declared by
Kinder Morgan Energy Partners.  On November 13, 2009, Kinder Morgan
Management will make a share distribution of 0.021292 shares per outstanding
share (1,783,310 total shares) to shareholders of record as of October 30, 2009,
based on the $1.05 per common unit distribution declared by Kinder Morgan Energy
Partners.  Kinder Morgan Management’s distributions are paid in the
form of additional shares or fractions thereof calculated by dividing the Kinder
Morgan Energy Partners cash distribution per common unit by the average of the
market closing prices of a Kinder Morgan Management share determined for a
ten-trading day period ending on the trading day immediately prior to the
ex-dividend date for the shares.




Subsequent
Event




On
October 1, 2009, Kinder Morgan Energy Partners amended and restated its equity
distribution agreement with UBS (discussed above in “Kinder Morgan Energy Partners’
Common Units”) to allow for the offer and sale from time to time of
common units having an aggregate offering value of up to $600 million through
UBS, as sales agent.  After September 30, 2009, Kinder Morgan Energy
Partners issued 124,768 of its common units pursuant to settlement of sales made
before September 30, 2009 pursuant to its equity distribution
agreement.  After commissions of $0.1 million, Kinder Morgan Energy
Partners received net proceeds of $6.7 million for the issuance of these 124,768
common units, and it used the proceeds to reduce the borrowings under its bank
credit facility.






6.  Risk
Management




Certain
of our business activities expose us to risks associated with unfavorable
changes in the market price of natural gas, natural gas liquids and crude
oil.  We also have exposure to interest rate risk as a result of the
issuance of our debt obligations.  Pursuant to our management’s
approved risk management policy, we use derivative contracts to hedge or reduce
our exposure to certain of these risks.




Energy
Commodity Price Risk Management




We
are exposed to risks associated with changes in the market price of natural gas,
natural gas liquids and crude oil as a result of the forecasted purchase or sale
of these products.  Specifically, these risks are associated with
unfavorable price volatility related to (i) pre-existing or anticipated physical
natural gas, natural gas liquids and crude oil sales, (ii) natural gas purchases
and (iii) natural gas system use and storage.  The unfavorable price
changes are often caused by shifts in the supply and demand for these
commodities, as well as their locations.




Our
principal use of energy commodity derivative contracts is to mitigate the risk
associated with unfavorable market movements in the price of energy
commodities.  Our energy commodity derivative contracts act as a
hedging (offset) mechanism against the volatility of energy commodity prices by
allowing us to transfer this price risk to counterparties who are able and
willing to bear it.




For
derivative contracts that are designated and qualify as cash flow hedges
pursuant to generally accepted accounting principles, the portion of the gain or
loss on the derivative contract that is effective in offsetting the variable
cash flows associated with the hedged forecasted transaction is reported as a
component of other comprehensive income and reclassified into earnings in the
same line item associated with the forecasted transaction and in the same period
or periods during which the hedged transaction affects earnings (e.g., in
“revenues” when the hedged transactions are commodity sales).  The
remaining gain or loss on the derivative contract in excess of the cumulative
change in the present value of future cash flows of the hedged item, if any
(i.e., the ineffective portion), is recognized in earnings during the current
period.  The effectiveness of hedges using an option contract may be
assessed based on changes in the option’s intrinsic value with the change in the
time value of the contract being excluded from the assessment of hedge
effectiveness.  Changes in the excluded component of the change in an
option’s time value are included currently in earnings.  During the
current period we recognized a net loss of $5.4 million related to crude oil
hedges, which resulted from hedge ineffectiveness and amounts excluded from
effectiveness testing.




20
 Kinder
Morgan, Inc. Form 10-Q


During
the three and nine months ended September 30, 2009, we reclassified gains of
$7.1 million and $42.0 million, respectively, of “Accumulated other
comprehensive loss” into earnings, and for the same comparable periods last
year, we reclassified gains of $70.5 million and losses of $140.9 million,
respectively, into earnings.  All amounts reclassified into net income
during the first nine months of both years resulted from the hedged forecasted
transactions actually affecting earnings (i.e., when the forecasted sales and
purchases actually occurred).  No amounts were reclassified into
earnings as a result of the discontinuance of cash flow hedges because it was
probable that the original forecasted transactions would not occur by the end of
the originally specified time period or within an additional two-month period of
time thereafter.  The proceeds or payments resulting from the
settlement of cash flow hedges are reflected in the operating section of the
accompanying interim Consolidated Statements of Cash Flows as changes to net
income and working capital.




The
“Accumulated other comprehensive loss” balance included in our Stockholders’
Equity was $131.2 million as of September 30, 2009, and $53.4 million as of
December 31, 2008.  These totals included “Accumulated other
comprehensive loss” amounts associated with energy commodity price risk
management activities of $35.9 million of losses as of September 30, 2009 and
$82.4 million of gains as of December 31, 2008.  Approximately $15.0
million of the total amount associated with energy commodity price risk
management activities as of September 30, 2009 is expected to be reclassified
into earnings during the next twelve months (when the associated forecasted
sales and purchases are also expected to occur), and as of September 30, 2009,
the maximum length of time over which we have hedged our exposure to the
variability in future cash flows associated with energy commodity price risk is
through December 2013.




As
of September 30, 2009, Kinder Morgan Energy Partners had entered into the
following outstanding commodity forward contracts to hedge its forecasted energy
commodity purchases and sales:




Notional
      quantityDerivatives
      designated as hedging contractsCrude
      oil
            26.4
      million barrelsNatural
      gas(a)
            43.8
      billion cubic feetDerivatives
      not designated as hedging contractsCrude
      oil
            0.1
      million barrelsNatural
      gas(a)
            1.5
      billion cubic feet


____________


(a)
            Notional
      quantities are shown net.





For
derivative contracts that are not designated as a hedge for accounting purposes,
all realized and unrealized gains and losses are recognized in the statement of
income during the current period.  These types of transactions include
basis spreads, basis-only positions and gas daily swap
positions.  Kinder Morgan Energy Partners primarily enters into these
positions to economically hedge an exposure through a relationship that does not
qualify for hedge accounting.  This will result in non-cash gains or
losses being reported in Kinder Morgan Energy Partners’ operating
results.




Effective
at the beginning of the second quarter of 2008, Kinder Morgan Energy Partners
determined that the derivative contracts of its Casper and Douglas natural gas
processing operations that previously had been designated as cash flow hedges
for accounting purposes no longer met the hedge effectiveness assessment as
required by accounting principles.  Consequently, it discontinued
hedge accounting treatment for these relationships (primarily crude oil hedges
of heavy natural gas liquids sales) effective March 31, 2008.  Since
the forecasted sales of natural gas liquids volumes (the hedged item) were still
expected to occur, all of the accumulated losses through March 31, 2008 on the
related derivative contracts remained in accumulated other comprehensive income,
and are not reclassified into earnings until the physical transactions
occur.  Any changes in the value of these derivative contracts
subsequent to March 31, 2008 will no longer be deferred in other comprehensive
income, but rather will impact current period income.  The last of
these derivative contracts will expire in December, 2009.




21
 Kinder
Morgan, Inc. Form 10-Q


Subsequent
Event




In
October 2009, Kinder Morgan Energy Partners entered into forward contracts to
hedge an additional 0.9 million barrels of crude oil.




Interest
Rate Risk Management




In
order to maintain a cost effective capital structure, it is our policy to borrow
funds using a mix of fixed rate debt and variable rate debt.  We use
interest rate swap agreements to manage the interest rate risk associated with
the fair value of our fixed rate borrowings and to effectively convert a portion
of the underlying cash flows related to our long-term fixed rate debt securities
into variable rate cash flows in order to achieve our desired mix of fixed and
variable rate debt.




Since
the fair value of fixed rate debt varies inversely with changes in the market
rate of interest, we enter into swap agreements to receive a fixed and pay a
variable rate of interest in order to convert the interest expense associated
with certain of our senior notes from fixed rates to variable rates, resulting
in future cash flows that vary with the market rate of
interest.  These swaps, therefore, hedge against changes in the fair
value of our fixed rate debt that result from market interest rate
changes.  For derivative contracts that are designated and qualify as
a fair value hedge, the gain or loss on the derivative as well as the offsetting
loss or gain on the hedged item attributable to the hedged risk are recognized
in current earnings.




As
of December 31, 2008, we were not party to any interest rate swap agreements,
and our subsidiary, Kinder Morgan Energy Partners, was a party to interest rate
swap agreements with a total notional principal amount of $2.8
billion.  During the first nine months of 2009, we entered into two
fixed-to-variable interest swap agreements having a combined notional principal
amount of $725.0 million related to our 5.70% senior notes due January 5,
2016.  During the first nine months of 2009, Kinder Morgan Energy
Partners both terminated an existing fixed-to-variable interest rate swap
agreement having a notional principal amount of $300 million and a maturity date
of March 15, 2031, and entered into sixteen separate fixed-to-variable swap
agreements having a combined notional principal amount of $2.95
billion.  Kinder Morgan Energy Partners received proceeds of $144.4
million from the early termination of the $300 million swap
agreement.  In addition, an existing fixed-to-variable rate swap
agreement having a notional principal amount of $250 million matured on February
1, 2009.  This swap agreement corresponded with the maturity of Kinder
Morgan Energy Partners’ $250 million in principal amount of 6.30% senior notes
that also matured on that date (discussed in Note 4).




Therefore,
as of September 30, 2009, we and our subsidiary, Kinder Morgan Energy Partners,
had a combined notional principal amounts of $725.0 million and $5.2 billion,
respectively, of fixed-to-variable interest rate swap agreements effectively
converting the interest expense associated with certain series of Kinder Morgan
Energy Partners senior notes from fixed rates to variable rates based on an
interest rate of LIBOR plus a spread.  All of our and Kinder Morgan
Energy Partners’ swap agreements have termination dates that correspond to the
maturity dates of the related series of senior notes and, as of September 30,
2009, the maximum length of time over which we or Kinder Morgan Energy Partners
has hedged a portion of our exposure to the variability in the value of this
debt due to interest rate risk is through January 15, 2038.




Fair
Value of Derivative Contracts




The
fair values of our current and non-current asset and liability derivative
contracts are each reported separately as “Fair value of derivative contracts”
in the accompanying interim Consolidated Balance Sheets.  The
following table summarizes the fair values of our derivative contracts included
in the accompanying interim Consolidated Balance Sheets as of September 30, 2009
and December 31, 2008 (in millions):




22
 Kinder
Morgan, Inc. Form 10-Q


Fair
Value of Derivative Contracts




Asset
      derivatives
            
            
            Liability
      derivativesSeptember
      30, 2009
            
            December
      31, 2008
            
            
            September
      30, 2009
            
            December
      31, 2008Balance
      sheet
              location
            
            Fair
              value
            
            Balance
      sheet
              location
            
            Fair
              value
            
            
            Balance
      sheet
              location
            
            Fair
              value
            
            Balance
      sheet
              location
            
            Fair
              valueDerivatives designated
      as hedging contractsEnergy
      commodity derivative contracts
            Current
            
            $
            21.8
            
            Current
            
            $
            113.5
            
            
            Current
            
            $
            (196.8)
            
            Current
            
            $
            (129.4)Non-current
            
            
            67.1
            
            Non-current
            
            
            48.9
            
            
            Non-current
            
            
            (189.5)
            
            Current
            
            
            (92.2)Subtotal
            
            
            
            88.9
            
            
            
            
            162.4
            
            
            
            
            
            (386.3)
            
            
            
            
            (221.6)Interest
      rate swap agreements
            Non-current
            
            
            366.2
            
            Non-current
            
            
            747.1
            
            
            Non-current
            
            
            (103.4)
            
            Non-current
            
            
            -Cross
      currency swap agreements
            Non-current
            
            
            -
            
            Non-current
            
            
            32.0
            
            
            Non-current
            
            
            (5.1)
            
            Non-current
            
            
            -Total
            
            
            
            455.1
            
            
            
            
            941.5
            
            
            
            
            
            (494.8)
            
            
            
            
            (221.6)Derivatives not
      designated as hedging contractsEnergy
      commodity derivative contracts
            Current
            
            
            2.6
            
            Current
            
            
            1.8
            
            
            Current
            
            
            (1.5)
            
            Current
            
            
            (0.1)Total
      derivatives
            
            
            $
            457.7
            
            
            
            $
            943.3
            
            
            
            
            $
            (496.3)
            
            
            
            $
            (221.7)





The
offsetting entry to adjust the carrying value of the debt securities whose fair
value was being hedged is included within “Value of interest rate swaps” on the
accompanying interim Consolidated Balance Sheets, which also includes any
unamortized portion of proceeds received from the early termination of interest
rate swap agreements.  As of September 30, 2009 and December 31, 2008,
this unamortized premium totaled $342.9 million and $216.8 million,
respectively.




Effect
of Derivative Contracts on the Statement of Operations




The
following four tables summarize the impact of our derivative contracts on the
accompanying interim Consolidated Statements of Operations for the three and
nine months ended September 30, 2009 and 2008 (in millions):




Derivatives
      in fair value hedging relationships
            
            Location
      of gain/(loss) recognized in income on derivative
            
            Amount
      of gain/(loss) recognized in income on derivative(a)
            
            
            Hedged
      items in fair value hedging relationships
            
            Location
      of gain/(loss) recognized in income on related hedged item
            
            Amount
      of gain/(loss) recognized in income on related hedged
    items(a)Three
      Months Ended
              September
      30,
            
            
            
            
            
            
            Three
      Months Ended
              September
      30,2009
            
            2008
            
            
            
            
            
            
            2009
            
            2008Interest
      rate swap agreements
            
            Interest,
      net – income/(expense)
            
            $
            127.4
            
            $
            70.3
            
            
            Fixed
      rate debt
            
            Interest,
      net – income/(expense)
            
            $
            (127.4)
            
            $
            (70.3)Total
            
            
            
            $
            127.4
            
            $
            70.3
            
            
            Total
            
            
            
            $
            (127.4)
            
            $
            (70.3)Nine
      Months Ended
              September
      30,
            
            
            
            
            
            
            Nine
      Months Ended
              September
      30,2009
            
            2008
            
            
            
            
            
            
            2009
            
            2008Interest
      rate swap agreements
            
            Interest,
      net – income/(expense)
            
            $
            (339.9)
            
            $
            61.2
            
            
            Fixed
      rate debt
            
            Interest,
      net – income/(expense)
            
            $
            339.9
            
            $
            (61.2)Total
            
            
            
            $
            (339.9)
            
            $
            61.2
            
            
            Total
            
            
            
            $
            339.9
            
            $
            (61.2)


____________


(a)
            Amounts
      reflect the change in the fair value of interest rate swap agreements and
      the change in the fair value of the associated fixed rate debt which
      exactly offset each other as a result of no hedge
      ineffectiveness.  Amounts do not reflect the impact on interest
      expense from the interest rate swap agreements under which we pay variable
      rate interest and receive fixed rate
interest.





23
 Kinder
Morgan, Inc. Form 10-Q





Derivatives
      in cash flow hedging relationships
            
            Amount
      of gain/(loss) recognized in OCI on derivative (effective
      portion)
            
            Location
      of gain/(loss) reclassified from Accumulated OCI into income (effective
      portion)
            
            Amount
      of gain/(loss) reclassified from Accumulated OCI into income (effective
      portion)
            
            Location
      of gain/(loss) recognized in income on derivative (ineffective portion and
      amount excluded from effectiveness testing)
            
            Amount
      of gain/(loss) recognized in income on derivative (ineffective portion and
      amount excluded from effectiveness testing)Three
      Months Ended
              September
      30,
            
            
            
            Three
      Months Ended
              September
      30,
            
            
            
            Three
      Months Ended
              September
      30,2009
            
            2008
            
            
            
            2009
            
            2008
            
            
            
            2009
            
            2008Energy
      commodity derivative contracts
            
            $
            19.1
            
            $
            543.5
            
            Revenues-natural
      gas sales
            
            $
            4.1
            
            $
            1.0
            
            Revenues
            
            $
            (5.4)
            
            $
            -Revenues-product
      sales and other
            
            
            4.1
            
            
            71.6Gas
      purchases and other costs of sales
            
            
            (1.1)
            
            
            (2.1)
            
            Gas
      purchases and other costs of sales
            
            
            -
            
            
            0.1Total
            
            $
            19.1
            
            $
            543.5
            
            Total
            
            $
            7.1
            
            $
            70.5
            
            Total
            
            $
            (5.4)
            
            $
            0.1Nine
      Months Ended
              September
      30,
            
            
            
            Nine
      Months Ended
              September
      30,
            
            
            
            Nine
      Months Ended
              September
      30,2009
            
            2008
            
            
            
            2009
            
            2008
            
            
            
            2009
            
            2008Energy
      commodity derivative contracts
            
            $
            (76.3)
            
            $
            (253.5)
            
            Revenues-natural
      gas sales
            
            $
            8.5
            
            $
            (4.1)
            
            Revenues
            
            $
            (5.4)
            
            $
            -Revenues-product
      sales and other
            
            
            33.8
            
            
            (125.5)Gas
      purchases and other costs of sales
            
            
            (0.3)
            
            
            (11.3)
            
            Gas
      purchases and other costs of sales
            
            
            -
            
            
            (8.4)Total
            
            $
            (76.3)
            
            $
            (253.5)
            
            Total
            
            $
            42.0
            
            $
            (140.9)
            
            Total
            
            $
            (5.4)
            
            $
            (8.4)




Derivatives
      in
                net
      investment hedging
                relationships
              
              Amount
      of gain/(loss)
                recognized
      in OCI
                on
      derivative
                (effective
      portion)
              
              Location
      of
                gain/(loss)
                reclassified
      from
                Accumulated
      OCI
                into
      income
                (effective
      portion)
              
              Amount
      of gain/(loss)
                reclassified
      from
                Accumulated
      OCI
                into
      income
                (effective
      portion)
              
              Location
      of
                gain/(loss)
                recognized
      in income
                on
      derivative
                (ineffective
      portion
                and
      amount
                excluded
      from
                effectiveness
                testing)
              
              Amount
      of gain/(loss)
                recognized
      in income
                on
      derivative
                (ineffective
      portion and amount excluded from
                effectiveness
      testing)Three
      Months Ended
                September
      30,
              
              
              
              Three
      Months Ended
                September
      30,
              
              
              
              Three
      Months Ended
                September
      30,2009
              
              2008
              
              
              
              2009
              
              2008
              
              
              
              2009
              
              2008Cross
      currency swap agreements
              
              $
              (9.5)
              
              $
              36.2
              
              Other,
      net
              
              $
              -
              
              $
              -
              
              Revenues
              
              $
              -
              
              $
              -Total
              
              $
              (9.5)
              
              $
              36.2
              
              Total
              
              $
              -
              
              $
              -
              
              Total
              
              $
              -
              
              $
              -Nine
      Months Ended
                September
      30,
              
              
              
              Nine
      Months Ended
                September
      30,
              
              
              
              Nine
      Months Ended
                September
      30,2009
              
              2008
              
              
              
              2009
              
              2008
              
              
              
              2009
              
              2008Cross
      currency swap agreements
              
              $
              (35.6)
              
              $
              37.9
              
              Other,
      net
              
              $
              -
              
              $
              -
              
              Revenues
              
              $
              -
              
              $
              -Total
              
              $
              (35.6)
              
              $
              37.9
              
              Total
              
              $
              -
              
              $
              -
              
              Total
              
              $
              -
              
              $
              -


24
 Kinder
Morgan, Inc. Form 10-Q




Derivatives
      not designated
                as
      hedging contracts
              
              Location
      of gain/(loss) recognized
                in
      income on derivative
              
              Amount
      of gain/(loss) recognized
                in
      income on derivativeThree
      Months Ended
                September
      30,2009
              
              2008Energy
      commodity derivative contracts
              
              Gas
      purchases and other costs of sales
              
              $
              (0.8)
              
              $
              12.2Total
              
              
              
              $
              (0.8)
              
              $
              12.2Nine
      Months Ended
                September
      30,2009
              
              2008Energy
      commodity derivative contracts
              
              Gas
      purchases and other costs of sales
              
              $
              (3.1)
              
              $
              (0.9)Total
              
              
              
              $
              (3.1)
              
              $
              (0.9)




The
above disclosures regarding our derivative contracts and hedging activities are
made pursuant to provisions included within the Codification’s “Derivatives and
Hedging” Topic.  These provisions provide for enhanced disclosure
requirements that include, among other things, (i) a tabular summary of the fair
value of derivative contracts and their gains and losses, (ii) disclosure of
derivative features that are credit-risk–related to provide more information
regarding an entity’s liquidity and (iii) cross-referencing within footnotes to
make it easier for financial statement users to locate important information
about derivative contracts.  We adopted these provisions on January 1,
2009, and the adoption of these disclosure provisions did not have a material
impact on our consolidated financial statements.




Net
Investment Hedges




We
are exposed to foreign currency risk from our investments in businesses owned
and operated outside the United States.  To hedge the value of our
investment in Canadian operations, we have entered into various cross-currency
interest rate swap transactions that have been designated as net investment
hedges.  The effective portion of the changes in fair value of these
swap transactions is reported as a cumulative translation adjustment included in
the caption “Accumulated other comprehensive loss” in the accompanying interim
Consolidated Balance Sheets.  The combined notional value of our
remaining cross currency interest rate swaps at September 30, 2009 was
approximately C$96.3 million.




In
June 2009, we terminated cross currency interest rate swaps with a notional
value of C$29.2 million.  In connection with this termination, we
received $0.5 million in July 2009.  Additionally in July 2009, we
received $1.0 million for the termination of another portion of our cross
currency interest rate swaps with a notional value of C$29.2
million.




Credit
Risks




As
discussed in Note 15 to the Consolidated Financial Statements of our 2008 Form
10-K, we and our subsidiary, Kinder Morgan Energy Partners, have counterparty
credit risk as a result of our use of financial derivative
contracts.  Our counterparties consist primarily of financial
institutions, major energy companies and local distribution
companies.  This concentration of counterparties may impact our
overall exposure to credit risk, either positively or negatively, in that the
counterparties may be similarly affected by changes in economic, regulatory or
other conditions.




We
maintain credit policies with regard to our counterparties that we believe
minimize our overall credit risk.  These policies include (i) an
evaluation of potential counterparties’ financial condition (including credit
ratings), (ii) collateral requirements under certain circumstances and (iii) the
use of standardized agreements which allow for netting of positive and negative
exposure associated with a single counterparty.  Based on our
policies, exposure, credit and other reserves, our management does not
anticipate a material adverse effect on our financial position, results of
operations, or cash flows as a result of counterparty performance.




Our
over-the-counter swaps and options are entered into with counterparties outside
central trading organizations such as a futures, options or stock
exchange.  These contracts are with a number of parties, all of which
have investment grade credit ratings.  While we enter into derivative
transactions principally with investment grade




25
 Kinder
Morgan, Inc. Form 10-Q


counterparties
and actively monitor their ratings, it is nevertheless possible that from time
to time losses will result from counterparty credit risk in the
future.  The maximum potential exposure to credit losses on derivative
contracts as of September 30, 2009 was (in millions):




Asset positionInterest
      rate swap agreements
            
            $
            366.2Energy
      commodity derivative contracts
            
            
            91.5Gross
      exposure
            
            
            457.7Netting
      agreement impact
            
            
            (82.3
            )Net
      exposure
            
            $
            375.4





In
conjunction with the purchase of exchange-traded derivative contracts or when
the market value of our derivative contracts with specific counterparties
exceeds established limits, we are required to provide collateral to our
counterparties, which may include posting letters of credit or placing cash in
margin accounts.  As of September 30, 2009 and December 31, 2008,
Kinder Morgan Energy Partners had outstanding letters of credit totaling $35.0
million and $40.0 million, respectively, in support of its hedging of energy
commodity price risks associated with the sale of natural gas, natural gas
liquids and crude oil.  Additionally, as of September 30, 2009, Kinder
Morgan Energy Partners had cash margin deposits associated with its energy
commodity contract positions and over-the-counter swap partners totaling $10.1
million, and we reported this amount as “Restricted deposits” in the
accompanying interim Consolidated Balance Sheet.  As of December 31,
2008, Kinder Morgan Energy Partners’ counterparties associated with its energy
commodity contract positions and over-the-counter swap agreements had margin
deposits with it totaling $3.1 million, and we reported this amount within
“Accrued other liabilities” in the accompanying interim Consolidated Balance
Sheet.




Kinder
Morgan Energy Partners also has agreements with certain counterparties to its
derivative contracts that contain provisions requiring it to post additional
collateral upon a decrease in its credit rating.  Based on contractual
provisions as of September 30, 2009, we estimate that if Kinder Morgan Energy
Partners’ credit rating was downgraded, Kinder Morgan Energy Partners would have
the following additional collateral obligations (in millions):




Credit
      Ratings Downgraded(a)
            
            Incremental
              obligations
            
            Cumulative
              obligations(b)One
      notch to BBB-/Baa3
            
            $
            71.8
            
            
            $
            116.9Two
      notches to below BBB-/Baa3 (below investment grade)
            
            $
            63.9
            
            
            $
            180.8


__________


(a)
            If
      there are split ratings among the independent credit rating agencies, most
      counterparties use the higher credit rating to determine our incremental
      collateral obligations, while the remaining use the lower credit
      rating.  Therefore, a one notch downgrade to BBB-/Baa3 by one
      agency would not trigger the entire $71.8 million incremental
      obligation.(b)
            Includes
      current posting at current rating.




7.  Fair
Value




Our
fair value measurements and disclosures are made in accordance with the “Fair
Value Measurements and Disclosures” Topic of the Codification.  This
Topic establishes a single definition of fair value in generally accepted
accounting principles and prescribes disclosures about fair value
measurements.




We
adopted the provisions of this Topic for our financial assets and financial
liabilities effective January 1, 2008, and the adoption did not have a material
impact on our balance sheet, statement of income, or statement of cash flows
since we already applied its basic concepts in measuring fair
values.  With regard to our non-financial assets and non-financial
liabilities, we adopted the provisions of this Topic effective January 1,
2009.  This includes applying the provisions to (i) nonfinancial
assets and liabilities initially measured at fair value in business
combinations, (ii) reporting units or nonfinancial assets and liabilities
measured at fair value in conjunction with goodwill impairment testing, (iii)
other nonfinancial assets measured at fair value in conjunction with impairment
assessments and (iv) asset retirement obligations initially measured at fair
value.  The adoption for non-financial assets and liabilities did not
have a material impact on our balance sheet, statement of operations, or
statement of




26
 Kinder
Morgan, Inc. Form 10-Q


cash
flows since we already applied its basic concepts in measuring fair
values.




The
Codification emphasizes that fair value is a market-based measurement that
should be determined based on assumptions (inputs) that market participants
would use in pricing an asset or liability.  Inputs may be observable
or unobservable, and valuation techniques used to measure fair value should
maximize the use of relevant observable inputs and minimize the use of
unobservable inputs. Accordingly, the Codification establishes a hierarchal
disclosure framework that ranks the quality and reliability of information used
to determine fair values.  The hierarchy is associated with the level
of pricing observability utilized in measuring fair value and defines three
levels of inputs to the fair value measurement process—quoted prices are the
most reliable valuation inputs, whereas model values that include inputs based
on unobservable data are the least reliable.  Each fair value
measurement must be assigned to a level corresponding to the lowest level input
that is significant to the fair value measurement in its entirety.




The
three broad levels of inputs defined by the fair value hierarchy are as
follows:




▪
            Level
      1 Inputs—quoted prices (unadjusted) in active markets for identical assets
      or liabilities that the reporting entity has the ability to access at the
      measurement date;




▪
            Level
      2 Inputs—inputs other than quoted prices included within Level 1 that are
      observable for the asset or liability, either directly or
      indirectly.  If the asset or liability has a specified
      (contractual) term, a Level 2 input must be observable for substantially
      the full term of the asset or liability;
and




▪
            Level
      3 Inputs—unobservable inputs for the asset or liability.  These
      unobservable inputs reflect the entity’s own assumptions about the
      assumptions that market participants would use in pricing the asset or
      liability, and are developed based on the best information available in
      the circumstances (which might include the reporting entity’s own
      data).




Fair
Value of Derivative Contracts




The
following tables summarize the fair value measurements of our (i) energy
commodity derivative contracts, (ii) interest rate swap agreements and (iii)
cross currency interest rate swap agreements as of both September 30, 2009 and
December 31, 2008, based on the three levels established by the Codification and
does not include cash margin deposits, which are reported as “Restricted
deposits” in the accompanying interim Consolidated Balance Sheets (in
millions):




Asset
      fair value measurements usingTotal
            
            
            Quoted prices in
              active markets
              for identical
              assets (Level 1)
            
            
            Significant other
              observable
              inputs (Level 2)
            
            
            Significant
              unobservable
              inputs (Level 3)As
      of September 30, 2009Energy
      commodity derivative contracts(a)
            
            $
            91.5
            
            
            $
            0.1
            
            
            $
            22.7
            
            
            $
            68.7Interest
      rate swap agreements
            
            
            366.2
            
            
            
            -
            
            
            
            366.2
            
            
            
            -Cross
      currency interest rate swap agreements
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -As
      of December 31, 2008Energy
      commodity derivative contracts(b)
            
            $
            164.2
            
            
            $
            0.1
            
            
            $
            108.9
            
            
            $
            55.2Interest
      rate swap agreements
            
            
            747.1
            
            
            
            -
            
            
            
            747.1
            
            
            
            -Cross
      currency interest rate swap agreements
            
            
            32.0
            
            
            
            -
            
            
            
            32.0
            
            
            
            -





27
 Kinder
Morgan, Inc. Form 10-Q





Liability
      fair value measurements usingTotal
            
            
            Quoted prices in
              active markets
              for identical
              liabilities
              (Level 1)
            
            
            Significant other
              observable
              inputs (Level 2)
            
            
            Significant
              unobservable
              inputs (Level 3)As
      of September 30, 2009Energy
      commodity derivative contracts(c)
            
            $
            (387.8
            )
            
            $
            -
            
            
            $
            (349.0
            )
            
            $
            (38.8
            )Interest
      rate swap agreements
            
            
            (103.4
            )
            
            
            -
            
            
            
            (103.4
            )
            
            
            -Cross
      currency interest rate swap agreements
            
            
            (5.1
            )
            
            
            
            
            
            
            (5.1
            )As
      of December 31, 2008Energy
      commodity derivative contracts(d)
            
            $
            (221.7
            )
            
            $
            -
            
            
            $
            (210.6
            )
            
            $
            (11.1
            )Interest
      rate swap agreements
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Cross
      currency interest rate swap agreements
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -


__________


(a)
            Level
      1 consists primarily of NYMEX natural gas futures.  Level 2
      consists primarily of OTC West Texas Intermediate hedges and OTC natural
      gas hedges that are settled on NYMEX.  Level 3 consists
      primarily of natural gas basis swaps and West Texas Intermediate
      options.(b)
            Level
      1 consists primarily of NYMEX natural gas futures.  Level 2
      consists primarily of OTC West Texas Intermediate hedges and OTC natural
      gas hedges that are settled on NYMEX.  Level 3 consists
      primarily of West Texas Intermediate options and West Texas Sour
      hedges.(c)
            Level
      2 consists primarily of OTC West Texas Intermediate hedges and OTC natural
      gas hedges that are settled on NYMEX.  Level 3 consists
      primarily of West Texas Sour hedges, natural gas basis swaps and West
      Texas Intermediate options.(d)
            Level
      2 consists primarily of OTC West Texas Intermediate
      hedges.  Level 3 consists primarily of natural gas basis swaps,
      natural gas options and West Texas Intermediate
  options.





The
table below provides a summary of changes in the fair value of our Level 3
energy commodity derivative contracts for the three and nine months ended
September 30, 2009 and 2008 (in millions):




Significant
unobservable inputs (Level 3)




Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Derivatives-net
      asset (liability)Beginning
      of Period
              
              $
              24.0
              
              
              $
              (233.0
              )
              
              $
              44.1
              
              
              $
              (100.3
              )Realized
      and unrealized net losses
              
              
              2.7
              
              
              
              133.4
              
              
              
              (19.1
              )
              
              
              (52.9
              )Purchases
      and settlements
              
              
              3.2
              
              
              
              19.0
              
              
              
              4.9
              
              
              
              72.6Transfers
      in (out) of Level 3
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -End
      of Period
              
              $
              29.9
              
              
              $
              (80.6
              )
              
              $
              29.9
              
              
              $
              (80.6
              )Change
      in unrealized net losses relating to contracts still
      held at end of period
              
              $
              (0.1
              )
              
              $
              138.5
              
              
              $
              (29.5
              )
              
              $
              (22.3
              )


In
addition, on both October 10, 2008 and June 30, 2009, we adopted separate
provisions included within the “Fair Value Measurements and Disclosures” Topic
of the Codification.  The provisions adopted in October 2008 provide
guidance clarifying how fair value measurements should be applied when valuing
securities in markets that are not active, and reaffirm the notion of fair value
as an exit price as of the measurement date.  Among other things, the
guidance also states that significant judgment is required in valuing financial
assets.  The adoption of these provisions was effective immediately;
however, the adoption did not have any impact on our consolidated financial
statements.




The
provisions adopted on June 30, 2009 provide guidelines for making fair value
measurements more consistent with the overall principles presented in the “Fair
Value Measurements” Topic.  They provide additional guidance to
highlight and expand on the factors that should be considered in estimating fair
value when there has been a significant decrease in market activity for a
financial asset.  The adoption of these provisions did not have a
material impact on our consolidated financial statements.




28
 Kinder
Morgan, Inc. Form 10-Q


Fair
Value of Financial Instruments




Fair
value as used in the disclosure of financial instruments represents the amount
at which an instrument could be exchanged in a current transaction between
willing parties.  As of each reporting date, the estimated fair value
of our outstanding publicly-traded debt is based upon quoted market prices, if
available, and for all other debt, fair value is based upon prevailing interest
rates currently available to us.  In addition, we adjust (discount)
the fair value measurement of our long-term debt for the effect of credit
risk.




The
estimated fair value of our outstanding debt balance as of September 30, 2009
and December 31, 2008 (both short-term and long-term, but excluding the value of
interest rate swaps), is disclosed below (in millions):





September
      30, 2009
              
              December
      31, 2008Carrying
                Value
              
              Estimated
                Fair
      Value
              
              Carrying
                Value
              
              Estimated
                Fair
      ValueTotal
      Debt
              $
              13,336.9
              
              
              $
              13,971.7
              
              
              $
              11,458.3
              
              
              $
              9,813.9




The
above disclosure of the fair value of our financial instruments was made
pursuant to certain provisions of the “Financial Instruments” Topic of the
Codification and adopted by us on June 30, 2009.  These provisions
enhance consistency in financial reporting by increasing the frequency of fair
value disclosures from annually to quarterly, in order to provide financial
statement users with more timely information about the effects of current market
conditions on financial instruments.




On
that same day, we also adopted certain provisions of the “Investments—Debt and
Equity Securities” Topic of the Codification.  These adopted
provisions provide additional guidance designed to create greater clarity and
consistency in accounting for and presenting impairment losses on
securities.  The provisions change (i) the method for determining
whether an other-than-temporary impairment exists for debt securities and (ii)
the amount of an impairment charge to be recorded in earnings.  The
June 30, 2009 adoption of all of the provisions described above did not have a
material impact on our consolidated financial statements.




For
a more complete discussion of our fair value measurements, see Note 15 to the
Consolidated Financial Statements included in our 2008 Form 10-K.






8.  Reportable
Segments




We
divide our operations into seven reportable business segments.  These
segments and their principal source of revenues are as follows:




▪
            Products
      Pipelines–KMP— the transportation and terminaling of refined petroleum
      products, including gasoline, diesel fuel, jet fuel and natural gas
      liquids;




▪
            Natural
      Gas Pipelines–KMP—the sale, transport, processing, treating, storage and
      gathering of natural gas;




▪
            CO2–KMP—the
      production and sale of crude oil from fields in the Permian Basin of West
      Texas and the transportation and marketing of carbon dioxide used as a
      flooding medium for recovering crude oil from mature oil
      fields;




▪
            Terminals–KMP—the
      transloading and storing of refined petroleum products and dry and liquid
      bulk products, including coal, petroleum coke, cement, alumina, salt and
      other bulk chemicals;




▪
            Kinder
      Morgan Canada–KMP—the transportation of crude oil and refined
      products;




▪
            NGPL
      PipeCo LLC—after February 15, 2008, this segment consists of our 20%
      interest in NGPL PipeCo LLC, a major interstate natural gas pipeline and
      storage system, which we operate;
and




▪
            Power—consists
      of a natural gas-fired electric generation
  facility.




29
 Kinder
Morgan, Inc. Form 10-Q


The
accounting policies we apply in the generation of reportable segment earnings
are generally the same as those applied to our consolidated operations, except
that (i) certain items below the “Operating Income (Loss)” line (such as
interest expense) are either not allocated to reportable segments or are not
considered by management in its evaluation of reportable segment performance,
(ii) equity in earnings of equity method investees are included in segment
earnings (these equity method earnings are included in “Other Income (Expense)”
in the accompanying interim Consolidated Statements of Operations, (iii) certain
items included in operating income (such as general and administrative expenses
and depreciation, depletion and amortization (“DD&A”)) are not considered by
management in its evaluation of reportable segment performance and, thus, are
not included in reported performance measures, (iv) gains and losses from
incidental sales of assets are included in segment earnings and (v) our
reportable segments that are also segments of Kinder Morgan Energy Partners
include certain other income and expenses and income taxes in its segment
earnings. With adjustment for these items, we currently evaluate reportable
segment performance primarily based on segment earnings before DD&A in
relation to the level of capital employed.




Selected
financial information by segment follows (in millions):




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008RevenuesProducts
      Pipelines–KMPRevenues
      from external customers
            
            $
            216.7
            
            
            $
            205.6
            
            
            $
            611.6
            
            
            $
            602.5Natural
      Gas Pipelines–KMPRevenues
      from external customers
            
            
            838.8
            
            
            
            2,359.4
            
            
            
            2,751.2
            
            
            
            6,916.6CO2–KMPRevenues
      from external customers
            
            
            286.1
            
            
            
            339.6
            
            
            
            821.7
            
            
            
            1,002.1Terminals–KMPRevenues
      from external customers
            
            
            282.8
            
            
            
            306.0
            
            
            
            814.2
            
            
            
            886.4Intersegment
      revenues
            
            
            0.2
            
            
            
            0.2
            
            
            
            0.7
            
            
            
            0.7Kinder
      Morgan Canada–KMP(a)Revenues
      from external customers
            
            
            60.1
            
            
            
            57.2
            
            
            
            166.1
            
            
            
            145.4NGPL
      PipeCo LLC(b)Revenues
      from external customers
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            132.1Intersegment
      revenues
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0.9PowerRevenues
      from external customers
            
            
            16.3
            
            
            
            17.5
            
            
            
            35.3
            
            
            
            38.2OtherRevenues
      from external customers
            
            
            11.5
            
            
            
            11.3
            
            
            
            34.4
            
            
            
            28.8Intersegment
      revenues
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.9
            )Total
      segment revenues
            
            
            1,712.5
            
            
            
            3,296.8
            
            
            
            5,235.2
            
            
            
            9,752.8Less:
      Total intersegment revenues
            
            
            (0.2
            )
            
            
            (0.2
            )
            
            
            (0.7
            )
            
            
            (0.7
            )Total
      consolidated revenues
            
            $
            1,712.3
            
            
            $
            3,296.6
            
            
            $
            5,234.5
            
            
            $
            9,752.1





30
 Kinder
Morgan, Inc. Form 10-Q





Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Segment
      earnings before depreciation, depletion, amortization
              and
      amortization of excess cost of equity investmentsProducts
      Pipelines–KMP
            
            $
            167.9
            
            
            $
            (22.4
            )
            
            $
            468.0
            
            
            $
            (859.3
            )Natural
      Gas Pipelines–KMP
            
            
            197.8
            
            
            
            337.6
            
            
            
            559.8
            
            
            
            (1,546.9
            )CO2– KMP
            
            
            217.0
            
            
            
            237.7
            
            
            
            635.6
            
            
            
            721.6Terminals–KMP
            
            
            155.0
            
            
            
            117.3
            
            
            
            430.3
            
            
            
            (293.2
            )Kinder
      Morgan Canada–KMP(a)
            
            
            47.7
            
            
            
            44.5
            
            
            
            113.9
            
            
            
            114.0NGPL
      PipeCo LLC(b)
            
            
            9.0
            
            
            
            11.5
            
            
            
            31.4
            
            
            
            116.2Power
            
            
            1.4
            
            
            
            1.6
            
            
            
            3.8
            
            
            
            4.4Total
      segment earnings (loss) before DD&A(c)
            
            
            795.8
            
            
            
            727.8
            
            
            
            2,242.8
            
            
            
            (1,743.2
            )Total
      segment depreciation, depletion and amortization
            
            
            (255.5
            )
            
            
            (217.2
            )
            
            
            (777.1
            )
            
            
            (651.0
            )Total
      segment amortization of excess cost of investments
            
            
            (1.4
            )
            
            
            (1.4
            )
            
            
            (4.3
            )
            
            
            (4.3
            )NGPL
      PipeCo LLC fixed fee revenue
            
            
            11.5
            
            
            
            11.1
            
            
            
            34.4
            
            
            
            27.9General
      and administrative expenses
            
            
            (92.2
            )
            
            
            (85.9
            )
            
            
            (269.2
            )
            
            
            (264.0
            )Unallocable
      interest and other, net of interest income (d)
            
            
            (135.8
            )
            
            
            (139.6
            )
            
            
            (425.2
            )
            
            
            (477.3
            )Add
      back: income taxes included in segments above (c)
            
            
            6.7
            
            
            
            8.8
            
            
            
            28.8
            
            
            
            20.1Income
      (loss) from continuing operations before income taxes
            
            $
            329.1
            
            
            $
            303.6
            
            
            $
            830.2
            
            
            $
            (3,091.8
            )





September 30,
              2009
            
            
            December 31,
              2008AssetsProducts
      Pipelines–KMP
            
            $
            5,595.9
            
            
            $
            5,526.4Natural
      Gas Pipelines–KMP
            
            
            9,233.7
            
            
            
            7,748.1CO2–KMP
            
            
            4,273.9
            
            
            
            4,478.7Terminals–KMP
            
            
            4,494.2
            
            
            
            4,327.8Kinder
      Morgan Canada–KMP(a)
            
            
            1,755.9
            
            
            
            1,583.9NGPL
      PipeCo LLC(b)
            
            
            696.6
            
            
            
            717.3Power
            
            
            65.3
            
            
            
            58.9Total
      segment assets
            
            
            26,115.5
            
            
            
            24,441.1Corporate
      assets(e)
            
            
            890.4
            
            
            
            1,003.8Total
      consolidated assets
            
            $
            27,005.9
            
            
            $
            25,444.9


____________


(a)
            On
      August 28, 2008, we sold our one-third interest in the net assets of the
      Express pipeline system (“Express”), as well as our full ownership of the
      net assets of the Jet Fuel pipeline system (“Jet Fuel”), to Kinder Morgan
      Energy Partners.  The results of Express and Jet Fuel are now
      reported in the segment referred to as Kinder Morgan Canada–KMP for all
      periods.(b)
            Effective
      February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC to
      Myria.  As a result of the sale, beginning February 15, 2008, we
      account for our 20% ownership interest in NGPL PipeCo LLC as an equity
      method investment.(c)
            Income
      taxes of Kinder Morgan Energy Partners of $6.7 million, $8.8 million,
      $28.8 million and $20.1 million, respectively, for the three and nine
      month periods ended September 30, 2009 and 2008 are included in segment
      earnings (loss) before DD&A.(d)
            Includes
      (i) interest expense and (ii) miscellaneous other income and expenses not
      allocated to reportable segments.(e)
            Includes
      cash and cash equivalents, margin and restricted deposits, unallocable
      interest receivable, prepaid assets and deferred charges, risk management
      assets related to the fair value of interest rate swaps and miscellaneous
      corporate assets (such as information technology and telecommunications
      equipment) not allocated to individual
segments.







9.  Related
Party Transactions




Plantation
Pipe Line Company Note Receivable




Kinder
Morgan Energy Partners has a long-term note receivable bearing interest at the
rate of 4.72% per annum from Plantation Pipe Line Company, its 51.17%-owned
equity investee.  The note provides for semiannual




31
 Kinder
Morgan, Inc. Form 10-Q


payments
of principal and interest on December 31 and June 30 each year, with a final
principal payment due July 20, 2011.  The outstanding note receivable
balance was$86.1
million as of September 30, 2009, and $88.5 million as of December 31,
2008.  Of these amounts, $2.6 million and $3.7 million were included
within “Accounts, notes and interest receivable, net,” on the accompanying
interim Consolidated Balance Sheets as of September 30, 2009 and December 31,
2008, respectively, and the remainder was included within “Notes receivable” at
each reporting date.




Express
US Holdings LP Note Receivable




Kinder
Morgan Energy Partners has a long-term investment in a C$113.6 million debt
security issued by Express US Holdings LP (the obligor), the partnership that
maintains ownership of the U.S. portion of the Express pipeline
system.  The debenture, denominated in Canadian dollars, is due in
full on January 9, 2023, bears interest at the rate of 12.0% per annum and
provides for quarterly payments of interest in Canadian dollars on March 31,
June 30, September 30 and December 31 each year.  As of September 30,
2009 and December 31, 2008, the outstanding note receivable balance,
representing the translated amount included in the accompanying interim
Consolidated Financial Statements in U.S. dollars, was $106.1 million and $93.3
million, respectively, and we included these amounts within “Notes receivable”
in the accompanying interim Consolidated Balance Sheets.




NGPL
PipeCo LLC Fixed Fee Revenue and Other Transactions




On
February 15, 2008, Kinder Morgan, Inc. entered into an Operations and
Reimbursement Agreement (“Agreement”) with Natural Gas Pipeline Company of
America LLC, a wholly owned subsidiary of NGPL PipeCo LLC.  The
Agreement provides for Kinder Morgan, Inc. to be reimbursed, at cost, for
pre-approved operations and maintenance costs, plus a $43.2 million annual
general and administration fixed fee charge (“Fixed Fee”), for services provided
under the Agreement.  This Fixed Fee escalates at 3% each year until
2011 and is billed monthly.  For the three months ended September 30,
2009 and 2008, these Fixed Fees totaled $11.5 million and $11.1 million,
respectively.  For the nine months ended September 30, 2009 and the
period from February 15, 2008 to September 30, 2008, these Fixed Fees totaled
$34.4 million and $27.9 million, respectively.




Significant
Investors




Two
of Kinder Morgan Holdco LLC’s investors are considered “related parties” to us
as that term is defined in the authoritative accounting literature: (i) American
International Group, Inc. and certain of its affiliates (“AIG”) and (ii) Goldman
Sachs Capital Partners and certain of its affiliates (“Goldman
Sachs”).  We and/or our affiliates enter into transactions with
certain AIG affiliates in the ordinary course of their conducting insurance and
insurance-related activities, although no individual transaction is, and all
such transactions collectively are not, material to our consolidated financial
statements.  We also conduct commodity risk management activities in
the ordinary course of implementing our risk management strategies in which the
counterparty to certain of our derivative transactions is an affiliate of
Goldman Sachs.  In conjunction with these activities, we are a party
(through one of our subsidiaries engaged in the production of crude oil) to a
hedging facility with J. Aron & Company/Goldman Sachs, which requires us to
provide certain periodic information but does not require the posting of
margin.  As a result of changes in the market value of our derivative
positions, we have recorded both amounts receivable from and payable to Goldman
Sachs affiliates. The following table summarizes the fair values of our energy
commodity derivative contracts that are (i) associated with commodity price risk
management activities with related parties and (ii) included within “Fair value
of derivative contracts” in the accompanying interim Consolidated Balance Sheets
as of September 30, 2009 and December 31, 2008 (in millions):





September 30,
                2009
              
              
              December 31,
                2008(In
      millions)Derivatives
      - asset (liability)Current
      Assets: Fair value of derivative contracts
              
              $
              1.6
              
              
              $
              60.4Assets:
      Fair value of derivative contracts
              
              $
              15.6
              
              
              $
              20.1Current
      Liabilities: Fair value of derivative contracts
              
              $
              (43.3
              )
              
              $
              (13.2
              )Long-term
      Liabilities and Deferred Credits: Fair value of derivative
      contracts
              
              $
              (119.9
              )
              
              $
              (24.1
              )




32
 Kinder
Morgan, Inc. Form 10-Q




10.  Income
Taxes




Income
taxes from continuing operations included in the accompanying interim
Consolidated Statements of Operations were as follows:




Three Months Ended
              September 30,
            
            Nine Months Ended
              September 30,2009
            
            2008
            
            2009
            
            2008(In
      millions, except percentages)Income
      taxes
            $
            99.6
            
            
            $
            87.9
            
            
            $
            247.2
            
            
            $
            194.4Effective
      tax rate (a)
            
            30.3
            %
            
            
            29.0
            %
            
            
            29.8
            %
            
            
            20.7
            %


____________


(a)
            Nine
      months ended September 30, 2008 excludes goodwill impairment charges
      related to nondeductible goodwill.  Including the goodwill
      impairment charges, the effective tax rate is
  6.3%.





For
the three months ended September 30, 2009 the effective tax rate is lower than
the statutory federal rate of 35% primarily due to the impact of nontaxable
non-controlling interests, which was partially offset by (i) foreign income
taxes, (ii) state income taxes and (iii) adjustments to true-up our book tax
provision to the 2008 tax returns filed in September 2009.  For the
three months ended September 30, 2008 the effective tax rate is lower than the
statutory federal rate of 35% primarily due to the impact of nontaxable
non-controlling interests, which was partially offset by foreign income taxes
and state income taxes




For
the nine months ended September 30, 2009, the effective tax rate is lower than
the statutory federal rate of 35% due to (i) the impact of nontaxable
non-controlling interests, (ii) a dividends received deduction from our 20%
ownership interest in NGPL PipeCo LLC, (iii) adjustments related to a change in
nondeductible goodwill and (iv) the Uncertainty in Income Taxes (FIN 48)
reserve.  These three items were partially offset by a one-time
non-cash deferred tax liability adjustment in the Kinder Morgan Canada-KMP
segment and state income taxes.  For the nine months ended September
30, 2008, the effective tax rate is lower than the statutory federal rate of 35%
due to (i) the impact of nontaxable non-controlling interests, (ii) a dividends
received deduction from our 20% ownership interest in NGPL PipeCo LLC and (iii)
a deferred income tax liabilities and income tax expense adjustment related to
the termination of certain Canadian subsidiaries in 2008.  These three
items were partially offset by state income taxes.




2003
to 2005 Tax Year – Internal Revenue Service (“IRS”) Audit
Settlement




During
the third quarter of 2009, we reached an audit settlement with the IRS for the
tax years 2003 through 2005 for which we received refunds.  The
settlement resulted in a $6.8 million increase in our Uncertainty in Income
Taxes reserve balance.  We also recorded $4.9 million of additional
liabilities to our Uncertainty in Income Taxes reserves for new issues and
accrued interest expense.






11.
Litigation, Environmental and Other Contingencies




Below
is a brief description of our ongoing material legal proceedings, including any
material developments that occurred in such proceedings during the nine months
ended September 30, 2009.  Additional information with respect to
these proceedings can be found in Note 21 to the Consolidated Financial
Statements included in our 2008 Form 10-K.  This note also contains a
description of any material legal proceedings that were initiated against us
during the nine months ended September 30, 2009.




In
this note, we refer to SFPP, L.P. as SFPP; Calnev Pipe Line LLC as Calnev;
Chevron Products Company as Chevron; Navajo Refining Company, L.P. as Navajo;
ARCO Products Company as ARCO; BP West Coast Products, LLC as BP WCP; Texaco
Refining and Marketing Inc. as Texaco; Western Refining Company, L.P. as Western
Refining; ExxonMobil Oil Corporation as ExxonMobil; Tosco Corporation as Tosco;
Ultramar Diamond Shamrock Corporation/Ultramar Inc. as Ultramar; Valero Energy
Corporation as Valero; Valero Marketing and Supply Company as Valero Marketing;
America West Airlines, Inc., Continental Airlines, Inc., Northwest Airlines,
Inc., Southwest Airlines Co. and US Airways, Inc., collectively, as the
Airlines; the United States Court of Appeals for the District of Columbia
Circuit as the D.C. Circuit; and the Federal Energy Regulatory Commission, as
the




33
 Kinder
Morgan, Inc. Form 10-Q


FERC.




Following
is a listing of certain current FERC proceedings pertaining to Kinder Morgan
Energy Partners’ operations:




▪
            FERC
      Docket Nos. OR92-8, et
      al.—Complainants/Protestants: Chevron, Navajo, ARCO, BP WCP,
      Western Refining, ExxonMobil, Tosco, and Texaco (Ultramar is an
      intervenor)—Defendant: SFPP—Subject:  Complaints against East
      Line and West Line rates; appeals pending at the D.C.
    Circuit.




▪
            FERC
      Docket No. OR92-8-025—Complainants/Protestants:  BP WCP;
      ExxonMobil; Chevron; ConocoPhillips; and Ultramar—Defendant:
      SFPP—Subject:  Complaints against East Line and West Line rates
      and Watson Station Drain-Dry Charge; appeal pending at the D.C.
      Circuit.




▪
            FERC
      Docket Nos. OR96-2, et
      al.—Complainants/Protestants: All Shippers except Chevron (which is
      an intervenor)—Defendant: SFPP—Subject:  Complaints against all
      SFPP rates;




▪
            FERC
      Docket No. OR02-4—Complainant/Protestant: Chevron—Defendant: SFPP;
      Subject:  Complaint against SFPP rates; dismissed and Chevron
      appeal pending at the D.C. Circuit;




▪
            FERC
      Docket Nos. OR03-5, OR04-3, OR05-4 & OR05-5—Complainants/Protestants:
      BP WCP, ExxonMobil, ConocoPhillips, the Airlines (other shippers
      intervened)—Defendant: SFPP—Subject:  Complaints against all
      SFPP rates;




▪
            FERC
      Docket Nos. OR07-1 & OR07-2—Complainant/Protestant: Tesoro—Defendant:
      SFPP—Subject:  Complaints against North Line and West Line
      rates; held in abeyance;




▪
            FERC
      Docket Nos. OR07-3 & OR07-6—Complainants/Protestants: BP WCP, Chevron,
      ConocoPhillips, ExxonMobil, Tesoro, and Valero Marketing—Defendant:
      SFPP—Subject:  Complaints against 2005 and 2006 indexed rate
      increases; dismissed by FERC; appeal pending at D.C.
    Circuit;




▪
            FERC
      Docket No. OR07-4—Complainants/Protestants: BP WCP, Chevron, and
      ExxonMobil—Defendants: SFPP, Kinder Morgan G.P., Inc., and Kinder Morgan,
      Inc.—Subject:  Complaints against all SFPP rates; held in
      abeyance; complaint withdrawn as to SFPP’s
  affiliates;




▪
            FERC
      Docket Nos. OR07-5 & OR07-7 (consolidated) and
      IS06-296—Complainants/Protestants: ExxonMobil and Tesoro—Defendants:
      Calnev, Kinder Morgan G.P., Inc., and Kinder Morgan,
      Inc.—Subject:  Complaints and protest against Calnev rates;
      OR07-5 and IS06-296 were settled in 2008; OR07-7 complaint amendment
      pending before FERC;




▪
            FERC
      Docket Nos. OR07-18, OR07-19 & OR07-22—Complainants/Protestants:
      Airlines, BP WCP, Chevron, ConocoPhillips and Valero Marketing—Defendant:
      Calnev—Subject:  Complaints against Calnev rates; complaint
      amendments pending before FERC;




▪
            FERC
      Docket No. OR07-20—Complainant/Protestant: BP WCP—Defendant:
      SFPP—Subject:  Complaint against 2007 indexed rate increases;
      dismissed by FERC; appeal pending at D.C.
  Circuit;




▪
            FERC
      Docket Nos. OR08-13 & OR08-15—Complainants/Protestants: BP WCP and
      ExxonMobil—Defendant: SFPP—Subject:  Complaints against all SFPP
      rates and 2008 indexed rate
increases;




▪
            FERC
      Docket No. IS05-230 (North Line rate case)—Complainants/Protestants:
      Shippers—Defendant: SFPP—Subject:  SFPP filing to increase North
      Line rates to reflect expansion; initial decision issued; pending at
      FERC;




▪
            FERC
      Docket No. IS07-137—Complainants/Protestants: Shippers—Defendant:
      SFPP—Subject:  ULSD surcharge;
  settled;




▪
            FERC
      Docket No. IS08-390—Complainants/Protestants: BP WCP, ExxonMobil,
      ConocoPhillips, Valero, Chevron, the Airlines—Defendant:
      SFPP—Subject:  West Line rate increase; Initial Decision
      expected




34
 Kinder
Morgan, Inc. Form 10-Q


December
      2009;




▪
            FERC
      Docket No. IS09-375—Complainants/Protestants: BP, ExxonMobil, Chevron,
      Tesoro, ConocoPhillips, Western, Navajo, Valero, and Southwest (other
      shippers intervened)—Defendant: SFPP—Subject:  Protests
      regarding 2009 indexed rate increases; protests dismissed by
      FERC;




▪
            FERC
      Docket No. IS09-377—Complainants/Protestants: BP, Chevron, and Tesoro
      (other shippers intervened)—Defendant: Calnev—Subject:  Protests
      regarding 2009 index-based rate increases; protests dismissed by
      FERC;




▪
            FERC
      Docket No. IS09-437—Complainants/Protestants: BP WCP, ExxonMobil,
      ConocoPhillips, Valero, Chevron, Western Refining, and the
      Airlines—Defendant: SFPP—Subject:  East Line rate
      increases;




▪
            FERC
      Docket Nos. OR09-8/OR09-18/OR09-21 (not
      consolidated)—Complainants/Protestants: Chevron/Tesoro/BP WCP—Defendant:
      SFPP—Subject:  Complaints against July 1, 2008 (Chevron/Tesoro)
      and July 1, 2009 (Tesoro/BP WCP) index-based rate
    increases;




▪
            FERC
      Docket Nos. OR09-11/OR09-14 (not consolidated)—Complainants/Protestants:
      BP WCP/Tesoro—Defendant: Calnev—Subject:  Complaints requesting
      audit of Page 700 of FERC Form No. 6 for 2007 and
  2008;




▪
            FERC
      Docket Nos. OR09-12/OR09-16 (not consolidated)—Complainants/Protestants:
      BP WCP/Tesoro—Defendant: SFPP—Subject:  Complaints requesting
      audit of Page 700 of FERC Form No. 6 for 2007 and
  2008;




▪
            FERC
      Docket Nos. OR09-15/OR09-20 (not consolidated)—Complainants/Protestants:
      Tesoro/BP WCP—Defendant: Calnev—Subject:  Complaints against all
      Calnev rates;




▪
            FERC
      Docket Nos. OR09-17/OR09-22 (not consolidated)—Complainants/Protestants:
      Tesoro/BP WCP—Defendant: SFPP—Subject:  Complaints against SFPP
      rates; and




▪
            FERC
      Docket Nos. OR09-19/OR09-23 (not consolidated)—Complainants/Protestants:
      Tesoro/BP WCP—Defendant: Calnev—Subject:  Complaints against
      July 1, 2009 index-based rate
increases.




The
tariffs and rates charged by SFPP and Calnev (Kinder Morgan Energy Partners
subsidiaries within its Westcoast Products Pipeline Group) are subject to
numerous ongoing proceedings at the FERC, including the above listed shippers’
complaints and protests regarding interstate rates on these pipeline
systems.  These complaints have been filed over numerous years
beginning in 1992 through and including 2009.  In general, these
complaints allege the rates and tariffs charged by SFPP and Calnev are not just
and reasonable.  If the shippers are successful in proving their
claims, they are entitled to seek reparations (which may reach up to two years
prior to the filing of their complaint) or refunds of any excess rates paid, and
SFPP and Calnev may be required to reduce their rates going forward. These proceedings tend
to be protracted, with decisions of the FERC often appealed to the federal
courts.




As
to SFPP, the issues involved in these proceedings include, among others: (i)
whether certain of the SFPP rates are “grandfathered” under the Energy Policy
Act of 1992, and therefore deemed to be just and reasonable, (ii) whether
“substantially changed circumstances” have occurred with respect to any
grandfathered rates such that those rates could be challenged, (iii) whether
indexed rate increases are justified and (iv) the appropriate level of return
and income tax allowance it may include in its rates.  The issues
involving Calnev are similar.




During
2008, SFPP and Calnev made combined settlement payments to various shippers
totaling approximately $30.2 million in connection with OR92-8-025, IS06-283 and
OR07-5.  In October 2008, SFPP entered into a settlement resolving
disputes regarding its East Line rates filed in Docket No. IS08-28 and related
dockets.  In January 2009, the FERC approved the
settlement.  Reduced settlement rates became effective on May 1, 2009,
and SFPP made refund and settlement payments totaling $15.5 million in May
2009.




Based
on our review of these FERC proceedings, we estimate that as of September 30,
2009, shippers are seeking approximately $355 million in reparation and refund
payments and approximately $30 to $35 million in




35
 Kinder
Morgan, Inc. Form 10-Q


additional
annual rate reductions.  We assume that, with respect to the SFPP
litigation reserves, any reparations and accrued interest thereon will be paid
no earlier than the end of 2009.




California
Public Utilities Commission Proceedings




SFPP
has previously reported ratemaking and complaint proceedings pending with the
California Public Utilities Commission, referred to in this note as the
CPUC.  The ratemaking and complaint cases generally involve challenges
to rates charged by SFPP for intrastate transportation of refined petroleum
products through its pipeline system in the state of California and request
prospective rate adjustments and refunds with respect to tariffed and previously
untariffed charges for certain pipeline transportation and related
services.  These matters have been consolidated and assigned to two
administrative law judges.  As of the filing of this report, it is
unknown when a decision from the CPUC regarding either of the two groups of
consolidated matters will be issued.  Based on our review of these
CPUC proceedings, we estimate that shippers are seeking approximately $100
million in reparation and refund payments and approximately $35 million in
annual rate reductions.




Carbon
Dioxide Litigation




Gerald
O. Bailey et al. v. Shell Oil Co. et al/Southern District of Texas
Lawsuit




Kinder
Morgan CO2 Company,
L.P. (Kinder Morgan CO2”),Kinder
Morgan Energy Partners, L.P. and Cortez Pipeline Company are among the
defendants in a proceeding in the federal courts for the Southern District of
Texas. Gerald O. Bailey et al.
v. Shell Oil Company et al., (Civil Action Nos. 05-1029 and 05-1829 in
the U.S. District Court for the Southern District of Texas—consolidated by Order
dated July 18, 2005).  The plaintiffs assert claims for the
underpayment of royalties on carbon dioxide produced from the McElmo Dome Unit,
located in southwestern Colorado.  The plaintiffs assert claims for
fraud/fraudulent inducement, real estate fraud, negligent misrepresentation,
breach of fiduciary and agency duties, breach of contract and covenants,
violation of the Colorado Unfair Practices Act, civil theft under Colorado law,
conspiracy, unjust enrichment, and open account.  Plaintiffs Gerald O.
Bailey, Harry Ptasynski, and W.L. Gray & Co. also assert claims as private
relators under the False Claims Act and for violation of federal and Colorado
antitrust laws.  The plaintiffs seek actual damages, treble damages,
punitive damages, a constructive trust and accounting, and declaratory
relief.  The defendants filed motions for summary judgment on all
claims.




On
April 22, 2008, the federal district court granted defendants’ motions for
summary judgment and ruled that plaintiffs Bailey and Ptasynski take nothing on
their claims and that the claims of Gray be dismissed with prejudice. The court
entered final judgment in favor of the defendants on April 30,
2008.  Defendants have filed a motion seeking sanctions against
plaintiffs Bailey and Ptasynski and their attorney.  The plaintiffs
have appealed the final judgment to the United States Fifth Circuit Court of
Appeals.  The parties concluded their briefing to the Fifth Circuit
Court of Appeals in February 2009.




CO2Claims
Arbitration




Cortez
Pipeline Company and Kinder Morgan CO2, successor
to Shell CO2 Company,
Ltd., were among the named defendants in CO2 Committee,
Inc. v. Shell Oil Co., et al., an arbitration initiated on November 28,
2005.  The arbitration arose from a dispute over a class action settlement
agreement which became final on July 7, 2003 and disposed of five lawsuits
formerly pending in the U.S. District Court, District of Colorado.  The
plaintiffs in such lawsuits primarily included overriding royalty interest
owners, royalty interest owners, and small share working interest owners who
alleged underpayment of royalties and other payments on carbon dioxide produced
from the McElmo Dome Unit.




The
settlement imposed certain future obligations on the defendants in the
underlying litigation.  The plaintiffs alleged that, in calculating royalty
and other payments, defendants used a transportation expense in excess of what
is allowed by the settlement agreement, thereby causing alleged underpayments of
approximately $12 million.  The plaintiffs also alleged that Cortez
Pipeline Company should have used certain funds to further reduce its debt,
which, in turn, would have allegedly increased the value of royalty and other
payments by approximately $0.5 million.  On August 7, 2006, the arbitration
panel issued its opinion finding that defendants did not breach the settlement
agreement.  On June 21, 2007, the New Mexico federal district court
entered final judgment confirming the August 7, 2006 arbitration
decision.




36
 Kinder
Morgan, Inc. Form 10-Q


On
October 2, 2007, the plaintiffs initiated a second arbitration (CO2 Committee,
Inc. v. Shell CO2 Company,
Ltd., aka Kinder Morgan CO2 Company,
L.P., et al.) against Cortez Pipeline Company, Kinder Morgan CO2and an
ExxonMobil entity.  The second arbitration asserts claims similar to
those asserted in the first arbitration.  On June 3, 2008, the
plaintiffs filed a request with the American Arbitration Association seeking
administration of the arbitration.  In October 2008, the New Mexico
federal district court entered an order declaring that the panel in the first
arbitration should decide whether the claims in the second arbitration are
barred by res judicata.  The plaintiffs filed a motion for
reconsideration of that order, which was denied by the New Mexico federal
district court in January 2009.  Plaintiffs have appealed to the Tenth
Circuit Court of Appeals and continue to seek administration of the second
arbitration by the American Arbitration Association.  The American
Arbitration Association has indicated that it intends to stay any action pending
the Tenth Circuit appeal.




MMS
Matters




The
U.S. Department of the Interior, Minerals Management Service, referred to in
this note as the MMS, and Kinder Morgan CO2 have
reached a settlement of the previously reported Notice of Noncompliance and
Civil Penalty from December 2006 and Orders to Report and Pay from March 2007
and August 2007.  The settlement agreement is subject to final MMS
approval and upon approval will be funded from existing reserves and indemnity
payments by Shell CO2General
LLC and Shell CO2LLC
pursuant to a royalty claim indemnification agreement.




J.
Casper Heimann, Pecos Slope Royalty Trust and Rio Petro LTD, individually and on
behalf of all other private royalty and overriding royalty owners in the Bravo
Dome Carbon Dioxide Unit, New Mexico similarly situated v. Kinder Morgan CO2 Company,
L.P., No. 04-26-CL (8th
Judicial District Court, Union County New Mexico)




This
case involves a purported class action against Kinder Morgan CO2 alleging
that it has failed to pay the full royalty and overriding royalty, collectively
referred to as the royalty interests, on the true and proper settlement value of
compressed carbon dioxide produced from the Bravo Dome Unit during the period
beginning January 1, 2000.  The complaint purports to assert claims for
violation of the New Mexico Unfair Practices Act, constructive fraud, breach of
contract and of the covenant of good faith and fair dealing, breach of the
implied covenant to market, and claims for an accounting, unjust enrichment, and
injunctive relief.  The purported class is comprised of current and former
owners, during the period January 2000 to the present, who have private property
royalty interests burdening the oil and gas leases held by the defendant,
excluding the Commissioner of Public Lands, the United States of America, and
those private royalty interests that are not unitized as part of the Bravo Dome
Unit.




The
case was tried to a jury in the trial court in September 2008.  The
plaintiffs sought $6.8 million in actual damages as well as punitive
damages.  The jury returned a verdict finding that Kinder Morgan
CO2did not breach the settlement agreement and did not breach the claimed
duty to market carbon dioxide.  The jury also found that Kinder Morgan
CO2breached a duty of good faith and fair dealing and found compensatory
damages of $0.3 million and punitive damages of $1.2 million.  On
October 16, 2008, the trial court entered judgment on the verdict.




On
January 6, 2009, the district court entered orders vacating the judgment and
scheduling a new trial beginning on October 19, 2009.  On September
10, 2009, the parties signed a settlement agreement providing for a payment of
$3.2 million to the class, a new royalty methodology pursuant to which future
royalties will be based on a price formula that is tied in part to published
crude oil prices, and a dismissal with prejudice of all claims.  On
October 22, 2009, the trial court entered final judgment approving the
settlement.




Colorado
Severance Tax Assessment




On
September 16, 2009, the Colorado Department of Revenue issued three Notices of
Deficiency to Kinder Morgan CO2.  The
Notices of Deficiency assessed additional state severance tax against Kinder
Morgan CO2with respect to carbon dioxide produced from the McElmo Dome Unit for tax
years 2005, 2006, and 2007.  The total amount of tax assessed was $5.7
million, plus interest of $1.0 million, plus penalties of $1.7
million.  Kinder Morgan CO2protested
the Notices of Deficiency and paid the tax and interest under
protest.  Kinder Morgan CO2is now
awaiting the response of the Colorado Department of Revenue to the
Protest.




37
 Kinder
Morgan, Inc. Form 10-Q


Montezuma
County, Colorado Property Tax Assessment




On
September 11, 2009, the County Assessor of Montezuma County, Colorado, issued
Special Notices of Valuation to Kinder Morgan CO2.  The
Special Notices of Valuation were revised on September 30, 2009.  The
revised Special Notices of Valuation were issued based on the assertion that a
portion of the actual value of the carbon dioxide produced from the McElmo Dome
Unit was omitted from the 2008 tax roll due to an alleged over statement of
transportation and other expenses used to calculate the net taxable value.Kinder Morgan CO2filed a
Protest of the revised Special Notices of Valuation and is now awaiting the
County Assessor’s response to that Protest.  If tax bills are issued
reflecting the Special Notices of Valuation, Kinder Morgan CO2 expects
that additional property taxes will be due from all interest owners at the
McElmo Dome Unit in the amount of approximately $2.1 million, plus
interest.  Of this amount, 37.2% would be attributed to Kinder Morgan
CO2’s
interest.  Upon payment of any additional taxes, Kinder Morgan CO2 expects to
file a petition for abatement or refund and vigorously contest Montezuma
County’s position.




Other




In
addition to the matters listed above, audits and administrative inquiries
concerning Kinder Morgan CO2’s payments
on carbon dioxide produced from the McElmo Dome and Bravo Dome Units are
currently ongoing.  These audits and inquiries involve federal agencies,
the states of Colorado and New Mexico, and county taxing authorities in the
state of Colorado.




Commercial
Litigation Matters




Union Pacific Railroad Company
Easements




SFPP
and Union Pacific Railroad Company (the successor to Southern Pacific
Transportation Company and referred to in this note as UPRR) are engaged in a
proceeding to determine the extent, if any, to which the rent payable by SFPP
for the use of pipeline easements on rights-of-way held by UPRR should be
adjusted pursuant to existing contractual arrangements for the ten year period
beginning January 1, 2004 (Union Pacific Railroad Company vs.
Santa Fe Pacific Pipelines, Inc., SFPP, L.P., Kinder Morgan Operating L.P. “D”,
Kinder Morgan G.P., Inc., et al.,Superior Court of the State of
California for the County of Los Angeles, filed July 28, 2004).  In
February 2007, a trial began to determine the amount payable for easements on
UPRR rights-of-way.  The trial is ongoing and is expected to conclude
in the first quarter of 2010.




SFPP
and UPRR are also engaged in multiple disputes over the circumstances under
which SFPP must pay for a relocation of its pipeline within the UPRR
right-of-way and the safety standards that govern relocations.  In
July 2006, a trial before a judge regarding the circumstances under which SFPP
must pay for relocations concluded, and the judge determined that SFPP must pay
for any relocations resulting from any legitimate business purpose of the
UPRR.  SFPP appealed this decision, and in December 2008, the
appellate court affirmed the decision.  In addition, UPRR contends
that SFPP must comply with the more expensive American Railway Engineering and
Maintenance-of-Way standards in determining when relocations are necessary and
in completing relocations.  Each party is seeking declaratory relief
with respect to its positions regarding the application of these standards with
respect to relocations.




It
is difficult to quantify the effects of the outcome of these cases on SFPP,
because SFPP does not know UPRR’s plans for projects or other activities that
would cause pipeline relocations.  Even if SFPP is successful in
advancing its positions, significant relocations for which SFPP must nonetheless
bear the expense (i.e., for railroad purposes, with the standards in the federal
Pipeline Safety Act applying) would have an adverse effect on our financial
position and results of operations.  These effects would be even
greater in the event SFPP is unsuccessful in one or more of these
litigations.




United
States of America, ex rel., Jack J. Grynberg v. K N Energy (Civil Action No.
97-D-1233, filed in the U.S. District Court, District of Colorado).




This
multi-district litigation proceeding involves four lawsuits filed in 1997
against numerous Kinder Morgan companies.  These suits were filed
pursuant to the federal False Claims Act and allege underpayment of royalties
due to mismeasurement of natural gas produced from federal and Indian
lands.  The complaints are part of a larger




38
 Kinder
Morgan, Inc. Form 10-Q


series
of similar complaints filed by Mr. Grynberg against 77 natural gas pipelines
(approximately 330 other defendants) in various courts throughout the country
that were consolidated and transferred to the District of Wyoming.




In
May 2005, a Special Master appointed in this litigation found that because there
was a prior public disclosure of the allegations and that Grynberg was not an
original source, the Court lacked subject matter jurisdiction.  As a
result, the Special Master recommended that the Court dismiss all the Kinder
Morgan defendants.  In October 2006, the United States District Court
for the District of Wyoming upheld the dismissal of each case against the Kinder
Morgan defendants on jurisdictional grounds.  Grynberg appealed this
Order to the Tenth Circuit Court of Appeals.  Briefing was completed
and oral argument was held on September 25, 2008.  A decision by the
Tenth Circuit Court of Appeals affirming the dismissal of the Kinder Morgan
Defendants was issued on March 17, 2009.  Grynberg’s petition for
rehearing was denied on May 4, 2009 and the Tenth Circuit issued its Mandate on
May 18, 2009.  On October 5, 2009, the United States Supreme Court
denied Grynberg’s Petition for Writ of Certiorari, ending his
appeal.




Prior
to the dismissal order on jurisdictional grounds, the Kinder Morgan defendants
filed Motions to Dismiss and for Sanctions alleging that Grynberg filed his
Complaint without evidentiary support and for an improper purpose.  On
January 8, 2007, after the dismissal order, the Kinder Morgan defendants also
filed a Motion for Attorney Fees under the False Claim Act.  A
decision is still pending on the Motions to Dismiss and for Sanctions and the
Requests for Attorney Fees.




Severstal
Sparrows Point Crane Collapse




On
June 4, 2008, a bridge crane owned by Severstal Sparrows Point, LLC in Sparrows
Point, Maryland collapsed while being operated by Kinder Morgan Bulk Terminals,
Inc. (a Kinder Morgan Energy Partners’ subsidiary).  According to
Kinder Morgan Energy Partners’ investigation, the collapse was caused by
unexpected, sudden and extreme winds.  On June 24, 2009, Severstal
filed suit against Kinder Morgan Bulk Terminals in the United States District
Court for the District of Maryland, Cause No. WMN 09CV1668 alleging that Kinder
Morgan Energy Partners was contractually obligated to replace the collapsed
crane and that its employees were negligent in failing to properly secure the
crane prior to the collapse.  Severstal seeks unspecified damages for
value of the crane and lost profits.  Kinder Morgan Bulk Terminals
denies each of Severstal’s allegations.




Leukemia
Cluster Litigation




Richard
Jernee, et al v. Kinder Morgan Energy Partners, et al, No. CV03-03482 (Second
Judicial District Court, State of Nevada, County of Washoe)
(“Jernee”).




Floyd
Sands, et al v. Kinder Morgan Energy Partners, et al, No. CV03-05326 (Second
Judicial District Court, State of Nevada, County of Washoe)
(“Sands”).




On
May 30, 2003, plaintiffs, individually and on behalf of Adam Jernee, filed a
civil action in the Nevada State trial court against Kinder Morgan Energy
Partners and several affiliated entities and individuals and additional
unrelated defendants. Plaintiffs in the Jernee matter claim that defendants
negligently and intentionally failed to inspect, repair and replace unidentified
segments of their pipeline and facilities, allowing “harmful substances and
emissions and gases” to damage “the environment and health of human
beings.”  Plaintiffs claim that “Adam Jernee’s death was caused by
leukemia that, in turn, is believed to be due to exposure to industrial
chemicals and toxins.”  Plaintiffs purport to assert claims for
wrongful death, premises liability, negligence, negligence per se, intentional
infliction of emotional distress, negligent infliction of emotional distress,
assault and battery, nuisance, fraud, strict liability (ultra hazardous acts),
and aiding and abetting, and seek unspecified special, general and punitive
damages.




On
August 28, 2003, a separate group of plaintiffs, represented by the counsel for
the plaintiffs in the Jernee matter, individually and on behalf of Stephanie
Suzanne Sands, filed a civil action in the Nevada State trial court against the
same defendants and alleging the same claims as in the Jernee case with respect
to Stephanie Suzanne Sands.  The Jernee case has been consolidated for
pretrial purposes with the Sands case.




39
 Kinder
Morgan, Inc. Form 10-Q


In
July, 2009, plaintiffs in both the Sands and Jernee cases agreed to dismiss all
claims against the Kinder Morgan related defendants with prejudice in exchange
for the Kinder Morgan defendants’ agreement that they would not seek to recover
their defense costs against the plaintiffs.  The Kinder Morgan
defendants filed a Motion for Approval of Good Faith Settlement which was
granted by the court on August 27, 2009, effectively concluding these cases with
respect to all Kinder Morgan related entities and individuals.




Pipeline
Integrity and Releases




From
time to time, despite our best efforts, our pipelines experience leaks and
ruptures.  These leaks and ruptures may cause explosions, fire and
damage to the environment, damage to property and/or personal injury or
death.  In connection with these incidents, we may be sued for damages
caused by an alleged failure to properly mark the locations of our pipelines
and/or to properly maintain our pipelines.  Depending upon the facts
and circumstances of a particular incident, state and federal regulatory
authorities may seek civil and/or criminal fines and penalties.




Midcontinent
Express Pipeline LLC Construction Incident




On
July 15, 2009, a Midcontinent Express contractor and subcontractor were
conducting a nitrogen pressure test onfacilities
at a Midcontinent Express delivery meter station that was under
constructionin Smith
County, Mississippi.  An unexpected release occurred during testing,
resulting in one fatality and injuries to four other employees of the contractor
or subcontractor. The United States Occupational Safety and Health
Administration is investigating and has completed an on-site investigation into
the cause of the incident with assistance from the United States Department of
Transportation Pipeline and Hazardous Materials Safety Administration
(“PHMSA”).  We are awaiting a report on the results of the
investigation.  All construction work at other Midcontinent Express
meter sites was allowed to continue after safety and construction reviews
confirmed that the work could resume safely.




Pasadena
Terminal Fire




On
September 23, 2008, a fire occurred in the pit 3 manifold area of our Pasadena,
Texas terminal facility.  One of our employees was injured and
subsequently died.  In addition, the pit 3 manifold was severely
damaged.




On
July 13, 2009, a civil lawsuit was filed by and on behalf of the family of the
deceased employee entitled Brandy Williams et. al. v. KMGP
Services Company, Inc. in the 133rd
District Court of Harris County, Texas, case no. 2009-44321.  The suit
alleges one count of gross negligence against defendant and seeks unspecified
compensatory and punitive damages.  We have filed an Answer denying
the allegations in the Complaint, and the parties are currently engaged in
discovery.




Rockies
Express Pipeline LLC Wyoming Construction Incident




On
November 11, 2006, a bulldozer operated by an employee of Associated Pipeline
Contractors, Inc., a third-party contractor to Rockies Express struck an
existing subsurface natural gas pipeline owned by Wyoming Interstate Company, a
subsidiary of El Paso Pipeline Group.  The pipeline was ruptured,
resulting in an explosion and fire.  The incident occurred in a rural
area approximately nine miles southwest of Cheyenne, Wyoming.  The
incident resulted in one fatality (the operator of the bulldozer) and there were
no other reported injuries.  The cause of the incident was
investigated by the PHMSA.  In March 2008, the PHMSA issued a Notice
of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order,
referred to in this note as a NOPV, to El Paso Corporation in which it concluded
that El Paso failed to comply with federal law and its internal policies and
procedures regarding protection of its pipeline, resulting in this
incident.




To
date, the PHMSA has not issued any NOPV’s to Rockies Express, and Rockies
Express does not expect that it will do so.  Immediately following the
incident, Rockies Express and El Paso Pipeline Group reached an agreement on a
set of additional enhanced safety protocols designed to prevent the reoccurrence
of such an incident.




In
September 2007, the family of the deceased bulldozer operator filed a wrongful
death action against Kinder Morgan Energy Partners, Rockies Express and several
other parties in the District Court of Harris County, Texas, 189th Judicial
District, at case number 2007-57916.  The plaintiffs seek unspecified
compensatory and exemplary damages plus interest, attorney’s fees and costs of
suit.  Kinder Morgan Energy Partners asserted contractual
claims




40
 Kinder
Morgan, Inc. Form 10-Q


for
complete indemnification for any and all costs arising from this incident,
including any costs related to this lawsuit, against third parties and their
insurers.  On March 25, 2008, Kinder Morgan Energy Partners entered
into a settlement agreement with one of the plaintiffs, the decedent’s daughter,
resolving any and all of her claims against it, Rockies Express and its
contractors.  Kinder Morgan Energy Partners was indemnified for the
full amount of this settlement by one of Rockies Express’
contractors.  On October 17, 2008, the remaining plaintiffs filed a
Notice of Nonsuit, which dismissed the remaining claims against all defendants
without prejudice to the plaintiffs’ ability to re-file their claims at a later
date.  The remaining plaintiffs re-filed their Complaint against
Rockies Express, Kinder Morgan Energy Partners and several other parties on
November 7, 2008, Cause No. 2008-66788, currently pending in the District Court
of Harris County, Texas, 189th Judicial District.  The parties are
currently engaged in discovery.




Charlotte,
North Carolina




On
November 27, 2006, the Plantation Pipeline experienced a release of
approximately 95 barrels of gasoline from a Plantation Pipe Line Company block
valve on a delivery line into a terminal owned by a third party
company.  The line was repaired and put back into service within a few
days.  Remediation efforts are continuing under the direction of the
North Carolina Department of Environment and Natural Resources, referred to in
this note as the NCDENR, which issued a Notice of Violation and Recommendation
of Enforcement against Plantation on January 8, 2007.  Plantation
continues to cooperate fully with the NCDENR.




In
April 2007, during pipeline maintenance activities near Charlotte, North
Carolina, Plantation discovered the presence of historical soil contamination
near the pipeline, and reported the presence of impacted soils to the
NCDENR.  Subsequently, Plantation contacted the owner of the property
to request access to the property to investigate the potential
contamination.  The results of that investigation indicate that there
is soil and groundwater contamination which appears to be from a historical
turbine fuel release.  The groundwater contamination is underneath at
least two lots on which there is current construction of single family homes
that are part of a new residential development.  Further investigation
and remediation are being conducted under the oversight of the
NCDENR.  Plantation reached a settlement with the builder of the two
homes that were impacted.  Plantation continues to negotiate with the
owner of the property to address any potential claims that it may
bring.




Barstow,
California




The
United States Department of Navy has alleged that historic releases of methyl
tertiary-butyl ether (“MTBE”) from Calnev Pipe Line Company’s Barstow terminal
(i) have migrated underneath the Navy’s Marine Corps Logistics Base in Barstow,
(ii) have impacted the Navy’s existing groundwater treatment system for
unrelated groundwater contamination not alleged to have been caused by Calnev
and (iii) could affect the Barstow, California Marine Corps Logistic Base’s
water supply system.  Although Calnev believes that it has certain
meritorious defenses to the Navy’s claims, it is working with the Navy to agree
upon an Administrative Settlement Agreement and Order on Consent for federal
Comprehensive Environmental Response, Compensation and Liability Act (referred
to as CERCLA) Removal Action to reimburse the Navy for $0.5 million in past
response actions, plus potentially perform other work, if the parties determine
it to be necessary, to ensure protection of the Navy’s existing treatment system
and water supply.




Westridge
Terminal, Burnaby, British Columbia




On
July 24, 2007, a third-party contractor installing a sewer line for the City of
Burnaby struck a crude oil pipeline segment included within Kinder Morgan Energy
Partners’ Trans Mountain pipeline system near its Westridge terminal in Burnaby,
British Columbia, resulting in a release of approximately 1,400 barrels of crude
oil.  The release impacted the surrounding neighborhood, several homes
and nearby Burrard Inlet.  No injuries were reported.  To
address the release, Kinder Morgan Energy Partners initiated a comprehensive
emergency response in collaboration with, among others, the City of Burnaby, the
British Columbia Ministry of Environment, the National Energy Board, and the
National Transportation Safety Board.  Cleanup and environmental
remediation is complete and Kinder Morgan Energy Partners has applied to the
British Columbia Ministry of Environment for a Certificate of Compliance
confirming complete remediation.  Certification is expected prior to
year end.




41
 Kinder
Morgan, Inc. Form 10-Q


The
National Transportation Safety Board released its investigation report
(“Report”) on the incident on March 18, 2009.  The Report confirmed
that an absence of pipeline location marking in advance of excavation and
inadequate communication between the contractor and Kinder Morgan Energy
Partners’ subsidiary Kinder Morgan Canada Inc., the operator of the line, were
the primary causes of the accident.  No directives, penalties or
actions of Kinder Morgan Canada Inc. were required as a result of the
Report.




On
July, 22, 2009, the British Columbia Ministry of Environment issued regulatory
charges against the third-party contractor, the engineering consultant to the
sewer line project, Kinder Morgan Canada Inc., and Trans Mountain L.P. (the last
two of which are subsidiaries of Kinder Morgan Energy Partners).  The
charges claim that the parties charged caused the release of crude oil, and in
doing so were in violation of various sections of the Environmental, Fisheries
and Migratory Bird Acts.  Kinder Morgan Energy Partners is of the view
that the charges have been improperly laid against it, and it intends to
vigorously defend against them.




Litigation
Relating to the “Going Private” Transaction




Beginning
on May 29, 2006, the day after the proposal for the Going Private transaction
was announced, and in the days following, eight putative Class Action lawsuits
were filed in Harris County (Houston), Texas and seven putative Class Action
lawsuits were filed in Shawnee County (Topeka), Kansas against, among others,
Kinder Morgan, Inc., its Board of Directors, the Special Committee of the Board
of Directors, and several corporate officers.




By
order of the Harris County District Court dated June 26, 2006, each of the eight
Harris County cases were consolidated into the Crescente v. Kinder Morgan, Inc. et
al case, Cause No. 2006-33011, in the 164th
Judicial District Court, Harris County, Texas, which challenges the proposed
transaction as inadequate and unfair to Kinder Morgan, Inc.’s public
stockholders. On September 8, 2006, interim class counsel filed their
Consolidated Petition for Breach of Fiduciary Duty and Aiding and Abetting in
which they alleged that Kinder Morgan, Inc.’s board of directors and certain
members of senior management breached their fiduciary duties and the Sponsor
Investors aided and abetted the alleged breaches of fiduciary duty in entering
into the merger agreement. They sought, among other things, to enjoin the
merger, rescission of the merger agreement, disgorgement of any improper profits
received by the defendants, and attorneys’ fees. Defendants filed Answers to the
Consolidated Petition on October 9, 2006, denying the plaintiffs’ substantive
allegations and denying that the plaintiffs are entitled to relief.




By
order of the District Court of Shawnee County, Kansas dated June 26, 2006, each
of the seven Kansas cases were consolidated into the Consol. Case No. 06 C 801;
In Re Kinder Morgan, Inc.
Shareholder Litigation; in the District Court of Shawnee County, Kansas,
Division 12. On August 28, 2006, the plaintiffs filed their Consolidated
and Amended Class Action Petition in which they alleged that Kinder Morgan’s
board of directors and certain members of senior management breached their
fiduciary duties and the Sponsor Investors aided and abetted the alleged
breaches of fiduciary duty in entering into the merger agreement. They sought,
among other things, to enjoin the stockholder vote on the merger agreement and
any action taken to effect the acquisition of Kinder Morgan and its assets by
the buyout group, damages, disgorgement of any improper profits received by the
defendants, and attorney’s fees.




In
late 2006, the Kansas and Texas Courts appointed the Honorable Joseph T. Walsh
to serve as Special Master in both consolidated cases “to control all of the
pretrial proceedings in both the Kansas and Texas Class Actions arising out of
the proposed private offer to purchase the stock of the public shareholders of
Kinder Morgan, Inc.” On November 21, 2006, the plaintiffs in In Re Kinder Morgan, Inc.
Shareholder Litigation filed a Third Amended Class Action Petition with
Special Master Walsh. This Petition was later filed under seal with the Kansas
District Court on December 27, 2006.




Following
extensive expedited discovery, the Plaintiffs in both consolidated actions filed
an application for a preliminary injunction to prevent the holding of a special
meeting of shareholders for the purposes of voting on the proposed merger, which
was scheduled for December 19, 2006.




On
December 18, 2006, Special Master Walsh issued a Report and Recommendation
concluding, among other things, that “plaintiffs have failed to demonstrate the
probability of ultimate success on the merits of their claims in this joint
litigation.” Accordingly, the Special Master concluded that the plaintiffs were
“not entitled to injunctive relief to prevent the holding of the special meeting
of Kinder Morgan, Inc. shareholders scheduled for December 19,




42
 Kinder
Morgan, Inc. Form 10-Q


2006.”




Plaintiffs
moved for class certification in January 2008.




In
August, September and October 2008, the Plaintiffs in both consolidated cases
voluntarily dismissed without prejudice the claims against those Kinder Morgan,
Inc. directors who did not participate in the buyout (including the dismissal of
the members of the special committee of the board of directors), Kinder Morgan,
Inc. and Knight Acquisition, Inc. In addition, on November 19, 2008, by
agreement of the parties, the Texas trial court issued an order staying all
proceedings in the Texas actions until such time as a final judgment shall be
issued in the Kansas actions. The effect of this stay is that the consolidated
matters will proceed only in the Kansas trial court.




In
February 2009, the parties submitted an agreed upon order which has been entered
by the Kansas trial court certifying a class consisting of “All holders of
Kinder Morgan, Inc. common stock, during the period of August 28, 2006, through
May 30, 2007, and their transferees, successors and assigns. Excluded from the
class are defendants, members of their immediate families or trusts for the
benefit of defendants or their immediate family members, and any majority-owned
affiliates of any defendant.”  The parties agreed that the
certification and definition of the above class was subject to revision and
without prejudice to defendants’ right to seek decertification of the class or
modification of the class definition.




The
parties are currently engaged in consolidated discovery in these
matters.




On
August 24, 2006, a civil action entitled City of Inkster Policeman and
Fireman Retirement System, Derivatively on Behalf of Kinder Morgan, Inc.,
Plaintiffs v. Richard D. Kinder, Michael C. Morgan, William V. Morgan, Fayez
Sarofim, Edward H. Austin, Jr., William J. Hybl, Ted A. Gardner, Charles W.
Battey, H.A. True, III, James M. Stanford, Stewart A. Bliss, Edward Randall,
III, Douglas W.G. Whitehead, Goldman Sachs Capital Partners, American
International Group, Inc., The Carlyle Group, Riverstone Holdings LLC, C. Park
Shaper, Steven J. Kean, Scott E. Parker and R. Tim Bradley, Defendants and
Kinder Morgan, Inc., Nominal Defendant; Case 2006-52653, was filed in the
270th
Judicial District Court, Harris County, Texas. This putative derivative lawsuit
was brought against certain of Kinder Morgan, Inc.’s senior officers and
directors, alleging that the proposal constituted a breach of fiduciary duties
owed to Kinder Morgan, Inc. The plaintiff also contends that the Sponsor
Investors aided and abetted the alleged breaches of fiduciary
duty.  The plaintiff seeks, among other things, to enjoin the
defendants from consummating the proposal, a declaration that the proposal is
unlawful and unenforceable, the imposition of a constructive trust upon any
benefits improperly received by the defendants, and attorney’s fees. In
November 2007, defendants filed a Joint Motion to Dismiss for Lack of
Jurisdiction, or in the Alternative, Motion for Final Summary Judgment.
Plaintiffs opposed the motion. In February 2008, the court entered a Final Order
granting defendants’ motion in full, ordering that plaintiff, the City of
Inkster Policeman and Fireman Retirement System, take nothing on any and all of
its claims against any and all defendants. In April 2008, Plaintiffs filed an
appeal of the judgment in favor of all defendants in the Texas Court of Appeal,
First District. In June 2009, the Texas Court of Appeal affirmed the decision of
the trial court dismissing the case in full.




General




Although
no assurance can be given, we believe that we have meritorious defenses to the
actions set forth in this note and, to the extent an assessment of the matter is
possible, if it is probable that a liability has been incurred and the amount of
loss can be reasonably estimated, we believe that we have established an
adequate reserve to cover potential liability.




Additionally,
although it is not possible to predict the ultimate outcomes, we also believe,
based on our experiences to date, that the ultimate resolution of these matters
will not have a material adverse impact on our business, financial position,
results of operations or cash flows.  As of September 30, 2009 and
December 31, 2008, we have recorded a total reserve for legal fees,
transportation rate cases and other litigation liabilities in the amount of
$207.7 million and $234.8 million, respectively.  The reserve is
primarily related to various claims from lawsuits arising from Kinder Morgan
Energy Partners West Coast Products Pipeline Group’s transportation rates, and
the contingent amount is based on both the circumstances of probability and
reasonability of dollar estimates.  We regularly assess the likelihood
of adverse outcomes resulting from these claims in order to determine the
adequacy of our liability provision.




43
 Kinder
Morgan, Inc. Form 10-Q


Environmental
Matters




The
City of Los Angeles v. Kinder Morgan Liquids Terminals, LLC, Shell Oil Company,
Equilon Enterprises LLC;  California Superior Court, County of Los Angeles,
Case No. NC041463.




Kinder
Morgan Liquids Terminals LLC is a defendant in a lawsuit filed in 2005 alleging
claims for environmental cleanup costs at the former Los Angeles Marine Terminal
in the Port of Los Angeles. The lawsuit was stayed for the first six months of
2009 in order to allow the parties to work with the regulatory agency concerning
the scope of the required cleanup. The regulatory agency has not yet made
any final decisions concerning cleanup of the former terminal, although the
agency is expected to issue final cleanup orders in 2009.




The
lawsuit stay has now been lifted, and two new defendants have been added to the
lawsuit by plaintiff in a Third Amended Complaint.  Plaintiff’s Third
Amended Complaint alleges that future environmental cleanup costs at the former
terminal will exceed $10 million, and that Plaintiff’s past damages exceed
$2 million. No trial date has yet been set.




Exxon
Mobil Corporation v. GATX Corporation, Kinder Morgan Liquids Terminals, LLC and
Support Terminals Services, Inc.




On
April 23, 2003, Exxon Mobil Corporation (“Exxon Mobil”) filed a complaint in the
Superior Court of New Jersey, Gloucester County.  The lawsuit relates
to environmental remediation obligations at a Paulsboro, New Jersey liquids
terminal owned by ExxonMobil from the mid-1950s through November 1989, by GATX
Terminals Corporation (“GATX”) from 1989 through September 2000, later owned by
Support Terminals Services, Inc. (“Support Terminals”).  The terminal
is now owned by Pacific Atlantic Terminals, LLC, and it too is a party to the
lawsuit.




The
complaint seeks any and all damages related to remediating all environmental
contamination at the terminal, and, according to the New Jersey Spill
Compensation and Control Act, treble damages may be available for actual dollars
incorrectly spent by the successful party in the lawsuit.  The parties
are currently involved in mandatory mediation and met in June and October
2008.  No progress was made at any of the mediations.  The
mediation judge has referred the case back to the litigation
courtroom.




On
June 25, 2007, the New Jersey Department of Environmental Protection, the
Commissioner of the New Jersey Department of Environmental Protection and the
Administrator of the New Jersey Spill Compensation Fund, referred to
collectively as the plaintiffs, filed a complaint against ExxonMobil and Kinder
Morgan Liquids Terminals LLC, f/k/a GATX.  The complaint was filed in
Gloucester County, New Jersey.  Both ExxonMobil and Kinder Morgan Liquids
Terminals, LLC filed third party complaints against Support Terminals seeking to
bring Support Terminals into the case.  Support Terminals filed
motions to dismiss the third party complaints, which were
denied.  Support Terminals is now joined in the case and it filed an
Answer denying all claims.




The
plaintiffs seek the costs and damages that the plaintiffs allegedly have
incurred or will incur as a result of the discharge of pollutants and hazardous
substances at the Paulsboro, New Jersey facility.  The costs and
damages that the plaintiffs seek include cleanup costs and damages to natural
resources.  In addition, the plaintiffs seek an order compelling the
defendants to perform or fund the assessment and restoration of
those natural resource damages that are the result of the defendants’
actions.  As in the case brought by ExxonMobil against GATX, the issue
is whether the plaintiffs’ claims are within the scope of the indemnity
obligations between GATX (and therefore, Kinder Morgan Liquids Terminals, LLC)
and Support Terminals.  The court has consolidated the two
cases.  All parties participated in mediation on October 26,
2009.  A further mediation session has been scheduled for December 7,
2009.




Mission
Valley Terminal Lawsuit




In
August 2007, the City of San Diego, on its own behalf and purporting to act
on behalf of the People of the state of California, filed a lawsuit against
Kinder Morgan Energy Partners and several affiliates seeking injunctive relief
and unspecified damages allegedly resulting from hydrocarbon and MTBE impacted
soils and groundwater beneath the city’s stadium property in San Diego arising
from historic operations at the Mission Valley terminal




44
 Kinder
Morgan, Inc. Form 10-Q


facility.  The
case was filed in the Superior Court of California, San Diego County, case
number 37-2007-00073033-CU-OR-CTL.  On September 26, 2007, Kinder
Morgan Energy Partners removed the case to the United States District Court,
Southern District of California, case number 07CV1883WCAB.  On October
3, 2007, Kinder Morgan Energy Partners filed a Motion to Dismiss all counts of
the Complaint.  The court denied in part and granted in part the
Motion to Dismiss and gave the City leave to amend their
complaint.  The City submitted its Amended Complaint and Kinder Morgan
Energy Partners filed an Answer.  The parties have commenced with
discovery.  This site has been, and currently is, under the regulatory
oversight and order of the California Regional Water Quality Control
Board.




Kinder
Morgan Port Manatee Terminal LLC, Palmetto, Florida




On
June 18, 2009, Kinder Morgan Energy Partners’ subsidiary Kinder Morgan Port
Manatee Terminal LLC, a Kinder Morgan Energy Partners’ subsidiary, received a
Revised Warning Letter from the Florida Department of Environmental Protection,
referred to in this note as the Florida DEP, advising it of possible regulatory
and air permit violations regarding operations at Port Manatee Florida Terminal
LLC.  Kinder Morgan Energy Partners previously conducted a voluntary
internal audit at this facility in March 2008 and identified various
environmental compliance and permitting issues primarily related to air quality
compliance.  Kinder Morgan Energy Partners reported its findings from
this audit in a self-disclosure letter to the Florida DEP in March,
2008.  Following the submittal of its self-disclosure letter, the
agency conducted numerous inspections of the air pollution control devices at
the terminal and issued this Revised Warning Letter.  Kinder Morgan
Energy Partners intends to schedule a meeting with the Florida DEP to attempt to
resolve these issues.




In
addition, Kinder Morgan Energy Partners has received a subpoena from the U.S.
Department of Justice for production of documents related to the service and
operation of Kinder Morgan Port Manatee Terminal LLC.  Kinder Morgan
Energy Partners is fully cooperating with the investigation of this
matter.




Other
Environmental




We
are subject to environmental cleanup and enforcement actions from time to
time.  In particular, the CERCLA generally imposes joint and several
liability for cleanup and enforcement costs on current and predecessor owners
and operators of a site, among others, without regard to fault or the legality
of the original conduct.  Our operations are also subject to federal,
state and local laws and regulations relating to protection of the
environment.  Although we believe our operations are in substantial
compliance with applicable environmental law and regulations, risks of
additional costs and liabilities are inherent in pipeline, terminal and carbon
dioxide field and oil field operations, and there can be no assurance that we
will not incur significant costs and liabilities.  Moreover, it is
possible that other developments, such as increasingly stringent environmental
laws, regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from our operations, could result in substantial
costs and liabilities to us.




We
are currently involved in several governmental proceedings involving alleged
air, water and waste violations issued by various governmental authorities
related to compliance with environmental regulations.  As we receive
notices of non-compliance, we negotiate and settle these matters.  We
do not believe that these alleged violations will have a material adverse effect
on our business.




We
are also currently involved in several governmental proceedings involving
groundwater and soil remediation efforts under administrative orders or related
state remediation programs issued by various regulatory authorities related to
compliance with environmental regulations associated with our
assets.  We have established a reserve to address the costs associated
with the cleanup.




In
addition, we are involved with and have been identified as a potentially
responsible party in several federal and state superfund
sites.  Environmental reserves have been established for those sites
where our contribution is probable and reasonably estimable.  In
addition, we are from time to time involved in civil proceedings relating to
damages alleged to have occurred as a result of accidental leaks or spills of
refined petroleum products, natural gas liquids, natural gas and carbon
dioxide.  See “—Pipeline Integrity and Releases” above for additional
information with respect to ruptures and leaks from our pipelines.




45
 Kinder
Morgan, Inc. Form 10-Q


General




Although
it is not possible to predict the ultimate outcomes, we believe that the
resolution of the environmental matters set forth in this note will not have a
material adverse effect on our business, financial position, results of
operations or cash flows.  However, we are not able to reasonably
estimate when the eventual settlements of these claims will occur and changing
circumstances could cause these matters to have a material adverse
impact.  As of September 30, 2009, we have accrued an environmental
reserve of $80.6 million, and we believe the establishment of this environmental
reserve is adequate such that the resolution of pending environmental matters
will not have a material adverse impact on our business, cash flows, financial
position or results of operations.  In addition, as of September 30,
2009, we have recorded a receivable of $17.0 million for expected cost
recoveries that have been deemed probable.  As of December 31, 2008,
our environmental reserve totaled $85.0 million and our estimated receivable for
environmental cost recoveries totaled $20.9 million,
respectively.  Additionally, many factors may change in the future
affecting our reserve estimates, such as (i) regulatory changes, (ii)
groundwater and land use near our sites and (iii) changes in cleanup
technology.




Other




We
are a defendant in various lawsuits arising from the day-to-day operations of
our businesses.  Although no assurance can be given, we believe, based
on our experiences to date, that the ultimate resolution of such items will not
have a material adverse impact on our business, financial position, results of
operations or cash flows.






12.  Regulatory
Matters




The
following updates the disclosure in Note 18 to the Consolidated Financial
Statements included in our 2008 Form 10-K, with respect to developments that
occurred during the nine months ended September 30, 2009.




Order
on Rehearing and Clarification - Standards of Conduct for Transmission Providers
– Docket No. RM07-1-001




On
October 15, 2009, the FERC issued Order No. 717-A (“Order No. 717”), an order on
rehearing and clarification regarding FERC’s Affiliate Rule - Standards of
Conduct.  The FERC clarified a lengthy list of issues relating to: the
applicability, the definition of transmission function and transmission function
employees, the definition of marketing function and marketing function
employees, the definition of transmission function information, independent
functioning, transparency, training, and North American Energy Standards Board
business practice standards.  The FERC generally reaffirmed its
determinations in Order No. 717, but granted rehearing on and clarified certain
provisions.  Order No. 717-A aims to make the Standards of Conduct
clearer and to refocus the rules on the areas where there is the greatest
potential for abuse.  The Order No. 717 addresses requests for
rehearing and clarification of the following issues: (i) applicability of the
Standards of Conduct to transmission owners with no marketing affiliate
transactions, (ii) whether the Independent Functioning Rule applies to balancing
authority employees, (iii) which activities of transmission function employees
or marketing function employees are subject to the Independent Functioning Rule,
(iv) whether local distribution companies making off-system sales on
nonaffiliated pipelines are subject to the Standards of Conduct, (v) whether the
Standards of Conduct apply to a pipeline’s sale of its own production, (vi)
applicability of the Standards of Conduct to asset management agreements, (vii)
whether incidental purchases to remain in balance or sales of unneeded gas
supply subject the company to the Standards of Conduct, (viii) applicability of
the No Conduit Rule to certain situations and (ix) applicability of the
Transparency Rule to certain situations.” The rehearing and clarification
granted are not anticipated to have a material impact on the operation of our or
Kinder Morgan Energy Partners’ interstate pipelines.




Notice
of Proposed Rulemaking – Natural Gas Price Transparency – Docket No.
RM08-2-000




On
November 20, 2008, the FERC issued Order 720, establishing new reporting
requirements for interstate and major non-interstate natural gas
pipelines.  Interstate pipelines are required to post no-notice
activity at each receipt and delivery point three days after the day of gas
flow.  Major non-interstate pipelines are required to daily post
design capacity, scheduled volumes and available capacity at each receipt or
delivery point with a design capacity of 15,000 MMBtus of natural gas per day or
greater.  The final rule became effective January 27, 2009 for
interstate pipelines.  On January 15, 2009, the FERC issued an order
granting an extension of time for major non-interstate




46
 Kinder
Morgan, Inc. Form 10-Q


pipelines
to comply until 150 days following the issuance of an order addressing the
pending requests for rehearing. On January 16, 2009, the FERC granted rehearing
of Order 720.  On July 16, 2009, the FERC issued a request for
supplemental comments on revisions to the posting
requirements.  Kinder Morgan Energy Partners’ Intrastate Pipeline
Group filed comments on August 31, 2009.  We do not expect this Order
to have a material impact on our consolidated financial statements.




Notice
of Proposed Rulemaking - Contract Reporting Requirements of Intrastate Natural
Gas Companies, Docket No. RM09-2-000.




On
July 16, 2009, the FERC issued a Notice of Proposed Rulemaking proposing
revisions to the existing transactional reporting requirements for intrastate
and Hinshaw pipelines performing services in interstate commerce.  The
proposed revisions would require filings on a quarterly basis that would include
more information than previously required.  Comments were filed on
November 2, 2009.




Natural
Gas Pipeline Expansion Filings




Rockies
Express Meeker to Cheyenne Expansion Project




Pursuant
to certain rights exercised by EnCana Gas Marketing USA as a result of its
foundation shipper status on the former Entrega Gas Pipeline LLC facilities (now
part of the Rockies Express Pipeline), Rockies Express requested authorization
to construct and operate certain facilities that will comprise its Meeker,
Colorado to Cheyenne Hub Rockies Express Pipeline expansion
project.  The proposed expansion will add natural gas compression at
its Big Hole compressor station located in Moffat County, Colorado, and its
Arlington compressor station located in Carbon County, Wyoming.  Upon
completion, the additional compression will permit the transportation of an
additional 200 million cubic feet per day of natural gas from (i) the Meeker Hub
located in Rio Blanco County, Colorado northward to the Wamsutter Hub located in
Sweetwater County, Wyoming and (ii) the Wamsutter Hub eastward to the Cheyenne
Hub located in Weld County, Colorado.




The
expansion is fully contracted and is expected to be operational in the second
quarter of 2010.  The total FERC authorized cost for the proposed
project is approximately $78 million; however, Rockies Express is currently
projecting that the final actual cost will be less.  By FERC order
issued July 16, 2009, Rockies Express was granted authorization to construct and
operate this project. Construction on this project commenced August 4,
2009.




Rockies
Express Pipeline-East Project




Construction
continued during the third quarter of 2009 on the previously announced Rockies
Express Pipeline-East Pipeline project.  The Rockies Express-East
project includes the construction of an additional natural gas pipeline segment,
comprising approximately 639 miles of 42-inch diameter pipeline commencing from
the terminus of the Rockies Express-West pipeline to a terminus near the town of
Clarington in Monroe County, Ohio.  Current market conditions for
consumables, labor and construction equipment along with certain provisions in
the final regulatory orders have resulted in increased costs for the project and
have impacted certain projected completion dates.  Including
expansions, the current estimate of total construction costs on the entire
Rockies Express Pipeline is between $6.7 billion and $6.8 billion (consistent
with Kinder Morgan Energy Partners’ October 21, 2009 third quarter earnings
press release).




On
June 29, 2009, Rockies Express-East commenced service on the portion of the
pipeline from Audrain County, Missouri to the Lebanon Hub in Warren County,
Ohio.  Currently, this section of the line provides capacity of
approximately 1.8 billion cubic feet per day of natural gas, and includes
interconnects to Natural Gas Pipeline Company of America LLC, Ameren, Trunkline,
Midwestern Gas Transmission, Panhandle Eastern, Texas Eastern, Dominion
Transmission and Columbia Gas, with future interconnects to Texas Gas
Transmission, ANR, Citizens and Vectren.  The remainder of Rockies
Express-East, consisting of approximately 195 miles of 42-inch diameter pipe
extending to Clarington, Ohio, went into service on November 12,
2009.  The entire 1,679-mile Rockies Express Pipeline has a capacity
of approximately 1.8 billion cubic feet per day of natural gas, virtually all of
which has been contracted under long-term firm commitments from creditworthy
shippers.




47
 Kinder
Morgan, Inc. Form 10-Q


Kinder
Morgan Interstate Gas Transmission Pipeline - Huntsman 2009 Expansion
Project




The
Kinder Morgan Interstate Gas Transmission LLC, referred to as KMIGT, has filed
an application with the FERC for authorization to construct and operate certain
storage facilities necessary to increase the storage capability of the existing
Huntsman Storage Facility, located near Sidney, Nebraska.  KMIGT also
requested approval of new incremental rates for the project facilities under its
currently effective Cheyenne Market Center Service Rate Schedule
CMC-2.  When fully constructed, the proposed facilities will create
incremental firm storage capacity for up to one million dekatherms of natural
gas, with an associated injection capability of approximately 6,400 dekatherms
per day and an associated deliverability of approximately 10,400 dekatherms per
day. As a result of an open season, KMIGT and one shipper executed a firm
precedent agreement for 100% of the capacity to be created by the project
facilities for a five-year term. By FERC order issued September 30, 2009, KMIGT
was granted authorization to construct and operate the
project.  Construction of the project commenced on October 12,
2009.




Kinder
Morgan Louisiana Pipeline LLC (KMLP) – Docket No. CP 06-449-000




On
April 16, 2009, KMLP received authorization from the FERC to begin service on
Leg 2 of the approximately 133-mile, 42-inch diameter pipeline, and service on
Leg 2 commenced April 18, 2009.  On June 21, 2009, KMLP completed
pipeline construction and placed the pipeline system’s remaining portion into
service.  The KMLP project cost approximately $1 billion to complete
(consistent with Kinder Morgan Energy Partners’ July 15, 2009 second quarter
earnings press release).




The
KMLP provides approximately 3.2 billion cubic feet per day of take-away natural
gas capacity from the Cheniere Sabine Pass liquefied natural gas terminal,
located in Cameron Parish, Louisiana, to various delivery points in
Louisiana.  The pipeline interconnects with multiple third-party
pipelines and all of the capacity on the pipeline system has been fully
subscribed by Chevron and Total under 20-year firm transportation
contracts.  Total’s contract became effective on June 21, 2009, and
Chevron’s contract became effective on October 1,2009.




Midcontinent
Express Pipeline LLC – Docket Nos. CP08-6-000 and CP09-56-000




On
April 10, 2009, Midcontinent Express placed Zone 1 of the Midcontinent Express
natural gas pipeline system into interim service.  Zone 1 extends from
Bennington, Oklahoma to the interconnect with Columbia Gulf Transmission Company
in Madison Parish, Louisiana.  It has a design capacity of
approximately 1.5 billion cubic feet per day.  On August 1, 2009,
construction of the pipeline was completed, and Zone 2 was placed into
service.  Zone 2 extends from the Columbia Gulf interconnect to the
terminus of the system in Choctaw County, Alabama.  It has a design
capacity of approximately 1.2 billion cubic feet per day.  In an order
issued September 17, 2009, the FERC approved Midcontinent Express’ (i) amendment
to move one compressor station in Mississippi and modify the facilities at
another station in Texas (both stations were among the facilities certificated
in the July 2008 Order authorizing the system’s construction) and (ii)
application to expand the capacity in Zone 1 by 0.3 billion cubic feet per day
(this expansion is expected to be completed in December 2010).




The
Midcontinent Express Pipeline is owned by Midcontinent Express, a 50/50 joint
venture between Kinder Morgan Energy Partners and Energy Transfer Partners,
L.P.  The pipeline originates near Bennington, Oklahoma and extends
from southeast Oklahoma, across northeast Texas, northern Louisiana and central
Mississippi, and terminates at an interconnection with the Transco Pipeline near
Butler, Alabama.  The approximate 500-mile natural gas pipeline system
connects the Barnett Shale, Bossier Sands and other natural gas producing
regions to markets in the eastern United States, and substantially all of the
pipeline’s capacity is subscribed with long-term binding commitments from
creditworthy shippers.  The entire Midcontinent Express project cost
approximately $2.3 billion to complete (consistent with Kinder Morgan Energy
Partners’ October 21, 2009 third quarter earnings press release).




Fayetteville
Express Pipeline LLC – Docket No. CP09-433-000




Pipeline
system development work continued during the third quarter of 2009 on the
previously announced Fayetteville Express Pipeline project.  The
Fayetteville Express Pipeline is owned by Fayetteville Express, another 50/50
joint venture between Kinder Morgan Energy Partners and Energy Transfer
Partners, L.P.  The Fayetteville Express Pipeline is a 187-mile,
42-inch diameter natural gas pipeline that will begin in Conway County,
Arkansas, and end in Panola County, Mississippi.  The pipeline will
have an initial capacity of two billion cubic feet per day, and has currently
secured binding commitments for at least ten years totaling 1.85 billion cubic
feet per day of




48
 Kinder
Morgan, Inc. Form 10-Q


capacity.  On
June 15, 2009, Fayetteville Express Pipeline filed its certificate application
with the FERC.  On October 15, 2009, the FERC issued its Environmental
Assessment finding that, subject to compliance with certain conditions, the
environmental impact of Fayetteville Express could be adequately
mitigated.  Pending regulatory approvals, the pipeline is expected to
be in service by late 2010 or early 2011.  The estimate of the total
costs of this pipeline project is approximately $1.2 billion (consistent with
Kinder Morgan Energy Partners’ October 21, 2009 third quarter earnings press
release).






13.
Recent Accounting Pronouncements




Securities
and Exchange Commission’s Final Rule on Oil and Gas Disclosure
Requirements




On
December 31, 2008, the Securities and Exchange Commission issued its final rule
“Modernization of Oil and Gas Reporting,” which revises the disclosures required
by oil and gas companies.  The SEC disclosure requirements for oil and
gas companies have been updated to include expanded disclosure for oil and gas
activities, and certain definitions have also been changed that will impact the
determination of oil and gas reserve quantities.  The provisions of
this final rule are effective for registration statements filed on or after
January 1, 2010, and for annual reports for fiscal years ending on or after
December 31, 2009.  We are currently reviewing the effects of this
final rule.




SFAS
Nos. 166 and 167




On
June 12, 2009, the FASB published SFAS No. 166, “Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140,” and SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R).”  These two Statements
change the way entities account for securitizations and special-purpose
entities, and both remain authoritative until such time that each is integrated
into the Codification.




SFAS
No. 166 will require more information about transfers of financial assets,
including securitization transactions, and where companies have continuing
exposure to the risks related to transferred financial assets.  SFAS
No. 167 changes how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated.  Both Statement Nos. 166 and 167 will be effective at
the start of an entity’s first fiscal year beginning after November 15, 2009
(January 1, 2010 for us).  We do not expect the adoption of these
Statements to have a material impact on our consolidated financial
statements.




Accounting
Standards Updates




In
August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair
Value.”  This ASU amends the “Fair Value Measurements and Disclosures”
Topic of the Codification to provide further guidance on how to measure the fair
value of a liability.  ASU No. 2009-05 is effective for the first
reporting period beginning after issuance (September 30, 2009 for us), and the
adoption of this ASU did not have a material impact on our consolidated
financial statements.




In
September 2009, the FASB issued five separate Accounting Standards Updates (ASU
2009 07-11) that make technical corrections to the Codification and codify
certain SEC Observer comments made in conjunction with previous accounting
issues.  None of the five Accounting Standard Updates change existing
accounting requirements.




49
 Kinder
Morgan, Inc. Form 10-Q




Item 2.  Management’s Discussion and Analysis of
Financial Condition and Results of Operations.




General and Basis of Presentation




The
following information should be read in conjunction with (i) the accompanying
interim Consolidated Financial Statements and related notes (included elsewhere
in this report) and (ii) the Consolidated Financial Statements, related notes
and management’s discussion and analysis of financial condition and results of
operations included in our Annual Report on Form 10-K for the year ended
December 31, 2008 (“2008 Form 10-K”).




The
February 15, 2008 sale of our 80% interest in NGPL PipeCo LLC affects
comparisons of our financial position and results of operations between the
year-to-date periods reported below.




Critical Accounting Policies and
Estimates




Accounting
standards require information in financial statements about the risks and
uncertainties inherent in significant estimates, and the application of
generally accepted accounting principles involves the exercise of varying
degrees of judgment.  Certain amounts included in or affecting our
consolidated financial statements and related disclosures must be estimated,
requiring us to make certain assumptions with respect to values or conditions
that cannot be known with certainty at the time our financial statements are
prepared.  These estimates and assumptions affect the amounts we
report for our assets and liabilities, our revenues and expenses during the
reporting period, and our disclosure of contingent assets and liabilities at the
date of our financial statements.  We routinely evaluate these
estimates, utilizing historical experience, consultation with experts and other
methods we consider reasonable in the particular
circumstances.  Nevertheless, actual results may differ significantly
from our estimates.




Further
information about us and information regarding our accounting policies and
estimates that we consider to be “critical” can be found in our 2008 Form
10-K.  There have not been any significant changes in these policies
and estimates during the nine months ended September 30, 2009 except as
described below for the accounting policies of noncontrolling
interests.




Noncontrolling
Interests in Consolidated Subsidiaries




On
January 1, 2009, we adopted certain provisions concerning the accounting and
reporting for noncontrolling interests and included within the “Consolidation”
Topic of the Codification.  A noncontrolling interest, sometimes
referred to as a minority interest, is the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent.




Specifically,
these provisions establish accounting and reporting standards that require (i)
the ownership interests in subsidiaries held by parties other than the parent to
be clearly identified, labeled, and presented in the consolidated balance sheet
within equity, but separate from the parent’s equity and (ii) the equity amount
of consolidated net income attributable to the parent and to the noncontrolling
interest to be clearly identified and presented on the face of the consolidated
statement of operations.  Accordingly, our
consolidated net income and comprehensive income are now determined without
deducting amounts attributable to our noncontrolling interests. The adopted
provisions apply prospectively; however, we applied the presentation and
disclosure requirements for noncontrolling interests retrospectively for all
periods presented in this report.




Impact
of the Purchase Method of Accounting on Segment Earnings




As
further disclosed in Note 1 of Notes to Consolidated Financial Statements in our
2008 Form 10-K, on May 30, 2007, Kinder Morgan, Inc. merged with a wholly owned
subsidiary of Kinder Morgan Holdco LLC, with Kinder Morgan, Inc. continuing as
the surviving legal entity and subsequently renamed Knight Inc.  The
Company’s name was changed back to Kinder Morgan, Inc. on July 15,
2009.  This transaction is referred to in this report as “the Going
Private transaction.”  Effective with the closing of the Going Private
transaction, all of our assets and liabilities were recorded at their estimated
fair market values based on an allocation of the aggregate purchase price paid
in the Going Private transaction.




50
 Kinder
Morgan, Inc. Form 10-Q


Except
for the second quarter 2008 goodwill impairment charge described in Note 3 of
the Notes to Consolidated Financial Statements in our 2008 Form 10-K, the
impacts of the purchase method of accounting on segment earnings before
depreciation, depletion and amortization (“DD&A”) relate primarily to the
revaluation of the accumulated other comprehensive income related to derivatives
accounted for as hedges in the CO2–KMP
segment.  The impact of this revaluation on the CO2–KMP
segment is described in its segment discussion, which follows.  The
effects on DD&A expense result from changes in the carrying values of
certain tangible and intangible assets to their estimated fair values as of May
30, 2007.  This revaluation results in changes to DD&A expense in
periods subsequent to May 30, 2007.  The purchase accounting effects
on “Interest, net” result principally from the revaluation of certain debt
instruments to their estimated fair values as of May 30, 2007, resulting in
changes to interest expense in subsequent periods.




Results of Operations




Consolidated




Three
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            Earnings
              Increase/(Decrease)(In
      millions, except percentages)Segment
      earnings (loss) before depreciation, depletion and amortization expense
      and amortization of excess cost of equity
    investments(a)Products
      Pipelines–KMP(b)
            
            $
            167.9
            
            
            $
            (22.4
            )
            
            $
            190.3
            
            
            
            850
            %Natural
      Gas Pipelines–KMP(c)
            
            
            197.8
            
            
            
            337.6
            
            
            
            (139.8
            )
            
            
            (41
            )
      %CO2–KMP(d)
            
            
            217.0
            
            
            
            237.7
            
            
            
            (20.7
            )
            
            
            (9
            )
      %Terminals–KMP(e)
            
            
            155.0
            
            
            
            117.3
            
            
            
            37.7
            
            
            
            32
            %Kinder
      Morgan Canada–KMP
            
            
            47.7
            
            
            
            44.5
            
            
            
            3.2
            
            
            
            7
            %NGPL
      PipeCo LLC(f)
            
            
            9.0
            
            
            
            11.5
            
            
            
            (2.5
            )
            
            
            (22
            )
      %Power
            
            
            1.4
            
            
            
            1.6
            
            
            
            (0.2
            )
            
            
            (13
            )
      %Segment
      earnings before depreciation, depletion and amortization expense and
      amortization of excess cost of equity investments
            
            
            795.8
            
            
            
            727.8
            
            
            
            68.0
            
            
            
            9
            %Depreciation,
      depletion and amortization expense
            
            
            (255.5
            )
            
            
            (217.2
            )
            
            
            (38.3
            )
            
            
            (18
            )
      %Amortization
      of excess cost of equity investments
            
            
            (1.4
            )
            
            
            (1.4
            )
            
            
            -
            
            
            
            -
            %NGPL
      PipeCo LLC fixed fee revenue(g)
            
            
            11.5
            
            
            
            11.1
            
            
            
            0.4
            
            
            
            4
            %General
      and administrative expense(h)
            
            
            (92.2
            )
            
            
            (85.9
            )
            
            
            (6.3
            )
            
            
            (7
            )
      %Unallocable
      interest and other, net(i)
            
            
            (135.8
            )
            
            
            (139.6
            )
            
            
            3.8
            
            
            
            3
            %Income
      from continuing operations before income taxes
            
            
            322.4
            
            
            
            294.8
            
            
            
            27.6
            
            
            
            9
            %Unallocable
      income tax expense(a)
            
            
            (92.9
            )
            
            
            (79.1
            )
            
            
            (13.8
            )
            
            
            (17
            )
      %Income
      from continuing operations
            
            
            229.5
            
            
            
            215.7
            
            
            
            13.8
            
            
            
            6
            %Loss
      from discontinued operations, net of tax
            
            
            (0.1
            )
            
            
            (0.2
            )
            
            
            0.1
            
            
            
            50
            %Net
      income
            
            
            229.4
            
            
            
            215.5
            
            
            
            13.9
            
            
            
            6
            %Net
      income attributable to noncontrolling interests
            
            
            (106.6
            )
            
            
            (106.8
            )
            
            
            0.2
            
            
            
            -
            %Net
      income attributable to Kinder Morgan, Inc.
            
            $
            122.8
            
            
            $
            108.7
            
            
            $
            14.1
            
            
            
            13
            %


51
 Kinder
Morgan, Inc. Form 10-Q





Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            Earnings
              Increase/(Decrease)(In
      millions, except percentages)Segment
      earnings (loss) before depreciation, depletion and amortization expense
      and amortization of excess cost of equity investments(a)Products
      Pipelines–KMP(j)
            
            $
            468.0
            
            
            $
            (859.3
            )
            
            $
            1,327.3
            
            
            
            154
            %Natural
      Gas Pipelines–KMP(k)
            
            
            559.8
            
            
            
            (1,546.9
            )
            
            
            2,106.7
            
            
            
            136
            %CO2–KMP(l)
            
            
            635.6
            
            
            
            721.6
            
            
            
            (86.0
            )
            
            
            (12
            )
      %Terminals–KMP(m)
            
            
            430.3
            
            
            
            (293.2
            )
            
            
            723.5
            
            
            
            247
            %Kinder
      Morgan Canada–KMP(n)
            
            
            113.9
            
            
            
            114.0
            
            
            
            (0.1
            )
            
            
            -
            %NGPL
      PipeCo LLC(f)
            
            
            31.4
            
            
            
            116.2
            
            
            
            (84.8
            )
            
            
            (73
            )
      %Power
            
            
            3.8
            
            
            
            4.4
            
            
            
            (0.6
            )
            
            
            (14
            )
      %Segment
      earnings (loss) before depreciation, depletion and amortization expense
      and amortization of excess cost of equity investments
            
            
            2,242.8
            
            
            
            (1,743.2
            )
            
            
            3,986.0
            
            
            
            229
            %Depreciation,
      depletion and amortization expense
            
            
            (777.1
            )
            
            
            (651.0
            )
            
            
            (126.1
            )
            
            
            (19
            )
      %Amortization
      of excess cost of equity investments
            
            
            (4.3
            )
            
            
            (4.3
            )
            
            
            -
            
            
            
            -
            %NGPL
      PipeCo LLC fixed fee revenue(g)
            
            
            34.4
            
            
            
            27.9
            
            
            
            6.5
            
            
            
            23
            %General
      and administrative expense(o)
            
            
            (269.2
            )
            
            
            (264.0
            )
            
            
            (5.2
            )
            
            
            (2
            )
      %Unallocable
      interest and other, net(p)
            
            
            (425.2
            )
            
            
            (477.3
            )
            
            
            52.1
            
            
            
            11
            %Income
      (loss) from continuing operations before income taxes
            
            
            801.4
            
            
            
            (3,111.9
            )
            
            
            3,913.3
            
            
            
            126
            %Unallocable
      income tax expense
            
            
            (218.4
            )
            
            
            (174.3
            )
            
            
            (44.1
            )
            
            
            (25
            )
      %Income
      from continuing operations
            
            
            583.0
            
            
            
            (3,286.2
            )
            
            
            3,869.2
            
            
            
            118
            %Income
      (loss) from discontinued operations, net of tax
            
            
            0.4
            
            
            
            (0.6
            )
            
            
            1.0
            
            
            
            167
            %Net
      income (loss)
            
            
            583.4
            
            
            
            (3,286.8
            )
            
            
            3,870.2
            
            
            
            118
            %Net
      income attributable to noncontrolling interests
            
            
            (215.5
            )
            
            
            (359.4
            )
            
            
            143.9
            
            
            
            40
            %Net
      income (loss) attributable to Kinder Morgan, Inc.
            
            $
            367.9
            
            
            $
            (3,646.2
            )
            
            $
            4,014.1
            
            
            
            110
            %


____________


(a)
            Includes
      revenues, earnings from equity investments, allocable interest income and
      other, net, less operating expenses, allocable income taxes, and other
      expense (income).  Operating expenses include natural gas
      purchases and other costs of sales, operations and maintenance expenses,
      and taxes, other than income taxes.  Segment earnings include
      Kinder Morgan Energy Partners’ allocable income taxes of $6.7 million and
      $8.8 million for the three months ended September 30, 2009 and 2008,
      respectively, and $28.8 million and $20.1 million for the nine months
      ended September 30, 2009 and 2008, respectively.(b)
            2009
      and 2008 amounts include a $1.1 million increase in income and a $0.7
      million decrease in income, respectively, resulting from unrealized
      foreign currency gains and losses on long-term debt
      transactions.  2009 amount also includes a $0.1 million increase
      in income from hurricane casualty gains.  2008 amount also
      includes a $9.3 million decrease in income from the settlement of certain
      litigation matters related to the Pacific operations’ East Line pipeline,
      a $0.2 million decrease in income related to hurricane clean-up and repair
      activities, a non-cash goodwill impairment adjustment of $152.6 million
      and a $0.3 million decrease in income related to assets sold in September
      2008 which has been revalued as part of the Going Private transaction and
      recorded in the application of the purchase method of
      accounting.(c)
            2009
      and 2008 amounts include a $0.7 million decrease in income and a $12.2
      million increase in income, respectively, resulting from unrealized mark
      to market gains and losses due to the discontinuance of hedge accounting
      at Casper Douglas.  2009 amount also includes a $3.7 million
      increase in income from hurricane casualty gains.  2008 amount
      also includes a $4.4 million increase in expense related to hurricane
      clean-up and repair activities and a non-cash goodwill impairment
      adjustment of $152.6 million.(d)
            2009
      amount includes a $5.4 million unrealized loss on derivative contracts
      used to hedge forecasted crude oil sales.  Also, there were
      increases in income resulting from valuation adjustments for 2009 and 2008
      of $23.8 million and $34.5 million, respectively, primarily related to
      derivative contracts in place at the time of the Going Private transaction
      and recorded in the application of the purchase method of
      accounting.(e)
            2009
      amount includes an $11.2 million increase in income from hurricane and
      fire casualty gains.  2009 and 2008 amounts include $0.2 million
      and $2.9 million, respectively, decreases in income related to assets
      sold, which had been revalued as part of the Going Private transaction and
      recorded in the application of the purchase method of
      accounting.  2008 amount includes a $6.8 million decrease in
      income related to fire damage and repair activities, a $4.0 million
      decrease in income related to hurricane clean-up and repair activities and
      a combined $1.5 million increase in expense associated with legal
      liability adjustments related to certain litigation matters involving the
      Elizabeth River bulk terminal and the Staten Island liquids
      terminal.





52
 Kinder
Morgan, Inc. Form 10-Q





(f)
            Effective
      February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC to
      Myria Acquisition Inc.  As a result of the sale, beginning
      February 15, 2008, we account for our 20% ownership interest in NGPL
      PipeCo LLC as an equity method investment.(g)
            See
      Note 9 of the accompanying Notes to Consolidated Financial
      Statements.(h)
            Includes
      unallocated litigation and environmental expenses.  2009 amount
      also includes a $0.5 million increase in expense for certain Natural Gas
      Pipeline asset acquisition costs, which under prior accounting standards
      would have been capitalized, and a $0.9 million decrease in expense
      related to capitalized overhead costs associated with the 2008 hurricane
      season.  2008 amount also includes a $0.1 million increase in
      expense related to hurricane clean-up and repair activities, and a $1.5
      million decrease in expense due to the adjustment of certain insurance
      related liabilities.(i)
            2009
      and 2008 amounts include increases in imputed interest expense of $0.4
      million and $0.5 million, respectively, related to the January 1, 2007
      Cochin Pipeline acquisition.  2008 amount also includes a $0.2
      million increase in interest expense related to the settlement of certain
      litigation matters related to the Pacific operations’ East Line
      pipeline.(j)
            2009
      and 2008 amounts include a $1.5 million increase in income and a $1.4
      million decrease in income, respectively, resulting from unrealized
      foreign currency gains and losses on long-term debt
      transactions.  2009 amount also includes a $0.1 million increase
      in income from hurricane casualty gains, and a $3.8 million increase in
      expense associated with environmental liability adjustments and a $0.3
      million decrease in income related to assets sold, which had been revalued
      as part of the Going Private transaction and recorded in the application
      of the purchase method of accounting.  2008 amount also includes
      a $9.3 million decrease in income from the settlement of certain
      litigation matters related to the Pacific operations’ East Line pipeline,
      a $0.2 million decrease in income related to hurricane clean-up and repair
      activities, a non-cash goodwill impairment charges of $1,266.5 million and
      a $0.3 million decrease in income related to assets sold in September 2008
      which has been revalued as part of the Going Private transaction and
      recorded in the application of the purchase method of
      accounting.(k)
            2009
      and 2008 amounts include decreases in income of $4.5 million and $0.9
      million, respectively, resulting from unrealized mark to market gains and
      losses due to the discontinuance of hedge accounting at Casper Douglas and
      increases in income of $0.2 million and $0.5 million, respectively,
      resulting from valuation adjustments related to derivative contracts in
      place at the time of the Going Private transaction and recorded in the
      application of the purchase method of accounting.  2009 amount
      also includes a $3.7 million increase in income from hurricane casualty
      gains, $1.1 million decrease in income related to assets sold, which had
      been revalued as part of the Going Private transaction and recorded in the
      application of the purchase method of accounting.  2008 amount
      also includes a $4.4 million increase in expense related to hurricane
      clean-up and repair activities, and a non-cash goodwill impairment charge
      of $2,090.2 million.(l)
            2009
      amount includes a $5.4 million unrealized loss on derivative contracts
      used to hedge forecasted crude oil sales.  Also, there were
      increases in income resulting from valuation adjustments for 2009 and 2008
      of $72.3 million and $102.0 million, respectively, primarily related to
      derivative contracts in place at the time of the Going Private transaction
      and recorded in the application of the purchase method of
      accounting.(m)
            2009
      amount includes an $11.2 million increase in income from hurricane and
      fire casualty gains, a $0.5 million decrease in expense associated with
      legal liability adjustments related to a litigation matter involving the
      Staten Island liquids terminal, and a $0.1 million increase in expense
      associated with environmental liability adjustments.  2009 and
      2008 amounts include $2.5 million and $2.9 million, respectively,
      decreases in income related to assets sold, which had been revalued as
      part of the Going Private transaction and recorded in the application of
      the purchase method of accounting.  2008 amount includes a $6.8
      million decrease in income related to fire damage and repair activities, a
      $4.0 million decrease in income related to hurricane clean-up and repair
      activities, a combined $1.5 million increase in expense associated with
      legal liability adjustments related to certain litigation matters
      involving the Elizabeth River bulk terminal and the Staten Island liquids
      terminal and a non-cash goodwill impairment charge of $676.6
      million.(n)
            2009
      amount includes a $3.7 million decrease in expense due to a certain
      non-cash accounting change related to book tax accruals and foreign
      exchange fluctuations, and a $14.9 million increase in expense primarily
      due to certain non-cash regulatory accounting adjustments to the carrying
      amount of the previously established deferred tax
    liability.(o)
            Includes
      unallocated litigation and environmental expenses.  2009 amount
      also includes a $0.5 million increase in expense for certain Natural Gas
      Pipeline asset acquisition costs, which under prior accounting standards
      would have been capitalized, a $0.1 million increase in expense for
      certain Express pipeline system transfer costs, which under prior
      accounting standards would have been capitalized, and a $2.4 million
      decrease in expense related to capitalized overhead costs associated with
      the 2008 hurricane season.  2008 amount also includes a $0.1
      million increase in expense related to hurricane clean-up and repair
      activities, and a $1.5 million decrease in expense due to the adjustment
      of certain insurance related liabilities.(p)
            2009
      and 2008 amounts include increases in imputed interest expense of $1.2
      million and $1.5 million, respectively, related to the January 1, 2007
      Cochin Pipeline acquisition.  2008 amount also includes a $0.2
      million increase in interest expense related to the settlement of certain
      litigation matters related to the Pacific operations’ East Line
      pipeline.





Net
incomeattributable
to Kinder Morgan, Inc. increased by $14.1 million (13%) to $122.8 million in the
third quarter of 2009 as compared to $108.7 million in the third quarter of
2008.  Our total revenues for the comparative periods were $1,712.3
million and $3,296.6 million, respectively.  For the first nine months
of 2009 the net income attributable to Kinder Morgan, Inc. totaled $367.9
million as compared to a loss of $3,646.2 million in the first nine months of
2008.  Our total revenues for the comparative periods were $5,234.5
million and $9,752.1 million, respectively.




53
 Kinder
Morgan, Inc. Form 10-Q


The
increase in Kinder Morgan, Inc.’s net income for the three month period ended
September 30, 2009 as compared to the same period in 2008 is primarily due to
incremental Kinder Morgan Energy Partner segment earnings before DD&A,
partially offset by higher DD&A, general and administrative and income tax
expense.




The
increase in Kinder Morgan, Inc.’s net income for the nine month period ended
September 30, 2009 as compared to the same period in 2008 is primarily due to
non-cash goodwill impairment charges that were recorded in the second quarter of
2008 to each segment as follows: Products Pipelines–KMP – $1.26 billion, Natural
Gas Pipelines–KMP – $2.09 billion, and Terminals–KMP – $677 million, for a total
impairment of $4.03 billion.




Products
Pipelines–KMP




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      millions, except operating statistics)Revenues(a)
            
            $
            216.7
            
            
            $
            205.6
            
            
            $
            611.6
            
            
            $
            602.5Operating
      expenses(b)
            
            
            (56.8
            )
            
            
            (78.7
            )
            
            
            (165.8
            )
            
            
            (209.6
            )Other
      income (expense)(c)
            
            
            0.1
            
            
            
            (0.3
            )
            
            
            (0.2
            )
            
            
            (0.6
            )Goodwill
      impairment(d)
            
            
            -
            
            
            
            (152.6
            )
            
            
            -
            
            
            
            (1,266.5
            )Earnings
      from equity investments(e)
            
            
            4.2
            
            
            
            3.3
            
            
            
            12.8
            
            
            
            13.6Interest
      income and Other, net-income(f)
            
            
            3.5
            
            
            
            0.4
            
            
            
            9.8
            
            
            
            2.2Income
      tax benefit (expense)
            
            
            0.2
            
            
            
            (0.1
            )
            
            
            (0.2
            )
            
            
            (0.9
            )Earnings
      (loss) before depreciation, depletion and amortization expense and
      amortization of excess cost of equity investments
            
            $
            167.9
            
            
            $
            (22.4
            )
            
            $
            468.0
            
            
            $
            (859.3
            )Gasoline
      (MMBbl)(g)
            
            
            101.3
            
            
            
            101.1
            
            
            
            301.2
            
            
            
            299.5Diesel
      fuel (MMBbl)
            
            
            35.9
            
            
            
            40.0
            
            
            
            107.9
            
            
            
            120.2Jet
      fuel (MMBbl)
            
            
            28.8
            
            
            
            29.6
            
            
            
            83.7
            
            
            
            89.2Total
      refined product volumes (MMBbl)
            
            
            166.0
            
            
            
            170.7
            
            
            
            492.8
            
            
            
            508.9Natural
      gas liquids (MMBbl)
            
            
            6.2
            
            
            
            5.8
            
            
            
            18.4
            
            
            
            18.7Total
      delivery volumes (MMBbl)(h)
            
            
            172.2
            
            
            
            176.5
            
            
            
            511.2
            
            
            
            527.6


____________


(a)
            2008
      amounts include a $5.1 million decrease in revenues from the settlement of
      certain litigation matters related to the Pacific operations’ East Line
      pipeline.(b)
            Nine
      month 2009 amount includes an increase in expense of $3.8 million
      associated with environmental liability adjustments.  2008
      amounts include a $4.2 million increase in expense from the settlement of
      certain litigation matters related to the Pacific operations’ East Line
      pipeline, and a $0.1 million increase in expense related to hurricane
      clean-up and repair activities.  Nine month 2008 amount also
      includes a $3.0 million decrease in expense related to the Pacific
      operations and a $3.0 million increase in expense related to the Calnev
      Pipeline associated with legal liability adjustments.(c)
            2009
      amounts include a gain of $0.1 million from hurricane casualty
      indemnifications.  Also, nine months ended September 30, 2009
      amount includes a $0.3 million decrease in segment earnings related to
      assets sold, and 2008 amounts include a $0.3 million decrease in segment
      earnings related to assets sold in September 2008.  These assets
      sold had been revalued as part of the Going Private transaction and
      recorded in the application of the purchase method of
      accounting.(d)
            Three
      and nine months ended September 30, 2008 include non-cash goodwill
      impairment adjustments of $152.6 million and $1,266.5 million,
      respectively.(e)
            2008
      amounts include an expense of $0.1 million reflecting the portion of
      Plantation Pipe Line Company’s expenses related to hurricane clean-up and
      repair activities.(f)
            Three
      and nine month 2009 amounts include increases in income of $1.1 million
      and $1.5 million, respectively, resulting from unrealized foreign currency
      gains on long-term debt transactions.  Three and nine month 2008
      amounts include decreases in income of $0.7 million and $1.4 million,
      respectively, resulting from unrealized foreign currency losses on
      long-term debt transactions.(g)
            Includes
      ethanol volumes.(h)
            Includes
      Pacific, Plantation, Calnev, Central Florida, Cochin and Cypress pipeline
      volumes.





The
certain items related to the Products Pipelines business segment and described
in the footnotes to the table above accounted for increases in earnings before
depreciation, depletion and amortization expenses of $164.3 million and $1,275.2
million, respectively, when compared to the same three and nine month periods a
year ago.  For each of the comparable three and nine month periods,
the following is information related to the remaining increases and decreases in
the segment’s (i) earnings before depreciation, depletion and amortization
expenses (EBDA) and (ii) operating revenues:




54
 Kinder
Morgan, Inc. Form 10-Q


Three Months Ended September
30, 2009 versus Three Months Ended September 30, 2008




EBDA
              Increase/(Decrease)
            
            
            Revenues
              Increase/(Decrease)(In
      millions, except percentages)Pacific
      operations
            
            $
            10.2
            
            
            
            17
            %
            
            $
            3.9
            
            
            
            4
            %Transmix
      operations
            
            
            8.8
            
            
            
            128
            %
            
            
            8.0
            
            
            
            78
            %West
      Coast Terminals
            
            
            3.4
            
            
            
            25
            %
            
            
            2.9
            
            
            
            14
            %Central
      Florida Pipeline
            
            
            2.8
            
            
            
            26
            %
            
            
            2.7
            
            
            
            20
            %Plantation
      Pipeline
            
            
            1.3
            
            
            
            15
            %
            
            
            (6.5
            )
            
            
            (59
            )
      %All
      others
            
            
            (0.4
            )
            
            
            (1
            )
      %
            
            
            (5.0
            )
            
            
            (9
            )
      %Total
      Products Pipelines
            
            $
            26.1
            
            
            
            19
            %
            
            $
            6.0
            
            
            
            3
            %





Nine Months Ended September
30, 2009 versus Nine Months Ended September 30, 2008





EBDA
              Increase/(Decrease)
            
            
            Revenues
              Increase/(Decrease)(In
      millions, except percentages)Pacific
      operations
            
            $
            13.9
            
            
            
            7
            %
            
            $
            0.4
            
            
            
            -Transmix
      operations
            
            
            7.3
            
            
            
            32
            %
            
            
            5.9
            
            
            
            19
            %West
      Coast Terminals
            
            
            12.6
            
            
            
            34
            %
            
            
            11.5
            
            
            
            20
            %Central
      Florida Pipeline
            
            
            7.9
            
            
            
            25
            %
            
            
            8.8
            
            
            
            23
            %Plantation
      Pipeline
            
            
            (0.8
            )
            
            
            (3
            )
      %
            
            
            (18.7
            )
            
            
            (57
            )
      %All
      others
            
            
            11.3
            
            
            
            (11
            )
      %
            
            
            (3.9
            )
            
            
            (2
            )
      %Total
      Products Pipelines
            
            $
            52.2
            
            
            
            12
            %
            
            $
            4.0
            
            
            
            1
            %





Overall,
the Products Pipelines–KMP business segment reported strong operating results in
the third quarter of 2009 as earnings before depreciation, depletion and
amortization expenses increased $26.1 million (19%), when compared to the third
quarter of 2008.  Although ongoing weak economic conditions continued
to dampen demand for refined petroleum products at many of the assets in this
segment, resulting in lower diesel and jet fuel volumes and flat gasoline
volumes versus the third quarter of 2008, earnings were positively impacted by
higher ethanol and terminal revenues from the Central Florida Pipeline and
Pacific operations, improved warehousing margins at existing and expanded West
Coast terminal facilities, and incremental product settlement gains from the
transmix processing operations.  In addition, the segment benefited
from a $17.6 million (24%) reduction in combined operating expenses in the third
quarter of 2009, primarily due to lower outside services and other discretionary
operating expenses, lower fuel and power expenses, and to new service contracts
and bidding work at lower prices compared to a year earlier.




The
primary increases in segment earnings before depreciation, depletion and
amortization expenses for both the three and nine months ended September 30,
2009, when compared to the same periods last year, were attributable to the
third quarter 2009 earnings from the Pacific operations.  For the
comparable three month periods, the overall $10.2 million increase in the
Pacific operations’ earnings in 2009 consisted of a $3.9 million (4%) increase
in revenues and a $6.3 million (18%) decrease in operating expenses, when
compared to the third quarter a year ago.  The overall increase in
revenues was driven by both higher terminal revenues and higher year-over-year
increases in tariff rates on refined products deliveries, which more than offset
a 4% decline in delivery volumes.  The quarterly decrease in expenses,
relative to the third quarter 2008, was driven by a combination of aggressive
cost management actions related to overall operating expenses (particularly
outside services), lower legal expenses (due in part to incremental expenses
associated with certain litigation settlements reached in the third quarter
2008), and higher product gains.




For
the comparable nine month periods, the $13.9 million (7%) increase in the
Pacific operations’ earnings was driven by a $13.0 million decrease in combined
operating expenses in the first nine months of 2009, when compared to the same
prior year period.  The decrease in expenses, relative to the first
nine months of 2008, was primarily due to the following: (i) overall cost
reductions and delays in certain non-critical spending, (ii) lower fuel and
power and outside services expenses, due to lower mainline delivery volumes,
(iii) higher product gains, (iv) lower right-of-way and environmental expenses
and (v) lower legal expenses (discussed above).




55
 Kinder
Morgan, Inc. Form 10-Q


The
higher period-to-period earnings before depreciation, depletion and amortization
from the transmix processing operations in 2009 versus 2008 were mainly due to a
combined $8.0 million increase to revenues recognized in August
2009.  At that time, Kinder Morgan Energy Partners recorded certain
true-ups related to transmix settlement gains (including tank gains and
incremental loss allowance gains).




The
period-to-period earnings increases from the West Coast terminal operations were
largely revenue related, driven by increased warehouse charges and new customers
at the combined Carson/Los Angeles Harbor terminal system and by incremental
returns from the completion of a number of capital expansion projects that
modified and upgraded terminal infrastructure since the end of the third quarter
of 2008.  Revenues from the remaining West Coast facilities increased
in the third quarter and first nine months of 2009 due mostly to additional
throughput and storage services associated with renewable fuels (both ethanol
and biodiesel), and partly to incremental revenues from the terminals’ Portland,
Oregon Airport pipeline, which was acquired on July 31, 2009.




The
increases in earnings before depreciation, depletion and amortization from the
Central Florida Pipeline were also driven by higher period-to-period revenues in
2009, when compared to 2008.  For the comparable three month periods,
the increases in revenues and earnings were due to a 4% increase in throughput,
a mid-year tariff increase and higher product gains in 2009 versus
2008.  For the comparable nine month periods, the increases in
revenues and earnings were mainly due to incremental ethanol revenues created by
the completion of expansion projects, mid-year tariff increases, and higher
products transportation revenues.




The
$1.3 million (15%) increase in earnings before depreciation, depletion and
amortization from Kinder Morgan Energy Partners’ approximate 51% equity
ownership in the Plantation Pipe Line Company reflects higher net income earned
by Plantation, primarily due to higher transportation revenues driven by a 1%
increase in refined products delivery volumes (third quarter 2008 volumes were
negatively affected by hurricane activity).  The nine month decrease
in earnings from Kinder Morgan Energy Partners’ investment in Plantation was
chiefly attributable to lower equity earnings as a result of lower pipeline oil
loss allowance revenues earned by Plantation in 2009.  The drop in oil
loss allowance revenues in 2009 reflects the decline in refined product market
prices since the end of the third quarter of 2008.




The
overall decreases in revenues associated with Kinder Morgan Energy Partners’
investment in Plantation in both the comparable three and nine month periods
($6.5 million (59%) for the comparable three months and $18.7 million (57%) for
the comparable nine months) were mainly due to a restructuring of the Plantation
operating agreement by ExxonMobil and us. On January 1, 2009, both parties
agreed to reduce the fixed operating fees earned from operating the pipeline and
to charge pipeline operating expenses directly to Plantation resulting in a
minimal impact to Kinder Morgan Energy Partners’
earnings.  Accordingly, the reductions in fee revenues were largely
offset by corresponding decreases in operating expenses of $7.0 million and
$18.9 million, respectively.




Natural
Gas Pipelines–KMP




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      millions, except operating statistics)Revenues
            
            $
            838.8
            
            
            $
            2,359.4
            
            
            $
            2,751.2
            
            
            $
            6,916.6Operating
      expenses(a)
            
            
            (696.1
            )
            
            
            (2,203.3
            )
            
            
            (2,325.7
            )
            
            
            (6,463.5
            )Other
      income(b)
            
            
            3.7
            
            
            
            0.1
            
            
            
            2.6
            
            
            
            2.8Goodwill
      impairment(c)
            
            
            -
            
            
            
            152.6
            
            
            
            -
            
            
            
            (2,090.2
            )Earnings
      from equity investments
            
            
            48.7
            
            
            
            25.5
            
            
            
            104.7
            
            
            
            80.4Interest
      income and Other, net-income
            
            
            3.8
            
            
            
            3.9
            
            
            
            31.1
            
            
            
            8.8Income
      tax expense
            
            
            (1.1
            )
            
            
            (0.6
            )
            
            
            (4.1
            )
            
            
            (1.8
            )Earnings
      (loss) before depreciation, depletion and amortization expense and
      amortization of excess cost of equity investments
            
            $
            197.8
            
            
            $
            337.6
            
            
            $
            559.8
            
            
            $
            (1,546.9
            )Natural
      gas transport volumes (Trillion Btus)(d)
            
            
            633.3
            
            
            
            512.5
            
            
            
            1,683.6
            
            
            
            1,495.7Natural
      gas sales volumes (Trillion Btus)(e)
            
            
            200.5
            
            
            
            220.0
            
            
            
            602.3
            
            
            
            660.0


____________


(a)
            Three
      and nine month 2009 amounts include decreases in income of $0.7 million
      and $4.5 million, respectively, due to unrealized mark to market losses
      due to the discontinuance of hedge accounting at Casper
      Douglas.  Three and nine month
2008





56
 Kinder
Morgan, Inc. Form 10-Q





amounts
      include an increase in income of $12.2 million and a decrease in income of
      $0.9 million, respectively, due to unrealized mark to market gains and
      losses due to the discontinuance of hedge accounting at Casper
      Douglas.  Beginning in the second quarter of 2008, the Casper
      and Douglas gas processing operations discontinued hedge
      accounting.  2008 amounts also include a $4.4 million increase
      in expense related to hurricane clean-up and repair
      activities.  Amounts also include increases in segment earnings
      of $0.2 million and $0.5 million for nine month periods ended September
      30, 2009 and 2008, respectively, resulting from valuation adjustments
      related to derivative contracts in place at the time of the Going Private
      transaction and recorded in the application of the purchase method of
      accounting.(b)
            2009
      amounts include gains of $3.7 million from hurricane casualty
      indemnifications.  Nine month 2009 amount includes a $1.1
      million decrease in segment earnings related to assets sold, which had
      been revalued as part of the Going Private transaction and recorded in the
      application of the purchase method of accounting.(c)
            Three
      and nine month ended September 30, 2008 amounts include non-cash goodwill
      impairment adjustments of $152.6 million and $2,090.2 million,
      respectively.(d)
            Includes
      Kinder Morgan Interstate Gas Transmission LLC, Trailblazer Pipeline
      Company LLC, TransColorado Gas Transmission Company LLC, Rockies Express
      Pipeline LLC, Midcontinent Express Pipeline LLC, Kinder Morgan Louisiana
      Pipeline LLC and Texas intrastate natural gas pipeline group pipeline
      volumes.(e)
            Represents
      Texas intrastate natural gas pipeline group
  volumes.





The
certain items related to the Natural Gas Pipelines business segment and
described in the footnotes to the table above accounted for a decrease of $157.4
million and an increase of $2,093.3 million, respectively, in earnings before
depreciation, depletion and amortization expenses when compared to the same
three and nine month periods a year ago.  For each of the comparable
three and nine month periods, the following is information related to (i) the
remaining changes in segment earnings before depreciation, depletion and
amortization expenses (EBDA) and (ii) the changes in operating
revenues:




Three Months Ended September
30, 2009 versus Three Months Ended September 30, 2008





EBDA
              Increase/(Decrease)
            
            
            Revenues
              Increase/(Decrease)(In
      millions, except percentages)Rockies
      Express Pipeline
            
            $
            15.9
            
            
            
            84
            %
            
            $
            -
            
            
            
            -Midcontinent
      Express Pipeline
            
            
            7.0
            
            
            
            n/a
            
            
            
            -
            
            
            
            -Kinder
      Morgan Louisiana Pipeline
            
            
            6.1
            
            
            
            205
            %
            
            
            8.5
            
            
            
            n/aTexas
      Intrastate Natural Gas Pipeline Group
            
            
            (6.5
            )
            
            
            (7
            )
      %
            
            
            (1,504.1
            )
            
            
            (67
            )
      %TransColorado
      Pipeline
            
            
            (2.1
            )
            
            
            (15
            )
      %
            
            
            (0.9
            )
            
            
            (6
            )
      %Kinder
      Morgan Interstate Gas Transmission
            
            
            (2.0
            )
            
            
            (7
            )
      %
            
            
            (8.8
            )
            
            
            (17
            )
      %All
      others
            
            
            (0.8
            )
            
            
            (4
            )
      %
            
            
            (15.3
            )
            
            
            (32
            )
      %Intrasegment
      eliminations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      Natural Gas Pipelines
            
            $
            17.6
            
            
            
            (10
            )
      %
            
            $
            (1,520.6
            )
            
            
            (64
            )
      %





Nine Months Ended September
30, 2009 versus Nine Months Ended September 30, 2008





EBDA
              Increase/(Decrease)
            
            
            Revenues
              Increase/(Decrease)(In
      millions, except percentages)Rockies
      Express Pipeline
            
            $
            18.2
            
            
            
            31
            %
            
            $
            -
            
            
            
            -Midcontinent
      Express Pipeline
            
            
            7.2
            
            
            
            n/a
            
            
            
            -
            
            
            
            -Kinder
      Morgan Louisiana Pipeline
            
            
            22.0
            
            
            
            365
            %
            
            
            8.5
            
            
            
            n/aTexas
      Intrastate Natural Gas Pipeline Group
            
            
            (34.8
            )
            
            
            (12
            )
      %
            
            
            (4,096.6
            )
            
            
            (62
            )
      %TransColorado
      Pipeline
            
            
            (2.6
            )
            
            
            (6
            )
      %
            
            
            (1.4
            )
            
            
            (3
            )
      %Kinder
      Morgan Interstate Gas Transmission
            
            
            7.5
            
            
            
            9
            %
            
            
            (13.3
            )
            
            
            (9
            )
      %All
      others
            
            
            (4.0
            )
            
            
            (6
            )
      %
            
            
            (65.0
            )
            
            
            (42
            )
      %Intrasegment
      eliminations
            
            
            -
            
            
            
            -
            
            
            
            2.4
            
            
            
            73
            %Total
      Natural Gas Pipelines
            
            $
            13.5
            
            
            
            (10
            )
      %
            
            $
            (4,165.4
            )
            
            
            (60
            )
      %





For
the third quarter of 2009, the increase in earnings from Kinder Morgan Energy
Partners’ 51% equity investment in the Rockies Express joint venture pipeline
was mainly attributable to the Rockies Express-East natural gas pipeline
segment, which began initial pipeline service on June 29, 2009.  The
increase in Kinder Morgan Energy Partners’ share of net income for the
comparable nine month periods was attributable to incremental income from both
the Rockies Express-East line and the Rockies Express-West natural gas pipeline
segment, which began full




57
 Kinder
Morgan, Inc. Form 10-Q


operations
in May 2008.




Similarly,
the increases in earnings from Kinder Morgan Energy Partners’ 50% equity
investment in the Midcontinent Express joint venture pipeline relate to the
start of natural gas transportation service on the Midcontinent Express system,
which commenced interim service for Zone 1 of its pipeline system on April 10,
2009, with deliveries to Natural Gas Pipeline Company of America
LLC.  Natural gas service to all Zone 1 delivery points occurred by
May 21, 2009, and on August 1, 2009 the system’s remaining portion (Zone 2) was
placed into service.




The
$6.1 million increase in earnings before depreciation, depletion and
amortization expenses from the Kinder Morgan Louisiana Pipeline in the third
quarter of 2009 was primarily attributable to pipeline in-service, which
commenced on a limited basis in April 2009 and in full on June 21,
2009.  For the comparable nine month periods, the incremental earnings
in 2009 were mainly attributable to $16.4 million in higher other non-operating
income.  Pursuant to FERC regulations governing allowances for capital
funds that are used for pipeline construction costs (an equity cost of capital
allowance), Kinder Morgan Energy Partners is allowed a reasonable return on the
construction costs that are funded by equity contributions, similar to the
allowance for capital costs funded by borrowings.




The
Texas intrastate natural gas pipeline group accounted for 44% and 46%,
respectively, of the segment’s total earnings before depreciation, depletion and
amortization expenses in the three and nine months ended September 30,
2009.  The period-to-period decreases in earnings from the intrastate
group were mainly attributable to (i) lower margins from natural gas sales—due
primarily to lower average natural gas sales prices in 2009, (ii) lower natural
gas processing margins—due to unfavorable gross processing spreads as a result
of significantly lower average natural gas liquids prices in 2009 and (iii)
higher system operational expenses—due primarily to higher pipeline integrity
expenses.  The overall decreases in earnings were partially offset by
higher period-to-period natural gas storage margins, which resulted from
favorable proprietary and fee based storage activities.




The
overall changes in both total segment revenues and total segment operating
expenses primarily relate to the natural gas purchase and sale activities of the
Texas intrastate natural gas pipeline group.  The intrastate group
both purchases and sells significant volumes of natural gas, which is often
stored and/or transported on its pipelines, and due to the fact that the group
sells natural gas in the same price environment in which it is purchased, the
increases and decreases in its gas sales revenues are largely offset by
corresponding increases and decreases in gas purchase costs.




The
decreases in quarterly and year-to-date earnings from the TransColorado Pipeline
in 2009 versus 2008 were primarily due to decreases in natural gas
transportation revenues and increases in both pipeline remediation expenses and
property tax expenses in the third quarter and first nine months of 2009,
relative to the same periods in 2008.




Earnings
before depreciation, depletion and amortization from the Kinder Morgan
Interstate Gas Transmission pipeline system decreased $2.0 million (7%) in the
comparable three month periods, but increased $7.5 million (9%) in the
comparable nine month periods.  The quarter-to-quarter decrease in
earnings was driven by a $1.8 million expense associated with an unfavorable net
carrying value adjustment of gas in underground storage recognized in the third
quarter of 2009.  The increase in earnings in the comparable nine
month periods was driven by an operating margin increase of $7.3 million (7%) in
2009, due mainly to higher firm transportation demand fees from system
expansions and incremental ethanol customers, higher earnings from natural gas
park and loan services, and higher pipeline fuel recoveries, relative to the
same nine month period a year ago.




58
 Kinder
Morgan, Inc. Form 10-Q


CO2–KMP




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      millions, except operating statistics)Revenues(a)
            
            $
            286.1
            
            
            $
            339.6
            
            
            $
            821.7
            
            
            $
            1,002.1Operating
      expenses
            
            
            (72.5
            )
            
            
            (105.4
            )
            
            
            (198.4
            )
            
            
            (292.7
            )Earnings
      from equity investments
            
            
            5.5
            
            
            
            4.2
            
            
            
            16.4
            
            
            
            15.3Other,
      net expense
            
            
            (1.2
            )
            
            
            -
            
            
            
            (1.2
            )
            
            
            (0.2
            )Income
      tax expense
            
            
            (0.9
            )
            
            
            (0.7
            )
            
            
            (2.9
            )
            
            
            (2.9
            )Earnings
      before depreciation, depletion and amortization expense and amortization
      of excess cost of equity investments
            
            $
            217.0
            
            
            $
            237.7
            
            
            $
            635.6
            
            
            $
            721.6Carbon
      dioxide delivery volumes (Bcf)(b)
            
            
            178.3
            
            
            
            171.3
            
            
            
            579.7
            
            
            
            530.1SACROC
      oil production (gross)(MBbl/d)(c)
            
            
            29.6
            
            
            
            27.9
            
            
            
            30.2
            
            
            
            27.6SACROC
      oil production (net)(MBbl/d)(d)
            
            
            24.7
            
            
            
            23.3
            
            
            
            25.2
            
            
            
            23.0Yates
      oil production (gross)(MBbl/d)(c)
            
            
            26.4
            
            
            
            27.1
            
            
            
            26.6
            
            
            
            27.9Yates
      oil production (net)(MBbl/d)(d)
            
            
            11.7
            
            
            
            12.0
            
            
            
            11.8
            
            
            
            12.4Natural
      gas liquids sales volumes (net)(MBbl/d)(d)
            
            
            9.5
            
            
            
            7.6
            
            
            
            9.3
            
            
            
            8.7Realized
      weighted average oil price per Bbl(e)(f)
            
            $
            51.42
            
            
            $
            51.45
            
            
            $
            48.27
            
            
            $
            51.50Realized
      weighted average natural gas liquids price per Bbl(f)(g)
            
            $
            40.28
            
            
            $
            77.97
            
            
            $
            34.31
            
            
            $
            73.37


____________


(a)
            2009
      amounts include a $5.4 million unrealized loss (from a decrease in
      revenues) on derivative contracts used to hedge forecasted crude oil
      sales.  Also, amounts include increases in segment earnings
      resulting from valuation adjustments of $23.8 million and $72.3 million,
      respectively, for the three and nine month periods ended September 30,
      2009, and $34.5 million and $102.0 million, respectively, for the three
      and nine month periods ended September 30, 2008, primarily related to
      derivative contracts in place at the time of the Going Private transaction
      and recorded in the application of the purchase method of
      accounting.(b)
            Includes
      Cortez, Central Basin, Canyon Reef Carriers, Centerline and Pecos pipeline
      volumes.(c)
            Represents
      100% of the production from the field.  Kinder Morgan Energy
      Partners own an approximately 97% working interest in the SACROC unit and
      an approximately 50% working interest in the Yates
unit.(d)
            Net
      to Kinder Morgan Energy Partners, after royalties and outside working
      interests.(e)
            Includes
      all of Kinder Morgan Energy Partners’ crude oil production
      properties.(f)
            Hedge
      gains/losses for crude oil and natural gas liquids are included with crude
      oil.(g)
            Includes
      production attributable to leasehold ownership and production attributable
      to the ownership in processing plants and third party processing
      agreements.





The
CO2
segment’s primary businesses involve the production, marketing and
transportation of both carbon dioxide (commonly called CO2) and crude
oil, and the production and marketing of natural gas and natural gas
liquids.




As
described in footnote (a) to the table above, for the three and nine month
periods ended September 30, 2009, combined, the certain items account for a
decrease in the CO2 segment’s
earnings before depreciation, depletion and amortization and revenues of $16.1
million and $35.1 million, respectively, when comparing the period-to-period
change.  For each of the segment’s two primary businesses, the
following is information related to the remaining increases and decreases, in
the comparable three and nine month periods of 2009 and 2008, of the segment’s
(i) earnings before depreciation, depletion and amortization (EBDA) and (ii)
operating revenues:




Three Months Ended September
30, 2009 versus Three Months Ended September 30, 2008




EBDA
              Increase/(Decrease)
            
            
            Revenues
              Increase/(Decrease)(In
      millions, except percentages)Sales
      and Transportation Activities
            
            $
            (30.2
            )
            
            
            (37
            )
      %
            
            $
            (32.6
            )
            
            
            (35
            )
      %Oil
      and Gas Producing Activities
            
            
            25.5
            
            
            
            21
            %
            
            
            (16.0
            )
            
            
            (7
            )
      %Intrasegment
      eliminations
            
            
            -
            
            
            
            -
            
            
            
            11.1
            
            
            
            51
            %Total
      CO2
            
            $
            (4.7
            )
            
            
            (2
            )
      %
            
            $
            (37.5
            )
            
            
            (12
            )
      %





59
 Kinder
Morgan, Inc. Form 10-Q


Nine Months Ended September
30, 2009 versus Nine Months Ended September 30, 2008




EBDA
              Increase/(Decrease)
            
            
            Revenues
              Increase/(Decrease)(In
      millions, except percentages)Sales
      and Transportation Activities
            
            $
            (60.1
            )
            
            
            (27
            )
      %
            
            $
            (58.3
            )
            
            
            (24
            )
      %Oil
      and Gas Producing Activities
            
            
            9.1
            
            
            
            2
            %
            
            
            (112.8
            )
            
            
            (16
            )
      %Intrasegment
      eliminations
            
            
            -
            
            
            
            -
            
            
            
            25.7
            
            
            
            43
            %Total
      CO2
            
            $
            (51.0
            )
            
            
            (8
            )
      %
            
            $
            (145.4
            )
            
            
            (16
            )
      %





The
segment’s overall decreases in earnings before depreciation, depletion and
amortization expenses in the comparable three and nine month periods of 2009
versus 2008 were primarily due to lower earnings from its sales and
transportation activities. The period-to-period decreases in earnings from sales
and transportation activities for the comparable three and nine month periods
were mainly due to lower operating revenues, including:




▪
            decreases
      of $28.7 million (42%) and $45.7 million (27%), respectively, in carbon
      dioxide sales revenues. The decreases were entirely price related, as the
      segment’s average price received for all carbon dioxide sales decreased
      46% and 38%, respectively, in the three and nine month periods ended
      September 30, 2009, when compared to last
year.




The
period-to-period decreases in sales revenues resulting from unfavorable price
changes more than offset increases in revenues due to higher volumes. Overall
carbon dioxide sales volumes increased 9% and 17%, respectively, in 2009,
primarily due to carbon dioxide expansion projects completed since the end of
the third quarter last year and to a continued strong demand for carbon dioxide
from tertiary oil recovery projects; and




▪
            decreases
      of $3.4 million (15%) and $9.5 million (14%), respectively, in carbon
      dioxide and crude oil pipeline transportation revenues.  The
      decreases were mainly due to lower carbon dioxide transportation revenues
      from the Central Basin Pipeline and to lower crude oil transportation
      revenues from the Wink Pipeline, relative to 2008. The decreases in
      transportation revenues from Wink were due primarily to lower pipeline
      loss allowance revenues resulting from lower market prices for crude oil
      when compared to 2008.




The
decreases in revenues from Central Basin were price related, resulting from
lower weighted average transportation rates in 2009. The decreases in rates were
partly due to a portion of its carbon dioxide transportation contracts being
indexed to oil prices, which have dropped relative to last year, and the
decreases in revenues from lower average rates more than offset increases in
revenues related to transportation volume increases. Although Kinder Morgan
Energy Partners purchases certain volumes of carbon dioxide on an intercompany
basis for use, it does not recognize profits on carbon dioxide sales to
itself.




Earnings
from the segment’s oil and gas producing activities, which include the
operations associated with its ownership interests in oil-producing fields and
natural gas processing plants, increased $25.5 million (21%) in the third
quarter of 2009, and $9.1 million (2%) in the first nine months of 2009, when
compared to the same periods last year.  The increases in earnings
were due to the following:




▪
            an
      increase of $5.1 million (3%) and a decrease of $12.5 million (2%),
      respectively, in crude oil sales revenues. The 3% increase in revenues in
      the third quarter of 2009 resulted from a corresponding 3% increase in
      sales volumes, as the realized weighted average price per barrel was flat
      across both third quarter periods. The 2% decrease in revenues for the
      comparable nine month periods was entirely price related, as the realized
      weighted average price per barrel decreased 6% in the first nine months of
      2009, when compared to the same nine month period a year
    ago.




The
year-to-date decrease in revenues due to unfavorable pricing was partially
offset by a 4% increase in crude oil sales volumes. Average gross oil production
for the third quarter of 2009 was 29.6 thousand barrels per day at the
SACROC unit, 6% higher compared to the third quarter of 2008. At Yates, average
gross oil production for the third quarter of 2009 was 26.4 thousand barrels per
day, a decline of almost 3% versus the same quarter last year;




▪
            decreases
      of $19.1 million (35%) and $87.6 million (50%), respectively, in natural
      gas liquids sales revenues. With respect to natural gas liquids, the
      realized weighted average price per barrel decreased 48% and
      53%,




60
 Kinder
Morgan, Inc. Form 10-Q


respectively,
in the three and nine periods of 2009 versus 2008, but sales volumes increased
25% and 7%, respectively, in both comparable periods, due in part to the
negative impacts from Hurricane Ike in the third quarter of 2008;




▪
            decreases
      of $2.0 million (22%) and $12.7 million (40%), respectively, in other
      combined revenues, including natural gas sales, net profit interests and
      other service revenues. The quarterly decrease was driven by lower natural
      gas sales revenues in 2009, due to lower market prices for gas since the
      end of the third quarter of 2008, and the comparable nine month period
      decrease was driven by lower net profit interests revenues, which
      represent Kinder Morgan Energy Partners’ share of the net proceeds from
      natural gas liquids, residue gas and processing fees derived from the
      Snyder gasoline plant;




▪
            decreases
      of $26.5 million (29%) and $72.9 million (28%), respectively, in oil and
      gas related field operating and maintenance expenses, including all cost
      of sales and fuel and power expenses. The decreases were primarily due to
      lower prices charged by the industry’s material and service providers (for
      items such as outside services, maintenance, and well workover services),
      which impacted rig costs, other materials and services, and capital and
      exploratory costs; and in part due to the successful renewal of lower
      priced service and supply contracts negotiated by the CO2 –KMP
      segment since the end of the third quarter of 2008;
  and




▪
            decreases
      of $15.0 million (74%) and $49.0 million (85%), respectively, in taxes,
      other than income tax expenses. The decreases were primarily due to lower
      period-to-period severance tax expenses—for the comparable three month
      periods, the decrease in severance tax expenses related to the decrease in
      natural gas liquids sales revenues, and for the comparable nine month
      periods, the decrease related to both lower liquids and crude oil sales
      revenues and a $20.9 million favorable adjustment to accrued severance tax
      liabilities due to prior year
overpayments.




Terminals–KMP




Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008(In
      millions, except operating statistics)Revenues
              
              $
              283.0
              
              
              $
              306.2
              
              
              $
              814.9
              
              
              $
              887.1Operating
      expenses(a)
              
              
              (137.6
              )
              
              
              (175.0
              )
              
              
              (395.1
              )
              
              
              (483.9
              )Other
      income (expense)(b)
              
              
              10.5
              
              
              
              (6.9
              )
              
              
              11.8
              
              
              
              (6.5
              )Goodwill
      impairment(c)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (676.6
              )Earnings
      from equity investments
              
              
              0.2
              
              
              
              0.7
              
              
              
              0.3
              
              
              
              2.4Interest
      income and Other, net-income (expense)
              
              
              1.3
              
              
              
              (1.3
              )
              
              
              2.4
              
              
              
              1.4Income
      tax expense(d)
              
              
              (2.4
              )
              
              
              (6.4
              )
              
              
              (4.0
              )
              
              
              (17.1
              )Earnings
      (loss) before depreciation, depletion and amortization expense and
      amortization of excess cost of equity investments
              
              $
              155.0
              
              
              $
              117.3
              
              
              $
              430.3
              
              
              $
              (293.2
              )Bulk
      transload tonnage (MMtons)(e)
              
              
              21.1
              
              
              
              27.5
              
              
              
              58.0
              
              
              
              79.1Liquids
      leaseable capacity (MMBbl)
              
              
              55.6
              
              
              
              54.2
              
              
              
              55.6
              
              
              
              54.2Liquids
      utilization %
              
              
              96.7
              %
              
              
              98.2
              %
              
              
              96.7
              %
              
              
              98.2
              %


__________


(a)
            Nine
      month 2009 amount includes a $0.5 million decrease in expense associated
      with legal liability adjustments related to a litigation matter involving
      the Staten Island liquids terminal, and a $0.1 million increase in expense
      associated with environmental liability adjustments.  2008
      amounts include a $3.6 million increase in expense related to hurricane
      clean-up and repair activities, a $1.5 million increase in expense related
      to fire damage and repair activities, and a combined $1.5 million increase
      in expense associated with legal liability adjustments related to certain
      litigation matters involving the Elizabeth River bulk terminal and the
      Staten Island liquids terminal.(b)
            2009
      amounts include gains of $11.3 million from hurricane and fire casualty
      indemnifications.  2008 amounts include losses of $5.3 million
      from asset write-offs related to fire damage, and losses of $0.8 million
      from asset write-offs related to hurricane damage.  For the
      three and nine months ended September 30, 2009 the amounts include $0.2
      million and $2.5 million, respectively, and for the same periods in 2008,
      the amounts include $2.9 million related to assets sold, which had been
      revalued as part of the Going Private transaction and recorded in the
      application of the purchase method of accounting.(c)
            2008
      amount includes a non-cash goodwill impairment charge of $676.6
      million.(d)
            2009
      amounts include a $0.1 million increase in expense related to hurricane
      and fire casualty gains.  2008 amounts include a $0.4 million
      decrease in expense related to hurricane clean-up and repair activities
      and hurricane related asset
write-offs.





61
 Kinder
Morgan, Inc. Form 10-Q





(e)
            Volumes
      for acquired terminals are included for all
  periods.





The
Terminals business segment includes the operations of the petroleum, chemical
and other liquids terminal facilities (other than those included in the Products
Pipelines segment), and all of the coal, petroleum coke, fertilizer, steel, ores
and other dry-bulk material services facilities.Kinder Morgan Energy
Partners group the bulk and liquids terminal operations into regions based on
geographic location and/or primary operating function.  This structure
allows the management to organize and evaluate segment performance and to help
make operating decisions and allocate resources.




The
segment’s operating results in the first nine months of 2009 include incremental
contributions from strategic terminal acquisitions.  Since June 2008,
Kinder Morgan Energy Partners has invested approximately$38.1 million in cash to
acquire various terminal assets and operations, and combined, the acquired
terminal operations accounted for incremental amounts of earnings before
depreciation, depletion and amortization of $1.3 million, revenues of $5.2
million, and operating expenses of $3.9 million in the third quarter of
2009.  For the nine month period of 2009, acquired assets contributed
incremental earnings before depreciation, depletion and amortization of $3.6
million, revenues of $12.5 million, and operating expenses of $8.9
million.  All of the incremental amounts listed above represent the
earnings, revenues and expenses from acquired terminals’ operations during the
additional months of ownership in 2009, and do not include increases or
decreases during the same months Kinder Morgan Energy Partners owned the assets
in 2008.




For
all other terminal operations (those owned during identical periods in both 2009
and 2008), the certain items described in the footnotes to the table above
increased earnings before depreciation, depletion and amortization expenses for
the three and nine months ended September 30, 2009 by $26.2 million and $700.9
million, respectively, when compared to the same two periods last
year.  The following is information for these terminal operations, for
each of the comparable three and nine month periods and by terminal operating
region, related to (i) the remaining $10.3 million (8%) and $19.0 million (5%)
increases in earnings before depreciation, depletion and amortization and (ii)
the $28.5 million (9%) and $84.7 million (10%) decreases in operating
revenues:




Three Months Ended September
30, 2009 versus Three Months Ended September 30, 2008
  EBDA
                Increase/(Decrease)
              
              
              Revenues
                Increase/(Decrease)(In
      millions, except percentages)Lower
      River (Louisiana)
              
              $
              7.6
              
              
              
              238
              %
              
              $
              (2.7
              )
              
              
              (11
              )
      %Gulf
      Coast
              
              
              4.6
              
              
              
              14
              %
              
              
              4.7
              
              
              
              11
              %Texas
      Petcoke
              
              
              3.3
              
              
              
              26
              %
              
              
              (0.4
              )
              
              
              (1
              )
      %Mid
      River
              
              
              (3.0
              )
              
              
              (36
              )
      %
              
              
              (9.7
              )
              
              
              (37
              )
      %Ohio
      Valley
              
              
              (2.8
              )
              
              
              (42
              )
      %
              
              
              (5.7
              )
              
              
              (30
              )
      %All
      others
              
              
              0.6
              
              
              
              1
              %
              
              
              (14.9
              )
              
              
              (9
              )
      %Intrasegment
      eliminations
              
              
              -
              
              
              
              -
              
              
              
              0.2
              
              
              
              94
              %Total
      Terminals
              
              $
              10.3
              
              
              
              8
              %
              
              $
              (28.5
              )
              
              
              (9
              )
      %
 
 Nine Months Ended September
30, 2009 versus Nine Months Ended September 30, 2008
  EBDA
                Increase/(Decrease)
              
              
              Revenues
                Increase/(Decrease)(In
      millions, except percentages)Lower
      River (Louisiana)
              
              $
              19.4
              
              
              
              118
              %
              
              $
              (9.5
              )
              
              
              (12
              )
      %Gulf
      Coast
              
              
              10.0
              
              
              
              10
              %
              
              
              11.9
              
              
              
              10
              %Texas
      Petcoke
              
              
              4.0
              
              
              
              9
              %
              
              
              (7.7
              )
              
              
              (7
              )
      %Mid
      River
              
              
              (10.9
              )
              
              
              (46
              )
       %
              
              
              (31.8
              )
              
              
              (44
              )
      %Ohio
      Valley
              
              
              (7.4
              )
              
              
              (42
              )
       %
              
              
              (15.6
              )
              
              
              (31
              )
      %All
      others
              
              
              3.9
              
              
              
              2
              %
              
              
              (32.5
              )
              
              
              (7
              )
      %Intrasegment
      eliminations
              
              
              -
              
              
              
              -
              
              
              
              0.5
              
              
              
              69
              %Total
      Terminals
              
              $
              19.0
              
              
              
              5
              %
              
              $
              (84.7
              )
              
              
              (10
              )
      %




The
increases in earnings before depreciation, depletion and amortization expenses
from the Lower River (Louisiana) terminals were mainly due to (i)
period-to-period decreases in income tax expenses in the three and
nine




62
 Kinder
Morgan, Inc. Form 10-Q


months
ended September 30, 2009, due to lower taxable income in many of the segment’s
tax paying terminal subsidiaries, and (ii) higher earnings realized from its
International Marine Terminals facility, which resulted from lower
period-to-period operating expenses in 2009, and for the comparable nine month
periods, from a $3.2 million property casualty gain (on a vessel dock that was
damaged in March 2008) in the second quarter of 2009.




The
increases in earnings from the Gulf Coast terminals reflect favorable results
from the Pasadena and Galena Park, Texas liquids facilities located along the
Houston Ship Channel.  The earnings increases were driven by higher
liquids warehousing revenues, mainly due to new and incremental customer
agreements (at higher rates), additional ancillary terminal services, and to a
17% increase in total throughput volumes in the third quarter of 2009, when
compared to the same quarter last year.  The increase in throughput
was due to both completed expansion projects and to continued strong demand for
petroleum and distillate volumes.




For
all liquids terminals combined, total third quarter 2009 liquids throughput
volumes were 14% higher than the same quarter in 2008.  Expansion
projects completed since the end of the third quarter of 2008 increased the
liquids terminals’ leasable capacity to 55.6 million barrels, up 2.6% from a
capacity of 54.2 million barrels at the end of the third quarter last
year.  At the same time, the overall liquids utilization capacity rate
(the ratio of actual leased capacity to estimated potential capacity) decreased
by only 1.5% since the end of the third quarter of 2008




The
increases in earnings from the Texas petroleum coke operations were mainly due
to the higher earnings realized in the third quarter of 2009 from the Port of
Houston, Port of Beaumont and Houston Refining operations.  The
increases from these operations were driven by higher petroleum coke throughput
and production volumes, and higher handling rates in 2009.  The higher
volumes in 2009 were due in part to a new petroleum coke customer contract that
boosted volume at the Port of Houston bulk facility, and in part to the negative
impacts caused by Hurricane Ike in the third quarter of 2008.




The
overall increases in segment earnings before depreciation, depletion and
amortization in the comparable three and nine month periods of 2009 and 2008
from terminals owned in both comparable periods were partly offset by lower
earnings from the Mid River and Ohio Valley terminals.  The decreases
from these facilities were due primarily to reduced import/export activity, and
to lower business activity at various owned and/or operated rail and terminal
sites that are primarily involved in the handling and storage of steel and alloy
products.




The
economic downturn has resulted in drops in tonnage and lower period-to-period
revenues and earnings at various owned or operated terminal facilities that
handle (i) steel, iron ore or metals, (ii) dock barges and deep sea vessels for
bulk cargo operations, or (iii) aggregates, phosphates or
fertilizers.  As a result, for the Terminals–KMP segment combined,
bulk traffic tonnage decreased by 6.4 million tons (23%) in the third quarter of
2009, and decreased 21.1 million tons (27%) in the first nine months of 2009,
when compared to the same prior year periods. Revenues from terminals owned in
both comparable periods decreased $28.4 million (9%) in the third quarter of
2009 and $84.9 million (10%) in the first nine months of 2009, versus the same
periods of 2008.




However,
while the overall volume declines have generally been broad-based across all of
bulk terminals, the rate of decline has slowed—bulk tonnage decreased 34% and
28%, respectively, in the second quarter and first six months of 2009 compared
to 2008—and since the start of the year the segment has taken actions to manage
costs and increase productivity.  For all terminals owned in both
comparable periods, combined operating expenses decreased $34.9 million (21%) in
the third quarter of 2009, and decreased $90.9 million (19%) in the first nine
months of 2009, versus the same periods last year.  In addition to the
effects from the declines in bulk tonnage volumes described above, the expense
reductions were generated by a combination of aggressive cost management actions
related to operating expenses, certain productivity initiatives at various
terminal sites, and year-over-year declines in commodity and fuel
costs.




63
 Kinder
Morgan, Inc. Form 10-Q


Kinder
Morgan Canada–KMP




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      millions, except operating statistics)Revenues
            
            $
            60.1
            
            
            $
            57.2
            
            
            $
            166.1
            
            
            $
            145.4Operating
      expenses
            
            
            (19.1
            )
            
            
            (18.6
            )
            
            
            (52.4
            )
            
            
            (51.3
            )Earnings
      (loss) from equity investments
            
            
            (1.1
            )
            
            
            3.4
            
            
            
            (1.4
            )
            
            
            7.7Interest
      income and Other, net-income
            
            
            10.3
            
            
            
            3.5
            
            
            
            19.2
            
            
            
            9.6Income
      tax benefit (expense)(a)
            
            
            (2.5
            )
            
            
            (1.0
            )
            
            
            (17.6
            )
            
            
            2.6Earnings
      before depreciation, depletion and amortization expense and amortization
      of excess cost of equity investments
            
            $
            47.7
            
            
            $
            44.5
            
            
            $
            113.9
            
            
            $
            114.0Transport
      volumes (MMBbl)(b)
            
            
            28.1
            
            
            
            22.6
            
            
            
            75.0
            
            
            
            63.5


____________


(a)
            Nine
      month 2009 amount includes both a $3.7 million decrease in expense due to
      a certain non-cash accounting change related to book tax accruals and
      foreign exchange fluctuations related to the Express pipeline system, and
      a $14.9 million increase in expense primarily due to certain non-cash
      regulatory accounting adjustments to Trans Mountain’s carrying amount of
      the previously established deferred tax liability.(b)
            Represents
      Trans Mountain pipeline system
volumes.





The
Kinder Morgan Canada–KMP segment includes operations we sold to Kinder Morgan
Energy Partners: (i) Trans Mountain pipeline system transferred effective April
30, 2007, (ii) one-third interest in the Express pipeline system (“Express”)
transferred effective August 28, 2008 and (iii) Jet Fuel pipeline system (“Jet
Fuel”) transferred effective August 28, 2008.  These operations had
been reported separately in previous reports. The information in the table above
reflects the results of operations for Trans Mountain, Express and Jet Fuel for
all periods presented.




For
the comparable three month periods, segment earnings before depreciation,
depletion and amortization expenses increased $3.2 million (7%) in 2009 versus
2008.  The quarter-to-quarter increase in segment earnings consisted
of higher earnings of $4.3 million (11%) from the Trans Mountain crude oil and
refined products pipeline system offset by lower earnings of $1.1 million from
the combined operations of Express and Jet Fuel.




After
taking into effect the non-cash certain items described in footnote (a) to the
table above, earnings before depreciation, depletion and amortization increased
$11.1 million (10%) in the first nine months of 2009 compared to the same period
in 2008.  The overall increase in segment earnings consisted of higher
earnings of $11.5 million (11%) from Trans Mountain and incremental earnings of
$1.5 million from Jet Fuel.  These increases were offset by $1.9
million of lower earnings from Express pipeline operations.




The
period-to-period increases in earnings from Trans Mountain were driven by (i)
higher pipeline transportation revenues (discussed below) and (ii) higher net
currency gains from the strengthening of the Canadian dollar (included within
the “Other, net” income).




In
the third quarter and first nine months of 2009, Trans Mountain’s operating
revenues increased $2.7 million (5%) and $20.7 million (14%), respectively, when
compared to the same periods last year.  The increases in revenues
were driven by corresponding increases in mainline delivery volumes—24% in the
comparable three month periods and 18% in the comparable nine month
periods—resulting primarily from completed expansion projects and from
significant increases in ship traffic during 2009 at the Port of Metro
Vancouver.  On both April 28 and October 30 of 2008, Kinder Morgan
Energy Partners completed separate portions of the Trans Mountain Pipeline’s
Anchor Loop expansion project and combined, this project boosted pipeline
transportation capacity by 15% (from 260,000 barrels per day to 300,000 barrels
per day) and resulted in higher period-to-period average toll
rates.




64
 Kinder
Morgan, Inc. Form 10-Q


NGPL
PipeCo LLC




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      millions)Equity
      Earnings(a)
            
            $
            9.0
            
            
            $
            11.5
            
            
            $
            31.4
            
            
            $
            116.2


____________


(a)
            Nine
      months ended September 30, 2008 reflects earnings before DD&A prior to
      the sale as described below.





The
$2.5 million decrease in equity earnings between the third quarter 2009 and 2008
in the NGPL PipeCo LLC reportable segment was primarily due to our share of
NGPL’s lower net income as discussed below.  The $84.8 million
decrease in segment earnings before DD&A between the nine month periods
ended September 30, 2009 and 2008 in the NGPL PipeCo LLC reportable segment was
primarily due to the February 15, 2008, sale of an 80% ownership interest in
NGPL PipeCo LLC to Myria Acquisition Inc. As a result of the sale, beginning
February 15, 2008, we account for our 20% ownership interest in NGPL PipeCo LLC
as an equity method investment. Segment earnings before DD&A at the 100%
asset ownership level were $89.7 million for the period from January 1, 2008 to
February 14, 2008 and for the period February 15, 2008 to September 30, 2008 our
equity earnings were $26.5 million.




NGPL
PipeCo LLC’s net income, at the 100% ownership level, decreased by $12.4 million
(21%) from $58.1 million in the third quarter of 2008 to $45.7 million in the
third quarter of 2009.  Revenues decreased by $93.6 million (27%) from
$353.1 million in the third quarter of 2008 to $259.5 million in the third
quarter of 2009 due principally to a decrease in natural gas
prices.  Gross profit (total revenues less gas purchases and other
costs of sales) decreased by $21.7 million (10%) from $227.2 million in the
third quarter of 2008 to $205.5 million in the third quarter of
2009.  The decrease in gross profit from the third quarter of 2008 to
the third quarter of 2009 was attributable to (i) an $11.5 million reduction in
gross profit from operational natural gas sales due largely to lower natural gas
prices, (ii) $3.6 million in 2009 charges to reduce the carrying value of our
current storage gas inventories to reflect the reduced market price of natural
gas, (iii) a $4.2 million reduction in gross profit from transportation and
storage services and (iv) a $2.4 million net reduction in other miscellaneous
gross profit items. NGPL PipeCo LLC’s results were also negatively impacted in
the third quarter of 2009, relative to 2008, by (i) the inclusion in 2008
results of $5.8 million of net gains on sales of land and (ii) a $0.3 million
decrease in pre-tax income from other miscellaneous income and expenses
items.  These negative impacts were partially offset by (i) a $9.1
million decrease in operations and maintenance expenses due, in part, to lower
electric power, 2008 Hurricane Ike expenses and lower transmission expenses and
(ii) a $6.3 million decrease in income tax expense due principally to the
decrease in pre-tax income, partially offset by an increase in the effective tax
rate applicable to state income taxes.  NGPL PipeCo LLC’s operational
natural gas sales are primarily made possible by its collection of fuel in-kind
pursuant to its transportation tariffs and recovery of storage cushion gas
volumes.  Its future revenues from operational natural gas sales could
be affected by, among other things, the market price of natural gas, the volume
of fuel collected in-kind pursuant to its tariffs and its recovery and sales of
storage cushion gas.




NGPL
PipeCo LLC’s net income, at the 100% ownership level, decreased by $5.2 million
(3%) from $162.6 million in the nine months ended September 30, 2008 to $157.4
million in the nine months ended September 30, 2009.  Revenues
decreased by $56.9 million (6%) from $887.0 million in the nine months ended
September 30, 2008 to $830.1 million in the nine months ended September 30, 2009
due principally to a decrease in natural gas prices.  Gross profit
increased by $5.5 million (1%) from $650.7 million in the nine months ended
September 30, 2008 to $656.2 million in the nine months ended September 30,
2009.  The increase in gross profit from the first nine months of 2008
to the first nine months of 2009 was attributable to a $41.6 million increase in
gross profit from transportation and storage services, partially offset by (i) a
$12.9 million reduction in gross profit from operational natural gas sales due,
in part, to lower natural gas prices and (ii) a $23.2 million increase in
charges to reduce the carrying value of our current storage gas inventories to
reflect the reduced market price of natural gas.  NGPL PipeCo LLC’s
results were also positively impacted in the first nine months of 2009, relative
to 2008, by a $10.1 million decrease in operations and maintenance expenses due,
in part, to lower costs for pipeline integrity management programs and lower
Hurricane Ike and transmission expenses.  These positive impacts were
offset by (i) the inclusion in 2008 results of $5.6 million of net gains on
sales of land, (ii) a $2.3 million decrease in pre-tax income from other
miscellaneous income and expenses items and (iii) a $12.9 million increase in
income tax expense due principally to increases in pre-tax income and in the
effective tax rate applicable to state income taxes.




65
 Kinder
Morgan, Inc. Form 10-Q


Power




The
Power segment primarily consists of Triton Power Michigan LLC’s lease and
operation of the Jackson, Michigan 550-megawatt natural gas fired electric power
plant.





Three
      Months Ended
                September
      30,
              
              Nine
      Months Ended
                September
      30,2009
              
              2008
              
              2009
              
              2008(In
      millions)Revenues
              
              $
              16.3
              
              
              $
              17.5
              
              
              $
              35.3
              
              
              $
              38.2Operating
      expenses and noncontrolling interests
              
              
              (14.9
              )
              
              
              (15.9
              )
              
              
              (31.5
              )
              
              
              (33.8
              )Segment
      earnings before DD&A
              
              $
              1.4
              
              
              $
              1.6
              
              
              $
              3.8
              
              
              $
              4.4





Power’s
segment earnings before DD&A decreased by $0.2 million and $0.6 million for
the three and nine months ended September 30, 2009 as compared to the same
periods in 2008, respectively, primarily due to lower operating fees at the
Snyder Plant, which we operate on behalf of the CO2–KMP
segment.




Other




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      millions, except operating statistics)Kinder
      Morgan, Inc. general and administrative expense
            
            $
            (8.5
            )
            
            $
            (12.8
            )
            
            $
            (30.4
            )
            
            $
            (41.3
            )Kinder
      Morgan Energy Partners general and administrative expense
            
            
            (83.7
            )
            
            
            (73.1
            )
            
            
            (238.8
            )
            
            
            (222.7
            )Consolidated
      general and administrative expense
            
            
            (92.2
            )
            
            
            (85.9
            )
            
            
            (269.2
            )
            
            
            (264.0
            )Interest,
      net
            
            $
            (142.8
            )
            
            $
            (141.5
            )
            
            $
            (423.0
            )
            
            $
            (493.8
            )Interest
      income (expense) – deferrable interest debentures
            
            
            2.7
            
            
            
            (0.5
            )
            
            
            1.6
            
            
            
            5.6Other,
      net (a)
            
            
            4.3
            
            
            
            2.4
            
            
            
            (3.8
            )
            
            
            10.9Unallocable
      interest and other, net
            
            $
            (135.8
            )
            
            $
            (139.6
            )
            
            $
            (425.2
            )
            
            $
            (477.3
            )


____________


(a)
            “Other,
      net” primarily represents offset to noncontrolling interests and interest
      income shown above and included in segment
  earnings.





Consolidated
general and administrative expense increased $6.3 million (7%) in the third
quarter of 2009 compared to the third quarter of 2008.  The $10.6
million increase in Kinder Morgan Energy Partners’ general and administrative
expense includes $2.6 million from higher employee benefit and payroll tax
expenses in 2009, due mainly to cost inflation increases on work-based health
and insurance benefits, higher wage rates and a larger year-over-year labor
force and $3.3 million due to fewer overhead expenses meeting the criteria for
capitalization.  Kinder Morgan, Inc.’s general and administrative
expense includes a $4.6 million decrease in legal costs in the third quarter of
2009 as compared to the third quarter of 2008.




Consolidated
general and administrative expense increased $5.2 million (2%) in the nine
months ended September 30, 2009 compared to the same period in
2008.  The $16.1 million increase in Kinder Morgan Energy Partners’
general and administrative expense includes $8.2 million from higher employee
benefit and payroll tax expenses in 2009, as described above, and $5.8 million
due to fewer overhead expenses meeting the criteria for
capitalization.  Kinder Morgan, Inc.’s general and administrative
expense includes an $8.9 million decrease in legal costs for the nine months
ended September 30, 2009 as compared to the same period in 2008.




The
$1.9 million (1%) increase in interest, net in the third quarter of 2009
relative to 2008, was primarily attributable to Kinder Morgan Energy Partners’
higher average debt balances in the third quarter of 2009, which was partially
offset by lower effective interest rates relative to 2008.  The $66.8
million (13.7%) decrease in interest expense for the first nine months of 2009,
respectively, relative to 2008, was primarily due from using the $5.9 billion of
proceeds received from the sale of an 80% ownership interest in NGPL PipeCo LLC
to pay down debt in early 2008, see Note 2 of the accompanying Notes to
Consolidated Financial Statements.  This reduction in our interest
expense was partially offset by interest expense from increased debt balances at
Kinder Morgan Energy Partners required to support its capital expansion
programs.




66
 Kinder
Morgan, Inc. Form 10-Q


Income
Taxes




Our tax expense for the third quarter was $99.6 million, as
compared to $87.9 million for the same period in 2008, an increase of $11.7
million.  This increase in tax expense is primarily due to (i) higher
pretax earnings from our investments in Kinder Morgan Energy Partners and NGPL
PipeCo LLC, (ii) changes in nondeductible goodwill, (iii) Uncertainty in Income
Taxes adjustments and (iv) 2009 adjustments to true-up our book tax provision to
the 2008 tax returns filed in September 2009.  The increase in
tax expense is partially offset by the tax impact on (i) lower pretax earnings
of Kinder Morgan Energy Partners’ corporatesubsidiaries,
(ii) a prior period adjustment recorded in the third quarter of 2008, (iii) a
dividends received deduction from our 20% ownership interest in NGPL PipeCo LLC,
(iv) lower state income taxes and (v) the impact on deferred taxes of a decrease
in our state tax rate.




The
$52.8 million increase in tax expense to $247.2 million for the nine months
ended September 30, 2009 as compared to $194.4 million for the same period in
2008 is primarily due to (i) a one-time elimination of deferred income tax
liabilities and income tax expense related to the termination of certain
Canadian subsidiaries in 2008, (ii) higher pretax earnings from our investments
in Kinder Morgan Energy Partners and NGPL PipeCo LLC, (iii) additional 2009 tax
expense resulting from a one-time non-cash deferred tax liability
adjustment  in the Kinder Morgan Canada-KMP segment and (iv) 2009
adjustments to true-up our book tax provision to the 2008 tax returns filed in
September 2009.  The increase in
tax expense is partially offset by the tax impact on (i) lower pretax earnings
from Kinder Morgan Management and Kinder Morgan Energy Partner’s corporate
subsidiaries, (ii) changes in nondeductible goodwill and (iii) Uncertainty in
Income Taxes adjustments.




Kinder
Morgan Energy Partners




At
September 30, 2009, we owned, directly, and indirectly in the form of i-units
corresponding to the number of shares of Kinder Morgan Management we owned,
approximately 33.6 million limited partner units of Kinder Morgan Energy
Partners.  These units, which consist of 16.4 million common units,
5.3 million Class B units and 11.9 million i-units, represent approximately
11.6% of the total outstanding limited partner interests of Kinder Morgan Energy
Partners.  In addition, we indirectly own all the common equity of the
general partner of Kinder Morgan Energy Partners, which holds an effective 2%
combined interest in Kinder Morgan Energy Partners and its operating
partnerships.  Together, our limited partner and general partner
interests represented approximately 13.4% of Kinder Morgan Energy Partners’
total equity interests at September 30, 2009.  As of the close of the
Going Private transaction, our limited partner interests and our general partner
interest represented an approximately 50% economic interest in Kinder Morgan
Energy Partners. This difference results from the existence of incentive
distribution rights held by the general partner of Kinder Morgan Energy
Partners.




Kinder
Morgan Energy Partners’ partnership agreement requires that it distribute 100%
of its available cash to its partners within 45 days following the end of each
quarter.  Available cash is initially distributed 98% to Kinder Morgan
Energy Partners’ limited partners with 2% retained by Kinder Morgan G.P., Inc.
as Kinder Morgan Energy Partners’ general partner.  These distribution
percentages are modified to approximately 50% to provide for incentive
distributions to Kinder Morgan G.P., Inc. as general partner of Kinder Morgan
Energy Partners in the event that quarterly distributions to unitholders exceed
certain specified thresholds.




On
October 21, 2009, Kinder Morgan Energy Partners declared a cash distribution of
$1.05 per common unit for the third quarter of 2009, which will be paid on
November 13, 2009 to unitholders of record as of October 30, 2009. On August 14,
2009, Kinder Morgan Energy Partners paid a quarterly distribution of $1.05 per
common unit for the second quarter of 2009, of which $190.6 million was paid to
the public holders (included in noncontrolling interests) of Kinder Morgan
Energy Partners common units.




Additional
information on Kinder Morgan Energy Partners and its partnership distributions
are contained in its Annual Report on Form 10-K for the year ended December 31,
2008 and in its Quarterly Report on Form 10-Q for the period ended September 30,
2009.




67
 Kinder
Morgan, Inc. Form 10-Q


Financial Condition




General




We
believe that we and our subsidiaries and investments, including Kinder Morgan
Energy Partners, have liquidity and access to financial resources, as
demonstrated through our results for the nine months ended September 30, 2009 as
discussed below, sufficient to meet future requirements for working capital,
debt repayment and capital expenditures associated with existing and future
expansion projects, along with payment of our dividends and Kinder Morgan Energy
Partners’ distributions.




·
            We
      have generated $918.8 in cash from operations in the first nine months of
      2009.


·
            Kinder
      Morgan Energy Partners has demonstrated its continued access to the equity
      market by raising approximately $822.2 million in net proceeds from equity
      offerings of an aggregate of 16.9 million common units from January 1
      through October 30, 2009.


·
            Kinder
      Morgan Energy Partners has demonstrated substantial flexibility in the
      debt market by issuing $2.0 billion in principal amount of long-term
      senior notes in the first nine months of 2009 that generated $1,980.7
      million in net proceeds.


·
            We
      had available credit capacity of approximately $0.9 billion and Kinder
      Morgan Energy Partners had available credit capacity of approximately $1.4
      billion under existing bank credit facilities as of September 30,
      2009.




The
primary cash requirements for us and our subsidiaries, in addition to normal
operating expenses, are for debt service, sustaining capital expenditures
(defined as capital expenditures, which do not increase the capacity of an
asset), expansion capital expenditures, Kinder Morgan Energy Partners’ quarterly
distributions to its public common unitholders and our stockholder
dividends.  In addition to utilizing cash generated from operations,
Kinder Morgan Energy Partners’ cash requirements for expansion capital
expenditures can be met through borrowings under its credit facility, issuing
long-term notes or additional common units or the proceeds from purchases of
additional Kinder Morgan Energy Partners’ i-units by Kinder Morgan Management
with the proceeds from issuances of additional Kinder Morgan Management
shares.  Our cash requirements continue to be met through cash from
our operations and borrowings under our credit facility.




Dividends




We
anticipate paying future quarterly dividends in amounts equal to our free cash
flow subject to any reserves we believe are necessary for non-recurring and/or
extraordinary items including the purchase of Kinder Morgan Energy Partners’
units.  We define free cash flow as cash distributions and dividends
received less cash paid for interest, taxes, capital expenditures and general
and administrative expenses. Our dividend philosophy, as well as the declaration
and payment of dividends are subject to the sole discretion of our Board of
Directors, are reconsidered every quarter and could change at any
time.  On February 17, 2009, May 18, 2009 and August 17, 2009, we paid
cash dividends on our common stock of $50.0 million, $100.0 million and $150.0
million, respectively, to our sole stockholder, which then made dividends to
Kinder Morgan Holdco LLC.  Our Board of Directors declared a dividend
of $350.0 million on October 21, 2009 that will be paid on November 16,
2009.




Credit
Ratings and Capital Market Liquidity




On
September 15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy
protection under the provisions of Chapter 11 of the U.S. Bankruptcy
Code.  Lehman Brothers Commercial Bank was a lending institution that
provided $63.3 million of the commitments under Kinder Morgan Energy Partners’
credit facility. During the first quarter of 2009, Kinder Morgan Energy Partners
amended its facility to remove Lehman Brothers Commercial Bank as a lender, thus
reducing the facility by $63.3 million.  The commitments of the other
banks remain unchanged, and the facility is not defaulted.




On
October 13, 2008, Standard & Poor’s Rating Services revised its outlook on
Kinder Morgan Energy Partners’ long-term credit rating to negative from stable
(but affirmed its long-term credit rating at BBB), due to its previously
announced expected delay and cost increases associated with the completion of
the Rockies Express Pipeline project.  At the same time, Standard
& Poor’s lowered Kinder Morgan Energy Partners’ short-term credit rating to
A-3 from A-2.  As a result of this revision to Kinder Morgan Energy
Partners’ short-term credit rating and the




68
 Kinder
Morgan, Inc. Form 10-Q


current
commercial paper market conditions, it is unable to access commercial paper
borrowings.




On
May 6, 2009, Moody’s Investors Service downgraded Kinder Morgan Energy Partners’
commercial paper rating to Prime-3 from Prime-2 and assigned a negative outlook
to its long-term credit rating.  The downgrade and negative outlook
was primarily related to increases in Kinder Morgan Energy Partners’ outstanding
debt balance that have occurred since the beginning of 2009.  However,
Kinder Morgan Energy Partners continues to maintain an investment grade credit
rating, and all of its long-term credit ratings remain unchanged since December
31, 2008.  Furthermore, Kinder Morgan Energy Partners expects that its
financing and short-term liquidity needs will continue to be met through
borrowings made under its bank credit facility.  Nevertheless, Kinder
Morgan Energy Partners’ ability to satisfy its financing requirements or fund
its planned capital expenditures will depend upon its future operating
performance, which will be affected by prevailing economic conditions in the
energy and terminals industries and other financial and business factors, some
of which are beyond its control.




Some
customers are experiencing, or may experience in the future, severe financial
problems that have had or may have a significant impact on their
creditworthiness.  These financial problems may arise from the current
financial crises, changes in commodity prices or otherwise.  Kinder
Morgan Energy Partners has and is working to implement, to the extent allowable
under applicable contracts, tariffs and regulations, prepayments and other
security requirements, such as letters of credit, to enhance its credit position
relating to amounts owed from these customers.  Kinder Morgan Energy
Partners cannot provide assurance that one or more of its current or future
financially distressed customers will not default on its obligations to it or
that such a default or defaults will not have a material adverse effect on its
business, financial position, future results of operations, or future cash
flows; however, Kinder Morgan Energy Partners believes it has provided adequate
allowance for such customers.




Short-term
Liquidity




Our
principal sources of short-term liquidity are our revolving bank facility,
Kinder Morgan Energy Partners’ revolving bank facility and cash provided by
operations.  These facilities can be used for the respective entity’s
general corporate or partnership purposes.




The
following represents the revolving credit facilities that were available to
Kinder Morgan, Inc. and its subsidiaries, short-term debt outstanding under the
credit facilities or an associated commercial paper program, and available
borrowing capacity under the facilities after deducting (i) outstanding letters
of credit, (ii) outstanding borrowings under the credit facilities, and (iii)
the lending commitments made by Lehman Brothers Commercial Bank, which was
cancelled in connection with the Lehman Brothers bankruptcy (as discussed
above).




At
      September 30, 2009Short-term
              Debt
              Outstanding
            
            
            Available
              Borrowing
              Capacity(In
      millions)Credit
      FacilitiesKinder
      Morgan, Inc.$1.0
      billion, six-year secured revolver, due May 2013
            
            $
            50.0
            
            
            $
            887.2Kinder
      Morgan Energy Partners$1.85
      billion, five-year unsecured revolver, due August 2010(a)
            
            $
            110.0
            
            
            $
            1,412.5


____________


(a)
Kinder Morgan Energy Partners plans to negotiate a renewal of its bank credit
facility before its maturity date.





At
September 30, 2009, our current portion of debt was $206.7 million, primarily
consisting of $110.0 million of outstanding borrowings under Kinder Morgan
Energy Partners’ credit facility.  Apart from our current portion of
debt and the fair value of derivative instruments, our current assets exceed our
current liabilities by approximately $252.9 million at September 30,
2009.  Given our expected cash flows from operations, our unused debt
capacity as discussed above, including our credit facilities, and based on our
projected cash needs in the near term, we do not expect any liquidity issues to
arise.




69
 Kinder
Morgan, Inc. Form 10-Q


Capital
Expenditures




Including
both sustaining and discretionary spending, our capital expenditures were
$1,076.4 million in the first nine months of 2009 versus $1,922.8 million in the
same period a year ago.  The discretionary capital expenditures
reflected in the accompanying interim Consolidated Statement of Cash Flows for
the first nine months of 2009 and 2008 were $963.6 million and $1,803.1
million, respectively.  The period-to-period decrease in discretionary
capital expenditures was mainly due to higher capital expenditures made during
2008 on our major natural gas pipeline projects.  Our sustaining
capital expenditures, defined as capital expenditures that do not increase the
capacity of an asset, were $112.9 million for the first nine months of 2009 as
compared to $119.7 million in the same period last year.  This
sustaining expenditure amount includes Kinder Morgan Energy Partners’
proportionate share of Rockies Express’ sustaining capital
expenditures—approximately $0.2 million in the first nine months of 2009 and
less than $0.1 million in the first nine months of
2008.  Additionally, our forecasted expenditures for the remaining
three months of 2009 for sustaining capital expenditures are approximately $64.2
million—including Kinder Morgan Energy Partners’ proportionate share of Rockies
Express’ and Midcontinent Express’ sustaining capital expenditures.




Generally,
we fund our sustaining capital expenditures with existing cash or from cash
flows from operations.  Kinder Morgan Energy Partners funds its
discretionary capital expenditures (and its investment contributions) through
borrowings under its bank credit facility.  To the extent this source
of funding is not sufficient, Kinder Morgan Energy Partners generally funds
additional amounts through the issuance of long-term notes or common units for
cash.  During the first nine months of 2009, Kinder Morgan Energy
Partners used the net proceeds from sales of common units and the issuance of
senior notes to refinance portions of its short-term borrowings under its bank
credit facility.  In addition to utilizing cash generated from its
operations, Rockies Express can fund its cash requirements for capital
expenditures through borrowings under its own bank credit facility, issuing its
own long-term notes, or with proceeds from contributions received from its
equity owners.




Cash
Flows




The
following table summarizes our net cash flows from operating, investing and
financing activities for each period presented.




Nine Months Ended September 30,2009
            
            
            2008
            
            
            Increase
              (Decrease)
            
            
            %(In
      millions, except percentages)Net
      cash provided by (used in):Operating
      activities
            
            $
            918.8
            
            
            $
            583.1
            
            
            $
            335.7
            
            
            
            57.6
            %Investing
      activities
            
            
            (2,641.3
            )
            
            
            3,968.0
            
            
            
            (6,609.3
            )
            
            
            (166.6
            )
      %Financing
      activities
            
            
            1,825.0
            
            
            
            (4,569.6
            )
            
            
            6,394.6
            
            
            
            139.9
            %Effect
      of exchange rate changes on cash
            
            
            5.0
            
            
            
            (3.5
            )
            
            
            8.5
            
            
            
            242.9
            %Net
      increase in cash and cash equivalents
            
            $
            107.5
            
            
            $
            (22.0
            )
            
            $
            129.5
            
            
            
            588.6
            %





Operating
Activities




The
net increase in cash provided by operating activities in the first nine months
ended September 30, 2009 compared to the respective 2008 period was primarily
attributable to:




▪
            a
      $325.3 million increase in cash inflows relative to net changes in working
      capital items, primarily driven by lower income tax and interest payments
      in 2009.  These tax and interest payments were partially offset
      by higher payments in 2009 for (i) natural gas storage on Kinder Morgan
      Energy Partners’ Kinder Morgan Texas Pipeline system; (ii) the settlement
      of certain refined products imbalance liabilities owed to U.S. military
      customers of our Products Pipelines business segment, (iii)
      employee-related bonus funding and (iv) reductions in customer
      deposits




▪
            a
      $146.0 million of cash inflows in the first nine months of 2009,
      principally related to the termination, in January 2009, of a Kinder
      Morgan Energy Partners’ interest rate swap agreement having a notional
      principal amount of $300 million and a maturity date of March 15, 2031
      compared to a $2.5 million




70
 Kinder
Morgan, Inc. Form 10-Q


payment
we made to terminate an interest rate swap agreement in the comparable period of
2008;




▪
            a
      $95.0 million decrease in net income, net of non-cash
    items;




▪
            a
      $20.0 million pension contribution made in 2009, offset slightly by $8.9
      million of pension expenses; and




▪
            a
      $0.5 million decrease in cash related to lower distributions received from
      equity investments primarily due to (i) a $40.5 million decrease in
      distributions from the equity investment in the Express pipeline system,
      primarily attributable to the June 2008 exchange of a preferred equity
      interest in Express US Holdings LP for two subordinated notes from US
      Holdings LP, (ii) incremental distributions of $41.8 million received from
      Kinder Morgan Energy Partners’ West2East, the sole owner of Rockies
      Express and (iii) incremental distributions of $1.3 million from NGPL
      PipeCo LLC.




Investing
Activities




The
net increase in cash used in investing activities in the first nine months ended
September 30, 2009 compared to the respective 2008 period was primarily
attributable to:




▪
            a
      $2,899.3 million cash inflow in 2008 for net cash proceeds received from
      the sale of an 80% interest in NGPL PipeCo
LLC;




▪
            a
      $3,106.4 million cash inflow in 2008 for proceeds received from NGPL
      PipeCo LLC restricted cash;




▪
            a
      $1,277.5 million increase in cash used due to higher contributions to
      equity investees in the first nine months of 2009, relative to the first
      nine months a year ago.  The increase was primarily driven by
      incremental contributions to West2East, Midcontinent Express, and
      Fayetteville Pipeline LLC to partially fund the construction and/or
      pre-construction costs of Rockies Express, Midcontinent Express, and
      Fayetteville Express Pipeline, and the repayment of senior notes by
      Rockies Express in August 2009.  As discussed in Note 2 in the
      accompanying Notes to Consolidated Financial Statements included elsewhere
      in this report, Kinder Morgan Energy Partners contributed a combined
      $1,610.3 million during the first nine months of 2009 for these three
      pipeline projects.  During the same period last year, Kinder
      Morgan Energy Partners contributed a combined $333.5 million to partially
      fund its proportionate share of the Rockies Express and Midcontinent
      Express pipeline construction
costs;




▪
            a
      $89.1 million and $3.4 million return of capital received from
      Midcontinent Express and NGPL PipeCo LLC, respectively, in 2008 compared
      to $15.9 million received from our equity investment, NGPL PipeCo LLC, in
      2009.  In February 2008, Midcontinent Express entered into and
      then made borrowings under a new $1.4 billion three-year, unsecured
      revolving credit facility due February 28, 2011.  Midcontinent
      then made distributions (in excess of cumulative earnings) to its two
      member owners to reimburse them for prior contributions made to fund its
      pipeline construction costs;




▪
            a
      $93.4 million increase in cash used for margin and restricted deposits in
      2009 compared to 2008, associated mainly with our utilization of
      derivative contracts to hedge (offset) against the volatility of energy
      commodity price risks;




▪
            a
      $11.1 million increase in cash used for the acquisition of assets,
      relative to 2008.  The increase was driven by the $18.0 million
      Kinder Morgan Energy Partners paid to acquire certain terminal assets from
      Megafleet Towing Co., Inc. in April 2009 (discussed in Note 2 of the
      accompanying Notes to Consolidated Financial
  Statements);




▪
            a
      $103.5 million decrease in cash relative to 2008, due to lower net
      proceeds received from the sales of investments, property, plant and
      equipment, and other net assets (net of salvage and removal
      costs).  The decrease in cash sales proceeds was driven
      primarily by $63.1 million received for the sale of our interest in three
      natural gas-fired power plants in Colorado in the first quarter of 2008
      and the approximately $50.7 million
      received in the second quarter of 2008 for the sale of Kinder Morgan
      Energy Partners’ 25% equity ownership interest in Thunder Creek Gas
      Services, LLC.




71
 Kinder
Morgan, Inc. Form 10-Q




▪
            a
      $846.4 decrease in the use of cash for capital expenditures—largely due to
      the higher investment undertaken by Kinder Morgan Energy Partners in the
      first nine months of 2008 to construct its Kinder Morgan Louisiana
      Pipeline and to expand its Trans Mountain crude oil and refined petroleum
      products pipeline system; and




▪
            a
      $109.6 million decrease in cash used due to our receipt, in the first nine
      months of 2009, of the full repayment of a $109.6 million loan Kinder
      Morgan Energy Partners made in December 2008 to a single customer of its
      Texas intrastate natural gas pipeline
group.




Financing
Activities




The
net increase in cash provided by financing activities in the first nine months
ended September 30, 2009 compared to the respective 2008 period was primarily
attributable to:




▪
            a
      $6,414.1 million decrease in cash used for overall debt financing
      activities, which include issuances and payments of debt and debt issuance
      costs.  The period-to-period decrease in cash used for overall
      financing activities was primarily due to (i) a $5,940.0 million decrease
      in cash used due to lower net issuances and repayments of long-term debt,
      (ii) a $589.1 million increase in cash due to net commercial paper
      repayments by Kinder Morgan Energy Partners in the first nine months of
      2008 and (iii) a $114.8 million decrease in cash from lower net borrowings
      under our and Kinder Morgan Energy Partners’ bank credit facilities in the
      first nine months of 2009;




The
period-to-period increases and decreases in cash inflows from our commercial
paper and credit facility borrowings were related to Kinder Morgan Energy
Partners’ short-term credit rating downgrade discussed above in “Credit Ratings
and Capital Market Liquidity.”  The increase in cash inflows from
changes in senior notes outstanding primarily includes (i) the combined $5,789.3
million of debt repaid in 2008 primarily using proceeds from the sale of an 80%
interest in NGPL PipeCo LLC and (ii) the combined $1,730.7 million Kinder Morgan
Energy Partners received from both issuing and repaying senior notes in 2009
(discussed in Note 4 of the accompanying Notes to the Consolidated Financial
Statements) versus the combined $1,581.8 million Kinder Morgan Energy Partners
received from its February and June 2008 public offerings of senior
notes.  Kinder Morgan Energy Partners used the proceeds from each of
these offerings to reduce the borrowings under its commercial paper
program;




▪
            a
      $430.5 million increase in cash from noncontrolling interest contributions
      primarily related to Kinder Morgan Energy Partners’ issuances totaling
      16,798,058 common units in 2009 receiving combined net proceeds (after
      underwriting commissions and expenses) of $815.5 million versus issuances
      totaling 6,830,000 common units in 2008 receiving combined net proceeds
      (after underwriting commissions and expenses) of $384.3
      million;




▪
            $300.0
      million cash used in 2009 to pay
dividends;




▪
            a
      $86.9 million increase in cash used for noncontrolling interest
      distributions, primarily due to an increase of $86.7 million in Kinder
      Morgan Energy Partners’ cash distributions to its common unit owners;
      and




▪
            a
      $53.9 million decrease in cash inflows from net changes in cash book
      overdrafts—resulting from timing differences on checks issued but not yet
      presented for payment.




Recent Accounting Pronouncements




Refer
to Note 13 of the accompanying Notes to Consolidated Financial Statements for
information concerning recent accounting pronouncements.




72
 Kinder
Morgan, Inc. Form 10-Q


Information Regarding Forward-Looking
Statements




This
filing includes forward-looking statements.  These forward-looking
statements are identified as any statement that does not relate strictly to
historical or current facts.  They use words such as “anticipate,”
“believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,”
“continue,” “estimate,” “expect,” “may,” or the negative of those terms or other
variations of them or comparable terminology.  In particular,
statements, express or implied, concerning future actions, conditions or events,
future operating results or the ability to generate sales, income or cash flow,
service debt or to pay dividends or to make distributions are forward-looking
statements.  Forward-looking statements are not guarantees of
performance.  They involve risks, uncertainties and
assumptions.  Future actions, conditions or events and future results
of operations may differ materially from those expressed in these
forward-looking statements.  Many of the factors that will determine
these results are beyond our ability to control or predict.  Specific
factors that could cause actual results to differ from those in the
forward-looking statements include:




▪
            price
      trends and overall demand for natural gas liquids, refined petroleum
      products, oil, carbon dioxide, natural gas, electricity, coal and other
      bulk materials and chemicals in North
America;




▪
            economic
      activity, weather, alternative energy sources, conservation and
      technological advances that may affect price trends and
      demand;




▪
            changes
      in tariff rates charged by our or those of Kinder Morgan Energy Partners’
      pipeline subsidiaries implemented by the Federal Energy Regulatory
      Commission, or other regulatory agencies or the California Public
      Utilities Commission;




▪
            our
      ability to acquire new businesses and assets and integrate those
      operations into our existing operations, as well as the ability to expand
      our facilities;




▪
            difficulties
      or delays experienced by railroads, barges, trucks, ships or pipelines in
      delivering products to or from Kinder Morgan Energy Partners’ terminals or
      pipelines;




▪
            our
      ability to successfully identify and close acquisitions and make
      cost-saving changes in operations;




▪
            shut-downs
      or cutbacks at major refineries, petrochemical or chemical plants, ports,
      utilities, military bases or other businesses that use our services or
      provide services or products to us;




▪
            changes incrude oil and natural gas production from exploration and
      production areas that we or Kinder Morgan Energy Partners serve, such as
      the Permian Basin area of West Texas, the U.S. Rocky Mountains and the
      Alberta oil sands;




▪
            changes
      in laws or regulations, third-party relations and approvals, and decisions
      of courts, regulators and governmental bodies that may adversely affect
      our business or ability to compete;




▪
            changes
      in accounting pronouncements that impact the measurement of our results of
      operations, the timing of when such measurements are to be made and
      recorded, and the disclosures surrounding these
  activities;




▪
            our
      ability to offer and sell equity securities, and Kinder Morgan Energy
      Partners’ ability to offer and sell equity securities and its ability to
      sell debt securities or obtain debt financing in sufficient amounts to
      implement that portion of our or Kinder Morgan Energy Partners’ business
      plans that contemplates growth through acquisitions of operating
      businesses and assets and expansions of facilities;




▪
            our
      indebtedness, which could make us vulnerable to general adverse economic
      and industry conditions, limit our ability to borrow additional funds
      and/or place us at competitive disadvantages compared to our competitors
      that have less debt or have other adverse
  consequences;




▪
            interruptions
      of electric power supply to our facilities due to natural disasters, power
      shortages, strikes, riots, terrorism, war or other
  causes;




▪
            our
      ability to obtain insurance coverage without significant levels of
      self-retention of risk;




73
 Kinder
Morgan, Inc. Form 10-Q


▪
            acts
      of nature, sabotage, terrorism or other similar acts causing damage
      greater than our insurance coverage
limits;




▪
            capital
      and credit markets conditions, inflation and interest
    rates;




▪
            the
      political and economic stability of the oil producing nations of the
      world;




▪
            national,
      international, regional and local economic, competitive and regulatory
      conditions and developments;




▪
            our
      ability to achieve cost savings and revenue
  growth;




▪
            foreign
      exchange fluctuations;




▪
            the
      timing and extent of changes in commodity prices for oil, natural gas,
      electricity and certain agricultural
products;




▪
            the
      extent of Kinder Morgan Energy Partners’ success in discovering,
      developing and producing oil and gas reserves, including the risks
      inherent in exploration and development drilling, well completion and
      other development activities;




▪
            engineering
      and mechanical or technological difficulties that Kinder Morgan Energy
      Partners may experience with operational equipment, in well completions
      and workovers, and in drilling new wells;




▪
            the
      uncertainty inherent in estimating future oil and natural gas production
      or reserves that Kinder Morgan Energy Partners may experience;




▪
            the
      ability to complete expansion projects on time and on
    budget;




▪
            the
      timing and success of Kinder Morgan Energy Partners’ and our business
      development efforts;
      and




▪
            unfavorable
      results of litigation and the fruition of contingencies referred to in
      Note 11 of the accompanying Notes to Consolidated Financial
      Statements.




The foregoing list should not
be construed to be exhaustive. We believe the forward-looking statements in this
report are reasonable.  However, there is no assurance that any
of the actions, events or results of the forward-looking statements will occur,
or if any of them do, what impact they will have on our results of operations or
financial condition.  Because of these uncertainties, you should not
put undue reliance on any forward-looking statements.




See
Item 1A “Risk Factors” of our 2008 Form 10-K for a more detailed description of
these and other factors that may affect the forward-looking
statements.  When considering forward-looking statements, one should
keep in mind the risk factors described in our 2008 Form 10-K.  The
risk factors could cause our actual results to differ materially from those
contained in any forward-looking statement.  We disclaim any
obligation, other than as required by applicable law, to update the above list
or to announce publicly the result of any revisions to any of the
forward-looking statements to reflect future events or
developments.






Item 3.  Quantitative and Qualitative
Disclosures About Market Risk.




There
have been no material changes in market risk exposures that would affect the
quantitative and qualitative disclosures presented as of December 31, 2008, in
Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained
in our 2008 Form 10-K. For more information on our risk management activities,
see Note 6 of the accompanying Notes to Consolidated Financial
Statements.




74
 Kinder
Morgan, Inc. Form 10-Q




Item 4.  Controls and Procedures.




As
of September 30, 2009, our management, including our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934.  There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures.  Accordingly, even
effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives.  Based upon and as of
the date of the evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that the design and operation of our disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed in the reports we file and submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported as and when
required, and is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.  There has been no
change in our internal control over financial reporting during the quarter ended
September 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.






PART II.  OTHER INFORMATION






Item 1.  Legal Proceedings.




See
Note 11 of the accompanying Notes to Consolidated Financial Statements entitled
“Litigation, Environmental and Other Contingencies” in Part 1, Item 1, which is
incorporated herein by reference.






Item 1A.  Risk Factors.




There
have been no material changes in or additions to the risk factors disclosed in
Part I, Item 1A “Risk Factors” in our 2008 Form 10-K.






Item 2.  Unregistered Sales of Equity
Securities and Use of Proceeds.




None.






Item 3.  Defaults Upon Senior
Securities.




None.






Item 4.  Submission of Matters to a Vote
of Security Holders.




None.






Item 5.  Other Information.




None.




75
 Kinder
Morgan, Inc. Form 10-Q


Item 6.  Exhibits.





4.1 —
            Certain
      instruments with respect to the long-term debt of Kinder Morgan, Inc. and
      its consolidated subsidiaries that relate to debt that does not exceed 10%
      of the total assets of Kinder Morgan, Inc. and its consolidated
      subsidiaries are omitted pursuant to Item 601(b) (4) (iii) (A) of
      Regulation S-K, 17 C.F.R. sec.229.601. Kinder Morgan, Inc. hereby agrees
      to furnish supplementally to the Securities and Exchange Commission a copy
      of each such instrument upon request.31.1*—
            Certification
      by CEO pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2*—
            Certification
      by CFO pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1*—
            Certification
      by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.32.2*—
            Certification
      by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.


______________


*Filed
herewith




76
 Kinder
Morgan, Inc. Form 10-Q


SIGNATURE




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




KINDER
      MORGAN, INC.Registrant





Date:
      November 13, 2009
            
            
            
            By:
            
            /s/
      Kimberly DangKimberly
      A. Dang
              Vice
      President and Chief Financial Officer
              (Principal
      Financial and Accounting Officer)







77