**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D. C. 20549**


**_______________**





**FORM
      10-Q**





**Quarterly
      Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
      1934**





**For
      the quarterly period ended**





**March
      31, 2007**








**Commission
      File No. 1-2921**





**_______________**








**PANHANDLE
      EASTERN PIPE LINE COMPANY, LP**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            **44-0382470**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)**5444
                Westheimer Road**
            **77056-5306****Houston,
                Texas**
            (Zip
                Code)(Address
                of principal executive offices)








Registrant's
      telephone number, including area code: **(713) 989-7000**





Securities
      Registered Pursuant to Section 12(b) of the Act:





Title
                of each Class
            
            Name
                of each exchange in which registered4.80%
                Senior Notes due 2008, Series B
            
            New
                York Stock Exchange6.05%
                Senior Notes due 2013, Series B
            
            New
                York Stock Exchange





Securities
      Registered Pursuant to Section 12(g) of the Act: None





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  **P**  No
      ___





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer  Accelerated
      filer ___ Non-accelerated filer  **P**





Indicate
      by check mark whether the registrant is a shell company (as defined in Exchange
      Act Rule 12b-2).


Yes  No  **** **P**





Panhandle
      Eastern Pipe Line, LP meets the conditions set forth in General Instructions
      H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the
      reduced disclosure format. Item 2 of Part I has been reduced and Item 3 of
      Part
      I and Items 2, 3 and 4 of Part II have been omitted in accordance with
      Instruction H.











**PANHANDLE
      EASTERN PIPE LINE COMPANY, LP**


**FORM
      10-Q**


**March
      31, 2007**


**Table
      of Contents**





**PART
                I. FINANCIAL INFORMATION:**
            Page(s)ITEM
                1. Financial Statements (Unaudited):Condensed
                consolidated statement of
                operations.
            2Condensed
                consolidated balance sheet.
            3-4Condensed
                consolidated statement of cash
                flows.
            5Condensed
                consolidated statement of partners’ capital and
                comprehensive income.
            6Notes
                to condensed consolidated financial
                statements.
            7ITEM
                2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations.
            20ITEM
                3. Quantitative and Qualitative Disclosures About
                Market Risk.
            22ITEM
                4. Controls and Procedures.
            23**PART
                II. OTHER INFORMATION:**ITEM
                1. Legal Proceedings.
            24ITEM
                1A. Risk Factors.
            24ITEM
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds.
            24ITEM
                3. Defaults Upon Senior
                Securities.
            25ITEM
                4. Submission of Matters to a Vote of Security
                Holders.
            25ITEM
                5. Other Information.
            25ITEM
                6. Exhibits.
            25SIGNATURES
            27





1
 Table
          of Contents


**PANHANDLE
        EASTERN PIPE LINE COMPANY, LP**
 **CONDENSED
        CONSOLIDATED STATEMENT OF OPERATIONS**
 **(UNAUDITED)**


**Three
                  Months Ended March 31,****2007**
              
              **2006**(In
                  thousands of dollars)**Operating
                  revenue**Transportation
                  and storage of natural gas
              
              $
              133,705
              
              $
              121,332LNG
                  terminalling revenue
              
              
              32,902
              
              
              19,555Other
                  revenue
              
              
              2,423
              
              
              3,756Total
                  operating revenue
              
              
              169,030
              
              
              144,643**Operating
                  expenses**Operation,
                  maintenance and general
              
              
              56,280
              
              
              46,098Depreciation
                  and amortization
              
              
              20,709
              
              
              17,474Taxes,
                  other than on income
              
              
              7,795
              
              
              7,350Total
                  operating expenses
              
              
              84,784
              
              
              70,922**Operating
                  income**
              
              
              84,246
              
              
              73,721**Other
                  income (expense)**Interest
                  expense, net
              
              
              (22,026
              )
              
              (12,875
              )Other,
                  net
              
              
              11,057
              
              
              3,241Total
                  other income (expense)
              
              
              (10,969
              )
              
              (9,634
              )**Earnings
                  before income taxes**
              
              
              73,277
              
              
              64,087**Income
                  taxes**
              
              
              28,796
              
              
              25,022**Net
                  earnings**
              
              $
              44,481
              
              $
              39,065






































































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


2
 Table
          of Contents


**PANHANDLE
        EASTERN PIPE LINE COMPANY, LP**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **(UNAUDITED)**


**March
                  31, 2007**
              
              **December
                  31, 2006****Assets**
              
              (In
                  thousands of dollars)**Current
                  assets**Cash
                  and cash equivalents
              
              $
              427
              
              $
              531Accounts
                  receivable, less allowances of $1,176 and $1,176, respectively
              
              
              62,518
              
              
              61,047Accounts
                  receivable - related parties (Note 5)
              
              
              7,658
              
              
              17,994Gas
                  imbalances - receivable
              
              
              106,294
              
              
              68,013System
                  gas and operating supplies (Note 3)
              
              
              126,024
              
              
              127,303Deferred
                  income taxes, net
              
              
              3,410
              
              
              3,117Note
                  receivable - CrossCountry Citrus
              
              
              11,806
              
              
              6,664Other
              
              
              8,381
              
              
              10,691Total
                  current assets
              
              
              326,518
              
              
              295,360**Property,
                  plant and equipment**Plant
                  in service
              
              
              2,465,776
              
              
              2,418,917Construction
                  work-in-progress
              
              
              163,446
              
              
              166,0852,629,222
              
              
              2,585,002Less
                  accumulated depreciation and amortization
              
              
              225,700
              
              
              207,606Net
                  property, plant and equipment
              
              
              2,403,522
              
              
              2,377,396**Investment
                  in affiliate**
              
              
              1,604
              
              
              1,457Note
                  receivable - Southern Union
              
              
              168,205
              
              
              148,655Note
                  receivable - CrossCountry Citrus
              
              
              446,530
              
              
              458,336Intangibles,
                  net
              
              
              7,532
              
              
              7,618Debt
                  issuance cost
              
              
              3,651
              
              
              2,376Non-current
                  system gas (Note 3)
              
              
              13,222
              
              
              14,850Other
              
              
              2,306
              
              
              2,472**Total
                  assets**
              
              $
              3,373,090
              
              $
              3,308,520





























































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


3
 Table
          of Contents


**PANHANDLE
      EASTERN PIPE LINE COMPANY, LP**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**(UNAUDITED)**





**March
                  31, 2007**
              
              **December
                  31, 2006**(In
                  thousands of dollars)**Partners'
                  Capital**Partners'
                  capital
              
              $
              1,086,204
              
              $
              1,041,723Accumulated
                  other comprehensive income (Note 8)
              
              
              14,570
              
              
              15,477Tax
                  sharing note receivable - Southern Union
              
              
              (16,431
              )
              
              (16,431
              )Total
                  partners' capital
              
              
              1,084,343
              
              
              1,040,769Long-term
                  debt (Note 7)
              
              
              1,627,905
              
              
              1,185,391Total
                  capitalization
              
              
              2,712,248
              
              
              2,226,160**Current
                  liabilities**Current
                  portion of long-term debt (Note 7)
              
              
              11,806
              
              
              461,011Accounts
                  payable
              
              
              3,087
              
              
              6,679Accounts
                  payable - overdrafts
              
              
              6,567
              
              
              23,776Accounts
                  payable - related parties (Note 5)
              
              
              27,584
              
              
              15,962Gas
                  imbalances - payable
              
              
              190,772
              
              
              144,137Accrued
                  taxes
              
              
              37,111
              
              
              12,030Accrued
                  interest
              
              
              8,516
              
              
              19,669Retained
                  fuel obligation
              
              
              6,920
              
              
              12,418Labor
                  and benefit accruals
              
              
              8,110
              
              
              16,868Other
                  operating expense accruals
              
              
              7,030
              
              
              9,832Capital
                  accruals
              
              
              20,121
              
              
              26,929Other
              
              
              17,579
              
              
              20,623Total
                  current liabilities
              
              
              345,203
              
              
              769,934Deferred
                  income taxes, net
              
              
              248,932
              
              
              243,697Post-retirement
                  benefits
              
              
              2,824
              
              
              4,436Other
              
              
              63,883
              
              
              64,293Commitments
                  and contingencies (Note 11)**Total
                  partners' capital and liabilities**
              
              $
              3,373,090
              
              $
              3,308,520






























































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





4
 Table
          of Contents


**PANHANDLE
      EASTERN PIPE LINE COMPANY, LP**


**CONDENSED
      CONSOLIDATED STATEMENT OF CASH FLOWS**


**(UNAUDITED)**





**Three
                  Months Ended March 31,****2007**
              
              **2006**(In
                  thousands of dollars)**Cash
                  flows provided by (used in) operating activities:**Net
                  earnings
              
              $
              44,481
              
              $
              39,065Adjustments
                  to reconcile net earnings to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              20,709
              
              
              17,474Deferred
                  income taxes
              
              
              5,319
              
              
              12,952Gain
                  on sale of assets
              
              
              -
              
              
              (1,654
              )Debt
                  premium and discount amortization, net
              
              
              (109
              )
              
              (323
              )Changes
                  in operating assets and liabilities
              
              
              21,531
              
              
              (4,107
              )Net
                  cash flows provided by operating activities
              
              
              91,931
              
              
              63,407**Cash
                  flows provided by (used in) investing activities:**Net
                  increase in note receivable - Southern Union
              
              
              (19,550
              )
              
              (36,050
              )Capital
                  and investment expenditures
              
              
              (53,527
              )
              
              (30,469
              )Sale
                  of assets
              
              
              -
              
              
              2,450Decrease
                  in note receivable - CrossCountry Citrus
              
              
              6,664
              
              
              -Other
              
              
              (599
              )
              
              (229
              )Net
                  cash flows used in investing activities
              
              
              (67,012
              )
              
              (64,298
              )**Cash
                  flows provided by (used in) financing activities:**Increase
                  (decrease) in bank overdrafts
              
              
              (17,209
              )
              
              442Debt
                  issuance
              
              
              455,000
              
              
              -Debt
                  retirements
              
              
              (462,289
              )
              
              -Debt
                  issuance costs
              
              
              (525
              )
              
              -Net
                  cash flows provided by (used in) financing activities
              
              
              (25,023
              )
              
              442Change
                  in cash and cash equivalents
              
              
              (104
              )
              
              (449
              )Cash
                  and cash equivalents at beginning of period
              
              
              531
              
              
              585**Cash
                  and cash equivalents at end of period**
              
              $
              427
              
              $
              136



























































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





5
 Table
          of Contents


**PANHANDLE
      EASTERN PIPE LINE COMPANY, LP**


**CONDENSED
      CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL AND COMPREHENSIVE
      INCOME**


**(UNAUDITED)**





**Partners'
                  Capital**
              
              **Accumulated
                  Other Comprehensive Income**
              
              **Tax
                  Sharing Note Receivable-Southern Union**
              
              **Total**(In
                  thousands of dollars)Balance
                  January 1, 2007
              
              $
              1,041,723
              
              $
              15,477
              
              $
              (16,431
              )
              $
              1,040,769Comprehensive
                  income:Net
                  earnings
              
              
              44,481
              
              
              -
              
              
              -
              
              
              44,481Recognized
                  prior service credit related to otherpostretirement
                  plan, net of tax
              
              
              -
              
              
              (678
              )
              
              -
              
              
              (678
              )Net
                  gain related to interest rate swaps, net of tax
              
              
              -
              
              
              (229
              )
              
              -
              
              
              (229
              )Comprehensive
                  income
              
              
              44,481
              
              
              (907
              )
              
              -
              
              
              43,574Balance
                  March 31, 2007
              
              $
              1,086,204
              
              $
              14,570
              
              $
              (16,431
              )
              $
              1,084,343

















































































































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





6
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


**ITEM
      1. Financial Statements**





The
      accompanying unaudited interim condensed consolidated financial statements
      of
      Panhandle Eastern Pipe Line Company, LP, a Delaware limited partnership
      ( *PEPL* ),
      and
      its subsidiaries (collectively, *Panhandle* ,
      or *the
      Company* ),
      have
      been prepared pursuant to the rules and regulations of the Securities and
      Exchange Commission ( *SEC* )
      for
      quarterly reports on Form 10-Q. These statements do not include all of the
      information and note disclosures required by accounting principles generally
      accepted in the United States of America ( *GAAP* ),
      and
      should be read in conjunction with Panhandle’s financial statements and notes
      thereto for the twelve months ended December 31, 2006, included in Panhandle’s
      Form 10-K filed with the SEC. The accompanying unaudited interim condensed
      consolidated financial statements have been prepared in accordance with GAAP
      and
      reflect adjustments that are, in the opinion of management, necessary for a
      fair
      statement of results for the interim period. The year-end condensed balance
      sheet data was derived from audited financial statements, but does not include
      all disclosures required by GAAP. Due to seasonal nature of the Company’s
      operations, the results of operations and cash flows for any interim period
      are
      not necessarily indicative of the results that may be expected for the full
      year.





**1.
      Corporate Structure**





Panhandle
      is primarily engaged in the interstate transportation and storage of natural
      gas
      and also provides liquefied natural gas ( *LNG* )
      terminalling and regasification services. The Company is subject to the rules
      and regulations of the Federal Energy Regulatory Commission ( *FERC* ).
      The
      Company’s entities include the following:





·
            PEPL,
                an indirect wholly-owned subsidiary of Southern Union Company
                (*Southern
                Union Company*and together with its subsidiaries,*Southern
                Union*);


·
            Trunkline
                Gas Company, LLC (*Trunkline*),
                a direct wholly-owned subsidiary of
                PEPL;


·
            Sea
                Robin Pipeline Company, LLC (*Sea
                Robin*),
                an indirect wholly-owned subsidiary of
                PEPL;


·
            Trunkline
                LNG Holdings, LLC (*LNG
                Holdings*),
                an indirect wholly-owned subsidiary of
                PEPL;


·
            Trunkline
                LNG Company, LLC (*Trunkline
                LNG*),
                a direct wholly-owned subsidiary of LNG Holdings;
                and


·
            Pan
                Gas Storage, LLC (d.b.a.*Southwest
                Gas Storage*),
                a direct wholly-owned subsidiary of
                PEPL.





The
      Company’s pipeline assets include approximately 10,000
      miles of interstate pipelines that transport natural gas from the Gulf of
      Mexico, South Texas and the panhandle regions of Texas and Oklahoma to major
      U.S. markets in the Midwest and Great Lakes region. The pipelines have a
      combined peak day delivery capacity of 5.3
      billion cubic feet per day ( *Bcf/d* )
      and
      approximately 66
      billion cubic feet ( *Bcf* )
      of
      owned underground storage capacity. Trunkline LNG, located on Louisiana's Gulf
      Coast, operates one of the largest
      LNG import terminals in North America, based on current send out capacity,
      and
      has 9.0
      Bcf
      of above ground LNG storage capacity.





Southern
      Union Panhandle, LLC, a direct wholly-owned subsidiary of Southern Union
      Company, serves as the general partner of PEPL and owns a one percent general
      partner interest. Southern Union Company owns a ninety-nine percent limited
      partner interest in PEPL.





**2.
      New Accounting Principles**





***Accounting
      Principles Recently Adopted.***





***FIN
      48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
      Statement 109” (FIN 48):*** Issued by the Financial Accounting Standards Board ( *FASB* )
      in June
      2006, the Interpretation clarifies the accounting for uncertainty in income
      taxes recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, *Accounting
      for Income Taxes* . 
      FIN 48 prescribes a recognition and measurement threshold attributable for
      the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return.  FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosures and transition.  FIN 48 is effective for fiscal years
      beginning after December 15, 2006.  The Company’s condensed consolidated
      financial statements have not been materially impacted by the adoption of FIN
      48
      as of January 1, 2007. See *Note
      10 - Accounting for Uncertainty in Income Taxes* .





7
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**





***Accounting
      Principles Not Yet Adopted.***





***FASB
      Statement No. 157, “Fair Value Measurements”*** **:** Issued
      by the FASB in September 2006, this Statement defines fair value, establishes
      a
      framework for measuring fair value, and expands disclosures about fair value
      measurements. Where applicable, this Statement simplifies and codifies related
      guidance within GAAP. This Statement is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. The Company is currently evaluating the impact of
      this Interpretation on its condensed consolidated financial
      statements.





***FASB
      Statement No. 159, “The Fair Value Option for Financial Assets and Financial
      Liabilities - Including an Amendment of FASB Statement No.
      115”*** **:** Issued
      by the FASB in February 2007, this Statement permits entities to choose to
      measure many financial instruments and certain other items at fair value that
      are not currently required to be measured at fair value. Unrealized gains and
      losses on items for which the fair value option has been elected are reported
      in
      earnings. The Statement does not affect any existing accounting literature
      that
      requires certain assets and liabilities to be carried at fair value. The
      Statement is effective for fiscal years beginning after November 15, 2007.
      The
      Company is currently evaluating the impact of this Statement on its condensed
      consolidated financial statements.





**3.
      System Gas and Operating Supplies**





System
      gas and operating supplies consist of gas held for operations and materials
      and
      supplies, both of which are carried at the lower of weighted average cost or
      market, while gas received from or owed back to customers is valued at market.
      The gas held for operations that the Company does not expect to consume in
      operations in the next 12 months is reflected in non-current assets. Gas held
      for operations at March 31, 2007 was $ 125.8
      million, or 17,534,944
      million British thermal units ( *MMBtu* ),
      of
      which $ 13.2
      million was classified as non-current. Gas held for operations at December
      31,
      2006 was $ 129.4
      million, or 20,965,000
      MMBtu, of which $ 14.9
      million was classified as non-current. Materials and supplies inventories was
      $ 13.4
      million and $ 13.2
      million at March 31, 2007 and December 31, 2006, respectively.





**4.
      Regulatory Matters**





The
      Company has commenced construction of an additional enhancement at its Trunkline
      LNG terminal. This infrastructure enhancement project, which is expected to
      cost
      approximately $ 250
      million, plus capitalized interest, will increase send out flexibility at the
      terminal and lower fuel costs. The project is scheduled to be in operation
      in
      2008. In addition, Trunkline LNG and BG LNG Services agreed to extend the
      existing terminal and pipeline services agreements through 2028, representing
      a
      five-year extension. Approximately $ 59.3
      million and $ 40.8
      million of costs are included in the line item *Construction
      work-in-progress* at March
      31, 2007 and December 31, 2006, respectively.





The
      Company has received approval from FERC to modernize and replace various
      compression facilities on PEPL. Such replacements will be made at twelve
      different compressor stations and are expected to be installed by the end of
      2009. The estimated cost of these replacements is approximately $ 290
      million, which includes the compression component of a PEPL east end project
      already under construction. The Company has also filed for FERC approval to
      replace approximately 32
      miles
      of existing pipeline on the east end of the PEPL system with a current estimated
      cost of approximately $ 80
      million, which would further improve system integrity. The project is planned
      to
      be completed in late 2007. Approximately $ 36.7
      million and $ 57.9
      million of costs related to these projects are included in the line item *Construction
      work-in-progress* at
      March
      31, 2007 and December 31, 2006, respectively.




















8
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Trunkline
      has announced a field zone expansion project, which includes adding capacity
      to
      its pipeline system in Texas and Louisiana to increase deliveries to Henry
      Hub.
      The field zone expansion project includes the previously announced north Texas
      expansion as well as additional capacity to Henry Hub. Trunkline will increase
      the capacity along existing rights of way from Kountze, Texas, to Longville,
      Louisiana, by approximately 510
      million cubic feet per day with the construction of approximately 45
      miles
      of 36-inch diameter pipeline. The project includes horsepower additions and
      modifications at existing compressor stations. Trunkline also will create
      additional capacity to Henry Hub with the construction of a 13.5-mile,
      36-inch diameter pipeline loop from Kaplan, Louisiana, directly into Henry
      Hub.
      The Henry Hub lateral will provide capacity of 475
      million cubic feet per day from Kaplan, Louisiana to Henry Hub. Trunkline
      received FERC approval on April 23, 2007. This project has an anticipated
      in-service date during the fourth quarter of 2007. The Company estimates the
      project will cost approximately $ 200
      million, plus capitalized interest including a $ 40
      million contribution in aid of construction ( *CIAC* )
      to a
      subsidiary of Energy Transfer, L.P. ( *Energy
      Transfer* ),
      a
      non-affiliated entity, to move its delivery point to a location near Buna,
      Texas, increasing the field zone project capacity by up to 330,000
      dekatherms per day. Energy Transfer has recently indicated that the Buna route
      is problematic and the parties are currently engaged in discussion of alternate
      delivery points. The ultimate return and accounting for the CIAC to Energy
      Transfer depends on completion of construction by Energy Transfer, additional
      capacity created and sale by Trunkline of the additional capacity. Approximately
      $ 17.2
      million and $ 12.5
      million of costs for this project are included in the line item *Construction
      work-in-progress* at
      March
      31, 2007 and December 31, 2006, respectively.





FERC
      is
      responsible under the Natural Gas Act for assuring that rates charged by
      interstate pipelines are "just and reasonable". To enforce that requirement,
      FERC applies a ratemaking methodology that determines an allowed rate of return
      on common equity for the companies it regulates. On October 25, 2006, a group
      including producers and various trade associations filed a complaint under
      Section 5 of the Natural Gas Act against Southwest Gas Storage requesting that
      FERC initiate an investigation into Southwest Gas Storage’s rates, terms and
      conditions of service and grant immediate interim rate relief. FERC initiated
      a
      Section 5 proceeding on December 21, 2006, setting this issue for hearing.
      Pursuant to FERC order, Southwest Gas Storage filed a cost and revenue study
      with FERC on February 20, 2007, with a hearing scheduled for August 27, 2007.
      The ultimate resolution of the Southwest Gas Storage matter has many variables
      and potential outcomes and it is impossible to predict its timing or materiality
      at this time. No proceeding has been initiated against PEPL, but any potential
      rate reductions from such a proceeding would be expected to be mitigated by
      the
      impact of significant ongoing capital spending at PEPL for pipeline integrity,
      safety, environmental (including air emissions), compression modernization
      and
      other requirements.




On
      January 26, 2007, Southwest Gas Storage filed an abandonment application to
      reduce the certificated storage capacity of its North Hopeton field by
      approximately 6 Bcf. This filing brings the certificated capacity in line with
      operational performance of the field. Southwest Gas Storage has entered into
      a
      third party agreement to replace this storage capability.





On
      December 15, 2003, the U.S. Department of Transportation issued a final rule
      requiring pipeline operators to develop integrity management programs to
      comprehensively evaluate their pipelines, and take measures to protect pipeline
      segments located in what the regulation defines as “high consequence areas”
( *HCAs* ).
      This
      rule resulted from the enactment of the Pipeline Safety Improvement Act of
      2002.
      The rule requires operators to have identified HCAs along their pipelines by
      December 2004, and to have begun baseline integrity assessments, comprised
      of
      in-line inspection (smart pigging), hydrostatic testing or direct assessment,
      by
      June 2004. Operators must rank the risk of their pipeline segments containing
      HCAs and must complete assessments on at least 50 percent of the segments using
      one or more of these methods by December 2007. Assessments will generally be
      conducted on the higher risk segments first, with the balance being completed
      by
      December 2012. The costs of utilizing these methods typically range from a
      few
      thousand dollars per mile to well over $15,000 per mile. In addition, some
      system modifications will be necessary to accommodate the in-line inspections.
      All systems operated by the Company will be compliant with the rule; however,
      while identification and location of all the HCAs has been completed, it is
      not
      practicable to determine the total scope of required remediation activities
      prior to completion of the assessments and inspections. The required
      modifications and inspections are preliminarily estimated to be in the range
      of
      approximately $22.5 million to $30 million per
      year
      through 2009, inclusive of remediation costs.








9
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


**5.
      Related Party Transactions**





PEPL
      receives transportation revenues from Missouri Gas Energy, a Southern Union
      division, which account for less than one
      percent of annual consolidated revenues. The following table provides a summary
      of related party transactions for the periods presented.




**Three
                  Months Ended****March
                  31,****Related
                  Party Transactions**
              
              **2007**
              
              **2006**(In
                  thousands)Transportation
                  and storage of natural gas
              
              $
              1,393
              
              $
              1,456Operation
                  and maintenance:Management
                  and royalty fees
              
              
              4,225
              
              
              3,616Other
                  expenses
              
              
              7,912
              
              
              4,565Other
                  income, net
              
              
              10,488
              
              
              1,480





Pursuant
      to a demand note with Southern Union Company under a cash management program,
      the Company has loaned excess cash, net of repayments, totaling $ 168.2
      million to Southern Union since Southern Union acquired the Company. Net loans
      of $ 19.5
      million were recorded during the three-month period ended March 31, 2007. The
      Company is credited with interest on the note at a one month LIBOR rate. Included
      in *Other,
      net* in the
      accompanying Condensed Consolidated Statement of Operations is interest income
      of $1.9
      million and $ 1.4
      million for the three-month periods ended March 31, 2007 and 2006, respectively,
      related to interest on the *Note
      receivable - Southern Union* . Due
      to
      uncertainties regarding the timing of the Company’s cash flows, including
      financings, capital expenditures, operating cash flows, the Company is
      reflecting the *Note
      receivable - Southern Union* as
      a
      non-current asset at March 31, 2007. The Company does have access to the funds
      via the demand note and does expect repayment to ultimately occur, with a
      portion or all amounts possibly drawn during 2007.





On
      December 1, 2006, LNG Holdings, as borrower, and PEPL and CrossCountry Citrus,
      LLC ( *CrossCountry
      Citrus* )
      as
      guarantors, entered into a $ 465
      million unsecured term loan facility due April 4, 2008 ( *2006
      Term Loan* )
      with
      various financial institutions. On December 1, 2006, LNG Holdings loaned the
      proceeds of the 2006 Term Loan to CrossCountry Citrus in exchange for an
      interest-bearing promissory note with a principal amount of $ 465
      million, the amount of the proceeds of the 2006 Term Loan. Accrued interest
      under the promissory note is payable quarterly. The interest rate under the
      promissory note is based on the interest rate under the 2006 Term Loan, which
      at
      March 31, 2007 was a floating rate at 6.20
      percent, plus a credit spread over LIBOR of 112.5
      basis points. Included in *Other,
      net* in the
      accompanying Condensed Consolidated Statement of Operations is interest income
      of $8.4
      million for the three-month period ended March 31, 2007 related to interest
      on
      the *Note
      receivable - CrossCountry Citrus* .





Southern
      Union structured the acquisition of PEPL in a manner intended to qualify as
      a
      like-kind exchange of property under Section 1031 of the Internal Revenue Code
      of 1986. For tax purposes, the Company’s assets that were part of the exchange
      were recorded at the tax basis of the Southern Union Company assets for which
      they were exchanged. The resulting transaction generated an estimated deferred
      tax liability of approximately $ 91
      million at the acquisition date and a corresponding receivable from Southern
      Union reflected as a reduction to *Partners
      Capital* on the
      Company’s Condensed Consolidated Balance Sheet. Repayment of the receivable from
      Southern Union is limited to actual tax liabilities otherwise payable by the
      Company pursuant to the tax sharing agreement with Southern Union Company.
      The
      Company recorded a reduction of $ 27.3
      million in 2006 to the tax sharing note receivable resulting from an Internal
      Revenue Service ( *IRS* )
      audit
      of the Southern Union federal income tax return for the period ended June 30,
      2003.





*Accrued
      taxes* at March
      31, 2007 included $ 23.5
      million which was settled in the second quarter of 2007 per the tax-sharing
      agreement with Southern Union.





10
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


The
      following table provides a summary of the accounts receivable and payable
      related party balances included in the Condensed Consolidated Balance Sheet
      at
      the dates indicated.





**Related
                  Party**
              
              **March
                  31, 2007**
              
              **December
                  31, 2006**(In
                  thousands)**Accounts
                  receivable - related parties:**Southern
                  Union (1)
              
              $
              -
              
              $
              14,448Other
                  (2)
              
              
              7,658
              
              
              3,5467,658
              
              
              17,994**Accounts
                  payable - related parties:**Southern
                  Union (3)
              
              $
              24,198
              
              $
              14,978Other
                  (4)
              
              
              3,386
              
              
              984$
              27,584
              
              $
              15,962


______________________________


(1)
            Primarily
                related to expenditures made on behalf of Southern Union and interest
                associated with the Note receivable - Southern
                Union.


(2)
            Primarily
                related to interest from CrossCountry Citrus in 2007 and CrossCountry
                Energy transition service costs in
                2006.


(3)
            Primarily
                related to corporate services and payroll funding provided by Southern
                Union and reimbursable medical and insurance costs paid by Southern
                Union
                on behalf of the Company.


(4)
            Primarily
                related to various administrative and operating costs paid by other
                affiliate companies on behalf of the
                Company.





**6.
      Derivatives Instruments and Hedging Activities**





The
      Company uses interest rate swaps to reduce interest rate risks and to manage
      interest expense. By entering into these agreements, the Company converts
      floating-rate debt into fixed-rate debt or converts fixed-rate debt to floating.
      Interest differentials paid or received under the swap agreements are reflected
      as an adjustment to interest expense. These interest rate swaps are financial
      derivative instruments that qualify for hedge treatment.





On
      April
      29, 2005, existing LNG Holdings’ bank loans due in January 2007 were repaid in
      full using the proceeds from a credit agreement entered into on April 26, 2005
      which was due in March 2007. Interest rate swaps previously designated as cash
      flow hedges of the LNG Holdings’ bank loans were terminated upon repayment of
      the loans on April 29, 2005. As a result, a gain of $ 3.5
      million ($ 2.1
      million, net of tax), was recorded in *Accumulated
      other comprehensive income* in the
      Condensed Consolidated Balance Sheet and was amortized to interest expense
      through the maturity date of the original bank loans in 2007. For the three
      month periods ended March 31, 2007 and 2006, a realized gain of $384,000
      ($ 229,000,
      net of tax) and $ 463,000
      ($ 278,000,
      net of tax), respectively was included in *Accumulated
      other comprehensive income* related
      to these swaps. Current market pricing models were used to estimate fair values
      of interest rate swap agreements.





In
      March
      2004, the Company entered into interest rate swaps to hedge the risk associated
      with the fair value of its $200 million 2.75 percent Senior Notes. These swaps
      were terminated in March 2007 upon repayment of the related debt. See related
      information in *Note
      7 - Debt.*















































11
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


**7.
      Debt**


**Long-term
                  Debt Obligations**
              
              **March
                  31, 2007**
              
              **December
                  31, 2006**(In
                  thousands)2.75%
                  Senior Notes due 2007
              
              $
              -
              
              $
              200,0004.80%
                  Senior Notes due 2008
              
              
              300,000
              
              
              300,0006.05%
                  Senior Notes due 2013
              
              
              250,000
              
              
              250,0006.50%
                  Senior Notes due 2009
              
              
              60,623
              
              
              60,6238.25%
                  Senior Notes due 2010
              
              
              40,500
              
              
              40,5007.00%
                  Senior Notes due 2029
              
              
              66,305
              
              
              66,305Term
                  Loan due 2007
              
              
              -
              
              
              255,626Term
                  Loan due 2008
              
              
              458,336
              
              
              465,000Term
                  Loan due 2012
              
              
              455,000
              
              
              -Net
                  premiums on long-term debt
              
              
              8,947
              
              
              9,613Total
                  debt outstanding
              
              
              1,639,711
              
              
              1,647,667Current
                  portion of long-term debt
              
              
              (11,806
              )
              
              (461,011
              )Interest
                  rate swaps (2.75% Senior Notes)
              
              
              -
              
              
              (1,265
              )Total
                  long-term debt
              
              $
              1,627,905
              
              $
              1,185,391





The
      Company has $1.64
      billion of debt recorded at March 31, 2007. Debt of $ 726.4
      million, including net premiums of $ 8.9
      million, is at fixed rates ranging from 4.80
      percent to 8.25
      percent, with an average interest rate for 2007 of 5.50
      percent including debt premium, discount and issuance cost amortization and 5.78
      percent excluding debt premium, discount and issuance cost amortization. The
      $ 913.3
      million of floating rate debt had an average interest rate of 6.13
      percent for the three-month period ended March 31, 2007.





On
      March
      13, 2007, LNG Holdings, as borrower, and PEPL and Trunkline LNG, as guarantors,
      entered into a $ 455
      million unsecured term loan facility due March
      13,
      2012 ( *2012
      Term Loan* ).
       The interest rate under the 2012 Term Loan is a floating rate tied to a
      LIBOR rate or prime rate at the Company’s option, in addition to a margin tied
      to the rating of PEPL’s unsecured senior funded debt.  At March 31, 2007,
      the interest rate was 5.98 percent,
      including a credit spread of 62.5 basis points over LIBOR.  The proceeds of
      the 2012 Term Loan were used to repay approximately $455 million in existing
      indebtedness that matured in March 2007, including the $200 million 2.75 percent
      Senior Notes and the LNG Holdings $255.6 million term loan.





The
      Company’s notes are subject to certain requirements, such as the maintenance of
      a fixed charge coverage ratio and a leverage ratio, which if not maintained,
      restrict the ability of the Company to make certain payments and impose
      limitations on the ability of the Company to subject its property to liens.
      At
      March 31, 2007, the Company, based on the currently most restrictive debt
      covenant requirements, was subject to a $ 274.1
      million limitation on additional restricted payments including dividends and
      loans to affiliates, and a limitation of $ 302.9
      million of additional secured or subsidiary level indebtedness or other defined
      liens based on a limitation on liens covenant. The Company is also subject
      to a
      limitation of $ 374.1
      million of total additional indebtedness. At March 31, 2007, the Company was
      in
      compliance with all covenants.





At
      March
      31, 2007, the Company had scheduled payments of $11.8
      million, $746.6 million, $60.6 million, $40.5 million, nil and $771.3 million
      for remainder of 2007, the years 2008 through 2011 and in total thereafter,
      respectively.


























12
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


**Retirement
      of Debt Obligations**





The
      Company plans to refinance or retire its $ 746.6
      million of debt maturing in 2008 with proceeds from one or a combination of
      (i)
      new public debt or equity offering(s); (ii) bank financings; (iii) operating
      activities; and (iv) existing credit facilities. The Company is in the
      preliminary stages of planning for the refinancing of debt coming due in 2008.
      While an inability to repay these obligations would cause a material adverse
      change to the Company’s financial condition, the Company reasonably believes
      that it has the ability to refinance these obligations within the required
      timeframes, although there can be no assurances that the anticipated
      refinancings will occur.





**8.
      Accumulated Other Comprehensive Income**





The
      table
      below provides an overview of comprehensive income for the periods
      indicated.





**Three
                  Months****Ended
                  March 31,****2007**
              
              **2006**(In
                  thousands)Net
                  earnings
              
              $
              44,481
              
              $
              39,065Realized
                  (gain) loss on cash flow hedgingactivities,
                  net of taxes of $(155) and $(185), respectively
              
              
              (229
              )
              
              (276
              )Reclassification
                  of prior service credit relating to other postretirementbenefits
                  into earnings, net of taxes of $(222) and $0, respectively
              
              
              (678
              )
              
              -Unrealized
                  gain (loss) on cash flow hedgingactivities
                  net of taxes of $0 and $0, respectively
              
              
              -
              
              
              (2
              )Total
                  other comprehensive income (loss)
              
              
              (907
              )
              
              (278
              )Total
                  comprehensive income
              
              $
              43,574
              
              $
              38,787





The
      table
      below provides an overview of the components in *Accumulated
      other comprehensive income* (loss)
      as of the periods indicated:




**March
                  31,**
              
              **December
                  31,****Components
                  in Accumulated Other Comprehensive Income (loss)**
              
              **2007**
              
              **2006**(In
                  thousands)Other
                  postretirement plan - net actuarial loss and prior service credit,
                  net of
                  tax
              
              $
              14,570
              
              $
              15,248Interest
                  rate hedges, net of tax
              
              
              -
              
              
              229Total
                  Accumulated other comprehensive income, net of tax
              
              $
              14,570
              
              $
              15,477



































13
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


**9.
      Postretirement Benefits**





Net
      periodic benefit cost for the three-month periods ended March 31, 2007 and
      2006
      includes the components noted in the table below.





**Postretirement
                  Benefits****Three
                  Months Ended****March
                  31,****2007**
              
              **2006**(In
                  thousands)Service
                  cost
              
              $
              336
              
              $
              440Interest
                  cost
              
              
              511
              
              
              544Expected
                  return on plan assets
              
              
              (483
              )
              
              (344
              )Prior
                  service credit amortization
              
              
              (900
              )
              
              (911
              )Recognized
                  actuarial loss
              
              
              -
              
              
              127Net
                  periodic benefit cost
              
              $
              (536
              )
              $
              (144
              )





**10.
      Accounting for Uncertainty in Income Taxes**





In
      June
      2006, the FASB issued FIN 48 *.* FIN
      48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with FASB Statement No. 109. FIN
      48 prescribes a recognition and measurement threshold attributable for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosures and transition.





The
      Company adopted FIN 48, on January 1, 2007. As a result of the implementation
      of
      FIN 48 there was no material impact on the condensed consolidated financial
      statements and no adjustment to *Partners’
      capital* .
      The
      Company had no unrecognized tax benefits at January 1, 2007 or March 31, 2007.





The
      Company’s policy is to classify and accrue interest expense and penalties on
      income tax underpayments (overpayments) as a component of income tax expense
      in
      its Condensed Consolidated Statement of Operations, which is consistent with
      the
      recognition of these items in prior reporting periods.





The
      Company is no longer subject to U.S. federal, state or local examinations,
      for
      the tax year ended June 30, 2002 and prior years. Although the Company’s parent,
      Southern Union Company has settled the IRS examination of the year ended June
      30, 2003, the statute remains open with the IRS until December 31, 2007. The
      state impact of the federal change remains subject to state and local
      examination, for a period of up to one year after formal notification to the
      state and local jurisdictions.





**11.
      Commitments and Contingencies**





***Litigation.*** **** The
      Company is involved in legal, tax and regulatory proceedings before various
      courts, regulatory commissions and governmental agencies regarding matters
      arising in the ordinary course of business, some of which involve substantial
      amounts. Where appropriate, the Company has made accruals in accordance with
      FASB Statement No. 5, *Accounting
      for Contingencies* ,
      in
      order to provide for such matters. The Company believes the final disposition
      of
      these proceedings will not have a material adverse effect on its consolidated
      financial position, results of operations or cash flows.

















14
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Hope
      Land
      Mineral Corporation ( *Hope
      Land* )
      contends that it owns the storage rights to property that contains a portion
      of
      the Company’s Howell storage field. During June 2003, the Michigan Court of
      Appeals reversed the trial court’s previous order, which had granted summary
      judgment in favor of the Company and dismissed the case. The Company filed
      an
      appeal of the Court of Appeals order with the Michigan Supreme Court, which
      was
      denied in December of 2003. In April 2005, Hope Land filed trespass and unjust
      enrichment complaints against the Company to prevent running of the statute
      of
      limitations. The Company then filed an action for condemnation to obtain the
      storage rights from Hope Land. Pursuant to a pre-filing settlement with Hope
      Land, the Company obtained legal title to the storage rights upon the filing
      of
      the condemnation action. The unjust enrichment claims were dismissed and then
      reinstated on December 6, 2006. The trial commenced in April 2007, and on May
      2,
      2007, the jury awarded Hope Land total compensation of approximately
      $ 91,000
      in
      respect of condemnation and trespass.





Jack
      Grynberg, an individual, has filed actions against a number of companies,
      including the Company, now transferred to the U.S. District Court for the
      District of Wyoming, for damages for mis-measurement of gas volumes and Btu
      content, resulting in lower royalties to mineral interest owners. On October
      20,
      2006, the District Judge adopted in part the earlier recommendation of the
      Special Master in the case and ordered the dismissal of the case against the
      Company. Grynberg is appealing that action. A similar action, known as the
      Will
      Price litigation, also has been filed against a number of companies, including
      the Company, in U.S. District Court for the District of Kansas. The Company
      is
      currently awaiting the decision of the trial judge on the defendants’ motion to
      dismiss the Will Price action. The Company believes that its measurement
      practices conformed to the terms of its FERC gas tariff, which was filed with
      and approved by FERC. As a result, the Company believes that it has meritorious
      defenses to these lawsuits (including FERC-related affirmative defenses, such
      as
      the filed rate/tariff doctrine, the primary/exclusive jurisdiction of FERC,
      and
      the defense that the Company complied with the terms of its tariff) and will
      continue to vigorously defend against them, including any appeal from the
      dismissal of the Grynberg case. The Company does not believe the outcome of
      these cases will have a material adverse effect on its consolidated financial
      position, results of operations or cash flows.





In
      1993,
      the U.S. Department of the Interior announced its intention to seek, through
      the
      Mineral Management Service ( *MMS* ),
      additional royalties from gas producers as a result of payments received by
      such
      producers in connection with past take-or-pay settlements and buyouts and buy
      downs of gas sales contracts with natural gas pipelines. PEPL and Trunkline,
      with respect to certain producer contract settlements, may be contractually
      required to reimburse or, in some instances, to indemnify producers against
      such
      royalty claims. The potential liability of the producers to the government
      and
      of the pipelines to the producers involves complex issues of law and fact,
      which
      are likely to take substantial time to resolve. If required to reimburse or
      indemnify the producers, PEPL and Trunkline may file with FERC to recover these
      costs from pipeline customers. The Company believes these commitments and
      contingencies will not have a material adverse effect on its consolidated
      financial position, results of operations or cash flows.





***Environmental
      Matters.*** The
      Company’s operations are subject to federal, state and local laws and
      regulations regarding water quality, hazardous and solid waste management,
      air
      quality control and other environmental matters. These laws and regulations
      require the Company to conduct its operations in a specified manner and to
      obtain and comply with a wide variety of environmental registrations, licenses,
      permits, inspections and other approvals. Failure to comply with environmental
      requirements may expose the Company to significant fines, penalties and/or
      interruptions in operations. The Company’s environmental policies and procedures
      are designed to achieve compliance with such laws and regulations. These
      evolving laws and regulations and claims for damages to property, employees,
      other persons and the environment resulting from current or past operations
      may
      result in significant expenditures and liabilities in the future. The Company
      engages in a process of updating and revising its procedures for the ongoing
      evaluation of its operations to identify potential environmental exposures
      and
      enhance compliance with regulatory requirements. The Company follows the
      provisions of American Institute of Certified Public Accountants Statement
      of
      Position 96-1, *Environmental
      Remediation Liabilities* ,
      for
      recognition, measurement, display and disclosure of environmental remediation
      liabilities.














15
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


***Environmental
      Remediation.*** The
      Company is responsible for environmental remediation at certain sites on its
      gas
      transmission systems. The contamination resulted from the past use of lubricants
      containing polychlorinated biphenyls ( *PCB* s)
      in
      compressed air systems; the past use of paints containing PCBs; and the prior
      use of wastewater collection facilities and other on-site disposal areas. The
      Company has developed and is implementing a program to remediate such
      contamination. Remediation and decontamination has been completed at each of
      the
      35 compressor station sites where auxiliary buildings that house the air
      compressor equipment were impacted by the past use of lubricants containing
      PCBs. At some locations, PCBs have been identified in paint that was applied
      many years ago. A program has been implemented to remove and dispose of PCB
      impacted paint during painting activities. At one location on the Trunkline
      system, PCBs were recently discovered on the painted surfaces of equipment
      in a
      building that is outside of the scope of the compressed air system program
      and
      the existing PCB impacted paint program. The estimated cost to remediate the
      painted surfaces at this location is approximately $ 300,000.
      An assessment program is being developed to determine whether this condition
      exists at any of the other 78 similar buildings on the PEPL and Trunkline
      systems. Until the results of the assessment program are available, the costs
      associated with remediation of the painted surfaces cannot be reasonably
      estimated.





Other
      remediation typically involves the management of contaminated soils and may
      involve remediation of groundwater. Activities vary with site conditions and
      locations, the extent and nature of the contamination, remedial requirements,
      complexity and sharing of responsibility. The ultimate liability and total
      costs
      associated with these sites will depend upon many factors. If remediation
      activities involve statutory joint and several liability provisions, strict
      liability, or cost recovery or contribution actions, the Company could
      potentially be held responsible for contamination caused by other parties.
      In
      some instances, such as the Pierce waste oil sites described below, the Company
      may share liability associated with contamination with other potentially
      responsible parties ( *PRP* ).
      The
      Company may also benefit from contractual indemnities that cover some or all
      of
      the cleanup costs. These sites are generally managed in the normal course of
      business or operations. The Company believes the outcome of these matters will
      not have a material adverse effect on its consolidated financial position,
      results of operations or cash flows.





PEPL
      and
      Trunkline, together with other non-affiliated parties, have been identified
      as
      potentially liable for conditions at three former waste oil disposal sites
      in
      Illinois - the Pierce Oil Springfield site, the Dunavan Waste Oil site and
      the
      McCook site. PEPL and Trunkline received notices of potential liability from
      the
      United States Environmental Protection Agency ( *U.S.
      EPA* )
      for the
      Dunavan site by letters dated September 30, 2005. The notices demanded
      reimbursement to the U.S. EPA for costs incurred to date in the amount of
      approximately $ 1.8
      million and encouraged each PRP to voluntarily negotiate an administrative
      settlement agreement with the U.S. EPA within certain limited time frames
      providing for the PRPs to conduct or finance the response activities required
      at
      the site. The demand was declined in a joint letter dated December 15, 2005
      by
      the major PRPs, including PEPL and Trunkline. Although no formal notice has
      been
      received for the Pierce Oil Springfield site, special notice letters are
      anticipated and the process of listing the site on the National Priority List
      has begun. No formal notice has been received for the McCook site. The Company
      believes the outcome of these matters will not have a material adverse effect
      on
      its consolidated financial position, results of operations or cash
      flows.





On
      June
      16, 2005, PEPL experienced a release of liquid hydrocarbons near Pleasant Hill,
      Illinois. The release occurred in the form of a mist at a valve that was in
      use
      to reduce the pressure in the pipeline as part of maintenance activities. The
      hydrocarbon mist affected several acres of adjacent agricultural land and a
      nearby marina. Approximately 27 gallons of hydrocarbons reached the Mississippi
      River. PEPL contacted appropriate federal and state regulatory agencies and
      the
      U.S. EPA took the lead role in overseeing the subsequent cleanup activities,
      which have been completed. PEPL has resolved claims of affected boat owners
      and
      the marina operator. PEPL received a violation notice from the Illinois
      Environmental Protection Agency ( *IEPA* )
      alleging that PEPL was in apparent violation of several sections of the Illinois
      Environmental Protection Act by allowing the release. The violation notice
      did
      not propose a penalty. Responses to the violation notice were submitted and
      the
      responses were discussed with the agency. On December 14, 2005, the IEPA
      notified PEPL that the matter might be considered for referral to the Office
      of
      the Attorney General, the State’s Attorney or the U.S. EPA for formal
      enforcement action and the imposition of penalties. By letter dated November
      22,
      2006, PEPL received a follow-up information request from the IEPA on the status
      of certain measures PEPL had agreed to undertake in connection with the original
      responses to the violation notice. The Company believes the outcome of this
      matter will not have a material adverse effect on its consolidated financial
      position, results of operations or cash flows.


16
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


On
      July
      10, 2006, PEPL identified the possible subsurface release of approximately 745
      gallons of methanol from a tank located at the Howell compressor station.
      Subsequent testing of the tank and associated piping confirmed that a release
      had taken place. Impacted soils were excavated in accordance with state specific
      regulatory requirements. The impacted soils were transported to an authorized
      disposal facility. The appropriate federal and state environmental agencies
      were
      notified of this release. The Michigan Department of Environmental Quality
      ( *MDEQ* )
      conducted an inspection of the remediation effort on October 17, 2006 and
      indicated that an appropriate response and remediation action had been
      implemented. A final remediation report was submitted to the MDEQ and U.S.
      EPA
      on January 25, 2007. The Company believes the outcome of this matter will not
      have a material adverse effect on its consolidated financial position, results
      of operations or cash flows.





The
      table
      below reflects the amount of accrued liabilities recorded in the Condensed
      Consolidated Balance Sheet at March 31, 2007 and December 31, 2006 to cover
      probable environmental response actions:





**March
                  31,**
              
              **December
                  31,****2007**
              
              **2006**(In
                  thousands)Current
              
              $
              1,962
              
              $
              1,962Noncurrent
              
              
              6,845
              
              
              6,760Total
                  Environmental Liabilities
              
              $
              8,807
              
              $
              8,722





***Air
      Quality Control.***  The
      U.S.
      EPA issued a final rule on regional ozone control ( *NOx
      SIP Call* )
      in
      April 2004 that impacts the Company in two midwestern states, Indiana and
      Illinois. Based on a U.S. EPA guidance document negotiated with gas industry
      representatives in 2002, the Company is required in states that follow the
      U.S.
      EPA guidance to reduce nitrogen oxide ( *NOx* )
      emissions by 82 percent on the identified large internal combustion engines
      and
      will be able to trade off engines within the Company in an effort to create
      a
      cost effective NOx reduction solution. The final implementation date is May
      2007. The rule will affect 20 large internal combustion engines on the Company’s
      system in Illinois and Indiana with an approximate cost of $ 22.3
      million for capital improvements through 2007, based on current projections.
      Approximately $ 21.7
      million of the $ 22.3
      million of


capital
      expenditures has been incurred as of March 31, 2007. Indiana has promulgated
      state regulations to address the requirements of the NOx SIP Call rule that
      essentially follow the U.S. EPA guidance.





In
      early
      April, 2007 the IEPA proposed a rule to the Illinois Pollution Control Board *(IPCB)* for
      adoption to control NOx emissions from reciprocating engines and turbines,
      including a provision applying the rule beyond issues addressed by federal
      provisions, pursuant to a blanket statewide application.  The proposed
      Illinois rule requires controls on engines regulated under the U.S. EPA NOx
      SIP
      Call by May 1,  2007 and the remaining engines by January 1, 2011. 
The state is requiring the controls to comply with U.S. EPA rules regarding
      the
      NOx SIP Call, ozone non-attainment and fine particulate standards. However,
      the
      statewide applicability provision proposed by the IEPA reaches beyond federal
      requirements without apparent justification. A pipeline consortium including
      PEPL and Trunkline filed an objection to the rule on April 16, 2007 requesting
      the IPCB to bifurcate and address separately the statewide applicability
      provision. The pipeline consortium specifically objected to treatment of the
      statewide applicability issue under an Illinois “Fast Track” rulemaking process.
      The Fast Track rulemaking process was developed and premised on meeting
      federally driven requirements.  In an order dated April 19, 2007, the IPCB
      set in motion a schedule of hearings based on the Fast Track process pending
      the
      IPCB’s ruling on the objections.  The IEPA filed a response to the
      objections on May 1, 2007.  The first hearing is scheduled to start on May
      21, 2007. The statewide applicability portion of the proposed Illinois rule
      serves as the primary driver of costs for PEPL and Trunkline. As currently
      proposed, the rule applies to all PEPL and Trunkline stations in Illinois.
      Preliminary estimates indicate compliance with the proposed rule would require
      minimum capital expenditures of approximately $ 45
      million for emission controls in addition to the $ 22.3
      million associated with federally based NOx reductions described
      above.











17
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


In
      2002,
      the Texas Commission on Environmental Quality enacted the Houston/Galveston
      SIP
      regulations requiring reductions in NOx emissions in an eight-county area
      surrounding Houston. Trunkline’s Cypress compressor station is affected and
      requires the installation of emission controls. New regulations also require
      certain grandfathered facilities in Texas to enter into the new source permit
      program which may require the installation of emission controls at one
      additional facility owned by the Company. Management estimates capital
      improvements of $ 17.6
      million will be needed at the two affected Texas locations. Approximately
      $ 16.4
      million of the $ 17.6
      million of capital expenditures have been incurred as of March 31, 2007. Permit
      limits were placed on grandfathered engines at two facilities in West Texas
      that
      are owned by PEPL. An estimated $ 3
      million
      in capital expenditures will be required to comply with permit
      limitations.





The
      U.S.
      EPA promulgated various Maximum Achievable Control Technology ( *MACT* )
      rules
      in February 2004. The rules require that PEPL and Trunkline control Hazardous
      Air Pollutants ( *HAPs* )
      emitted
      from certain internal combustion engines at major HAPs sources. Most PEPL and
      Trunkline compressor stations are major HAPs sources. The HAPs pollutant of
      concern for PEPL and Trunkline is formaldehyde. As promulgated, the rule seeks
      to reduce formaldehyde emissions by 76 percent from these engines. Catalytic
      controls will be required to reduce emissions under these rules with a final
      implementation date of June 2007. PEPL and Trunkline could have up to 20
      internal combustion engines subject to the rules. Management expects that
      compliance with these regulations will necessitate an estimated expenditure
      of
      $ 1.1
      million for capital improvements, based on current projections. Most of the
      expenditures are required to lower facility emissions below thresholds of the
      EPA MACT applicability.





***Spill
      Control.*** Environmental
      regulations were recently modified for the U.S. EPA’s Spill Prevention, Control
      and Countermeasures program. The Company is currently reviewing the impact
      of
      the modifications on its operations and expects to expend resources on tank
      integrity testing and any associated corrective actions as well as potential
      upgrades to containment structures. Costs associated with tank integrity testing
      and resulting corrective actions cannot be estimated with certainty at this
      time, but the Company believes such costs will not have a material adverse
      effect on its consolidated financial position, results of operations or cash
      flows. ******





***Other
      Commitments and Contingencies.***




***Kaplan
      Compressor Station Damage.*** On April
      21, 2006, Trunkline experienced a fire at its Kaplan, Louisiana compressor
      station which resulted in damages to the facilities. Trunkline estimates capital
      expenditures associated with the fire will be approximately $ 11
      million, $ 7.3
      million of which is included in the line item *Construction
      work in progress* at March
      31, 2007, before consideration of potential insurance recoveries which are
      subject to a $ 5
      million
      deductible. The Company does not expect this incident to have a material adverse
      effect on its consolidated financial position, results of operations or cash
      flows.





***Hurricane
      Damage.*** Late in
      the third quarter of 2005, after coming through the Gulf of Mexico, Hurricanes
      Katrina and Rita came ashore along the Upper Gulf Coast. These hurricanes caused
      damage to property and equipment owned by Sea Robin, Trunkline and Trunkline
      LNG. As of March 31, 2007, the Company has incurred approximately $ 32
      million of capital expenditures related to the hurricanes, primarily for
      replacement or abandonment of damaged property and equipment at Sea Robin and
      construction project delays at the Trunkline LNG terminal.





The
      Company anticipates reimbursement from its property insurance carriers for
      a
      significant portion of damages from Hurricane Rita in excess of its
      $ 5
      million
      deductible. Such reimbursement is currently estimated by the Company’s property
      insurance carrier ultimately to be limited to 70
      percent of the portion of the claimed damages accepted by the insurance carrier,
      but the amount is subject to the level of total ultimate claims from all
      companies relative to the carrier’s $ 1
      billion
      total limit on payout per event. An estimated $10 million of the costs incurred
      related to the Trunkline LNG terminal expansion delays are not eligible for
      insurance recovery. As of March 31, 2007, the Company has received payments
      of
      $ 1.6
      million from its insurance carriers. No receivables due from the insurance
      carriers have been recorded as of March 31, 2007.











18
 Table
          of Contents
 **PANHANDLE
          EASTERN PIPE LINE COMPANY, LP**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


In
      addition, after the 2005 hurricanes, the MMS mandated inspections by
      leaseholders and pipeline operators along the hurricane tracks. The Company
      has
      detected exposed pipe and other facilities on Trunkline and Sea Robin that
      must
      be re-covered to comply with applicable regulations. Capital expenditures are
      estimated at $ 4.8
      million, $ 1.2
      million of which had been incurred as of March 31, 2007. The Company will seek
      recovery of these expense and capital amounts as part of the hurricane-related
      claims.





***Energy
      Transfer Commitment.*** In
      November 2006, PEPL provided a guaranty to a subsidiary of Energy Transfer,
      a
      non-affiliate, for the full performance by Trunkline of a $ 40
      million CIAC obligation related to a modification of the field zone expansion
      project expected to be completed in late 2007. The CIAC would be made by
      Trunkline upon movement of Energy Transfer’s delivery point to a location near
      Buna, Texas.  Energy Transfer has recently indicated that the Buna route is
      problematic and the parties are currently engaged in discussion of
      alternate delivery points. The ultimate return and accounting for the CIAC
      to
      Energy Transfer depends on completion of construction by Energy Transfer,
      additional capacity created and sale by Trunkline of the additional
      capacity.




***Controlled
      Group Pension Liabilities.*** Southern
      Union (including certain of its divisions) sponsors a number of defined benefit
      pension plans for employees. Under applicable pension and tax laws, upon being
      acquired by Southern Union, the Company became a member of Southern Union’s
“controlled group” with respect to those plans, and, along with Southern Union
      and any other members of that group, is jointly and severally liable for any
      failure by Southern Union (along with any other persons that may be or become
      a
      sponsor of any such plan) to fund any of these pension plans or to pay any
      unfunded liabilities that these plans may have if they are ever terminated.
      In
      addition, if any of the obligations of any of these pension plans is not paid
      when due, a lien in favor of that plan or the Pension Benefit Guaranty
      Corporation may be created against the assets of each member of Southern Union’s
      controlled group, including the Company and each of its subsidiaries. Based
      on
      the latest actuarial information available as of December 31, 2006, the
      aggregate amount of the projected benefit obligations of these pension plans
      was
      approximately $ 163
      million and the estimated fair value of all of the assets of these plans was
      approximately $ 108.6
      million.








19
 Table
          of Contents





**ITEM
      2. Management's Discussion and Analysis of Results of Operations
      and Financial Condition**





Management’s
      Discussion and Analysis of Results of Operations and Financial Condition is
      provided as a supplement to the accompanying unaudited interim condensed
      consolidated financial statements and notes to help provide an understanding
      of
      the Company’s financial condition, results of operations and changes in
      financial condition. The following section includes an overview of the Company’s
      business as well as recent developments that the Company believes are important
      in understanding its results of operations and in anticipating future trends
      in
      those operations. Subsequent sections include an analysis of the Company’s
      results of operations on a consolidated basis and information relating to the
      Company’s liquidity and capital resources, quantitative and qualitative
      disclosures about market risk and other matters. The information required by
      this Item is presented in a reduced disclosure format pursuant to General
      Instruction H to Form 10-Q.





**Overview**





The
      Company is primarily engaged in the interstate transportation and storage of
      natural gas and also provides LNG terminalling and regasification services,
      with
      rates and services regulated by FERC. The Company’s entities include PEPL,
      Trunkline, Sea Robin, Trunkline LNG and Southwest Gas Storage. Collectively,
      the
      pipeline assets include approximately 10,000
      miles of interstate pipelines that transport natural gas from the Gulf of
      Mexico, South Texas and the panhandle regions of Texas and Oklahoma to major
      U.S. markets in the Midwest and Great Lakes region. The pipelines have a
      combined peak day delivery capacity of 5.3
      billion cubic feet per day ( *Bcf/d* )
      and approximately
      66 billion cubic feet ( *Bcf* )
      of
      owned underground storage capacity. Trunkline LNG, located on Louisiana's Gulf
      Coast, operates one of the largest
      LNG import terminals in North America, based on current send out capacity,
      and
      has 9.0
      Bcf
      of above ground LNG storage capacity.





The
      Company earns the majority of its revenue by entering into firm transportation
      and storage contracts, providing capacity for customers to transport or store
      natural gas in its facilities. Approximately 24
      percent of the Company’s total operating revenue comes from long-term service
      agreements with local distribution company customers and their affiliates.
      The
      Company also provides firm transportation services under contract to gas
      marketers, producers, other pipelines, electric power generators and a variety
      of end-users. In addition, the Company’s pipelines offer both firm and
      interruptible transportation to customers on a short-term or seasonal basis.
      Demand for gas transmission on the Company’s pipeline systems is seasonal, with
      the highest throughput and a higher portion of annual total operating revenues
      and net earnings occurring in the traditional winter heating season in the
      first
      and fourth calendar quarters. Average reservation revenue rates realized by
      the
      Company are dependent on certain factors, including but not limited to rate
      regulation, customer demand for reserved capacity, capacity sold levels for
      a
      given period and, in some cases, utilization of capacity. Commodity revenues
      are
      also dependent upon a number of variable factors including weather, storage
      levels, and customer demand for firm interruptible and parking services.  For
      the
      years 2004, 2005 and 2006, the Company’s combined throughput was 1,284
      trillion British thermal units ( *TBtu* ), 1,214
      TBtu and 1,180
      TBtu, respectively. For the three-month periods ended March 31, 2007 and 2006,
      the Company’s combined throughput was 371
      TBtu
      and 302
      TBtu,
      respectively.





The
      Company’s regulated transportation and storage businesses periodically file (or
      can be required to file) for changes in their rates, which are subject to
      approval by FERC. Changes in rates and other tariff provisions resulting from
      these regulatory proceedings have the potential to negatively impact the
      Company’s results of operations and financial condition.





20
 Table
          of Contents


**Results
      of Operations**








**Three
                  Months Ended March 31,****2007**
              
              **2006**
              
              **Change**(In
                  thousands)**Operating
                  revenue:**Transportation
                  and storage of natural gas
              
              $
              133,705
              
              $
              121,332
              
              $
              12,373LNG
                  terminalling revenue
              
              
              32,902
              
              
              19,555
              
              
              13,347Other
                  revenue
              
              
              2,423
              
              
              3,756
              
              
              (1,333
              )Total
                  operating revenue
              
              
              169,030
              
              
              144,643
              
              
              24,387**Operating
                  expenses:**Operation,
                  maintenance and general
              
              
              56,280
              
              
              46,098
              
              
              10,182Depreciation
                  and amortization
              
              
              20,709
              
              
              17,474
              
              
              3,235Taxes,
                  other than on income
              
              
              7,795
              
              
              7,350
              
              
              445Total
                  operating expenses
              
              
              84,784
              
              
              70,922
              
              
              13,862**Operating
                  income**
              
              
              84,246
              
              
              73,721
              
              
              10,525**Other
                  income (expense):**Interest
                  expense, net
              
              
              (22,026
              )
              
              (12,875
              )
              
              (9,151
              )Other,
                  net
              
              
              11,057
              
              
              3,241
              
              
              7,816Total
                  other expense, net
              
              
              (10,969
              )
              
              (9,634
              )
              
              (1,335
              )**Earnings
                  before income taxes**
              
              
              73,277
              
              
              64,087
              
              
              9,190**Income
                  taxes**
              
              
              28,796
              
              
              25,022
              
              
              3,774**Net
                  earnings**
              
              $
              44,481
              
              $
              39,065
              
              $
              5,416





***Operating
      Revenue*** **.** For the
      three-month period ended March 31, 2007, operating revenue increased $24.4
      million versus the same period in 2006 primarily due to:


·
            A
                $13.3 million increase in LNG terminalling revenue due to a capacity
                increase on the BG LNG Services contract as a result of the Trunkline
                LNG
                Phase I and Phase II expansions, which were placed in service in
                April,
                2006 and July, 2006, respectively, as well as higher volumes resulting
                from an increase in LNG cargoes;
                and


·
            Increased
                transportation and storage revenue of $12.4 million due to higher
                parking
                revenues of $4.7 million, higher reservation revenues of $4.3 million,
                which were primarily driven by higher average rates on contracts,
                higher
                storage revenues of $2.3 million due to increased contracted capacity
                and
                higher commodity revenues of $1.1 million due to higher
                volumes.





***Operating
      Expenses.*** Operating expenses for the three-month period ended March 31, 2007 increased
      $13.9 million versus the same period in 2006 primarily due to:


·
            Increased
                depreciation and amortization expense of $3.2 million due toan
                increase in property, plant and equipment placed in service, including
                the
                Trunkline LNG Phase I and Phase II
                expansions;


·
            An
                increase in operation, maintenance and general expenses of $10.2
                million
                primarily due to:


o
            a
                $3.8
                million increase in corporate costs due to Southern Union’s disposition of
                certain assets during 2006 resulting in a larger allocation of corporate
                costs to the remaining business
                units;


o
            a
                $2.1
                million increase in LNG power costs resulting from increased
                cargoes;


o
            a
                $1.2
                million increase in Sea Robin fuel tracker costs due to an under
                recovery
                in the first quarter of 2007;


o
            a
                $1
                million increase in labor and
                benefits;


o
            a
                $500,000
                increase in legal costs;


21
 Table
          of Contents


o
            a
                $600,000
                increase in insurance expense due to higher premiums and higher workers’
                compensation losses; and


o
            a
                $500,000
                increase in contract storage costs primarily due to an increase in
                leased
                capacity and overrun charges.





The
      Company expects contract storage expense to increase beginning in the second
      quarter of 2007 due to the replacement of certain owned storage capacity, which
      has been filed for abandonment, with leased capacity, as well as other
      incremental storage leased in support of contracted storage and transportation
      services being provided to third party shippers.





***Other
      Expense, Net.*** Other
      expense, net for the three-month period ended March 31, 2007 increased $1.3
      million versus the same period in 2006. Interest expense increased $9.2 million
      primarily due to higher
      debt balances and higher LIBOR rates. Other, net increased $7.8 million
      primarily due to higher related party interest income caused by higher related
      party note receivable balances in 2007 (which offsets against a corresponding
      amount of the increased debt balance) and increases in the underlying
      LIBOR-based rates.





***Income
      Taxes.*** The
      Company’s estimated annual consolidated federal and state effective income tax
      rate was 39 percent for the three-month periods ended March 31, 2007 and 2006,
      respectively. Income taxes during the three-month period ended March 31, 2007,
      versus the same period in 2006, increased $3.8 million due to higher pretax
      income.





**OTHER
      MATTERS**





***Contingencies***





See *PART
      I, ITEM 1. Financial Statements (Unaudited), Note 11 - Commitments and
      Contingencies* and *Note
      4 - Regulatory Matters* ,
      in this
      Quarterly Report on Form 10-Q.





***Regulatory***





See *PART
      I, ITEM 1. Financial Statements (Unaudited), Note 4 - Regulatory
      Matters* ,
      in this
      Quarterly Report on Form 10-Q.





***Insurance***





The
      Company maintains insurance coverage provided under its policies similar to
      other comparable companies in the same lines of business. The insurance policies
      are subject to terms, conditions, limitations and exclusions that do not fully
      compensate the Company for all losses. Insurance deductibles range from $100,000
      to $5 million for the various policies utilized by the Company. Effective June
      1, 2007, insurance deductibles for the Company’s policies will range from
      $100,000 to $10 million. Furthermore, as the Company renews its policies, it
      is
      possible that full insurance coverage may not be obtainable on commercially
      reasonable terms due to the recent more restrictive insurance
      markets.





***Debt
      Refinancing***





The
      Company plans to refinance or retire its $ 746.6
      million of debt maturing in 2008 with proceeds from one or a combination of
      (i)
      new public debt or equity offering(s); (ii) bank financings; (iii) operating
      activities; and (iv) existing credit facilities. The Company is in the
      preliminary stages of planning for the refinancing of debt coming due in 2008.
      While an inability to repay these obligations would cause a material adverse
      change to the Company’s financial condition the Company reasonably believes that
      it has the ability to refinance these obligations within the required
      timeframes, although there can be no assurances that the anticipated
      refinancings will occur.





**ITEM
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





Item
      3,
      Quantitative and Qualitative Disclosures About Market Risk, has been omitted
      from this report pursuant to the reduced disclosure format permitted by General
      Instruction H to Form 10-Q.








22
 Table
          of Contents


**ITEM
      4. Controls and Procedures**





***Evaluation
      of Disclosure Controls and Procedures***





Panhandle
      has established disclosure controls and procedures to ensure that information
      required to be disclosed by the Company, including consolidated entities, in
      reports filed or submitted under the Securities Exchange Act of 1934, as amended
      ( *Exchange
      Act* )
      is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms. The Company’s disclosure controls and procedures
      are designed to ensure that information required to be disclosed in the reports
      it files or submits under the Exchange Act is accumulated and communicated
      to
      management, including the Company’s Chief Operating Officer ( *COO* )
      and
      Chief Financial Officer ( *CFO* ),
      as
      appropriate, to allow timely decisions regarding required disclosure. The
      Company performed an evaluation under the supervision and with the participation
      of management, including its COO and CFO, and with the participation of
      personnel from its Legal, Internal Audit, Risk Management and Financial
      Reporting Departments, of the effectiveness of the design and operation of
      the
      Company’s disclosure controls and procedures (as defined in Exchange Act Rule
      13a-15(e)) as of the end of the period covered by this report. Based on that
      evaluation, Panhandle’s COO and CFO concluded that the Company’s disclosure
      controls and procedures were effective as of March 31, 2007.





***Changes
      in Internal Controls***





There
      were no changes in the Company’s internal control over financial reporting that
      occurred during the quarter ended March 31, 2007 that have materially affected,
      or are reasonably likely to materially affect, the Company’s internal controls
      over financial reporting.





**Cautionary
      Statement Regarding Forward-Looking Information**





The
      disclosure and analysis in this Form 10-Q contains some forward-looking
      statements that set forth anticipated results based on management’s plans and
      assumptions. From time to time, the Company also provides forward-looking
      statements in other materials it releases to the public as well as oral
      forward-looking statements. Such statements give the Company’s current
      expectations or forecasts of future events; they do not relate strictly to
      historical or current facts. The Company has tried, wherever possible, to
      identify such statements by using words such as “anticipate,” “estimate,”
“expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions
      in connection with any discussion of future operating or financial performance.
      In particular, these include statements relating to future actions, future
      performance or results of current and anticipated products, expenses, interest
      rates, the outcome of contingencies, such as legal proceedings, and financial
      results. The Company cannot guarantee that any forward-looking statement will
      be
      realized, although management believes that the Company has been prudent in
      its
      plans and assumptions. Achievement of future results is subject to risks,
      uncertainties and potentially inaccurate assumptions. If known or unknown risks
      or uncertainties should materialize, or if underlying assumptions should prove
      inaccurate, actual results could differ materially from past results and those
      anticipated, estimated or projected. Readers should bear this in mind as they
      consider forward-looking statements.





The
      Company undertakes no obligation publicly to update forward-looking statements,
      whether as a result of new information, future events or otherwise. Readers
      are
      advised, however, to consult any further disclosures the Company makes on
      related subjects in its 10-K, 10-Q and 8-K reports to the SEC. Also note that
      the Company provides the following cautionary discussion of risks, uncertainties
      and possibly inaccurate assumptions relevant to its businesses. These are
      factors that, individually or in the aggregate, management thinks could cause
      the Company’s actual results to differ materially from expected and historical
      results. The Company notes these factors for investors as permitted by the
      Private Securities Litigation Reform Act of 1995. Readers should understand
      that
      it is not possible to predict or identify all such factors. Consequently,
      readers should not consider the following to be a complete discussion of all
      potential risks or uncertainties.





Factors
      that could cause actual results to differ materially from those expressed in
      the
      Company’s forward-looking statements include, but are not limited to, the
      following:





·
            changes
                in demand for natural gas by the Company’s customers, in the composition
                of the Company’s customer base and in the sources of natural gas available
                to the Company;


·
            additional
                level of competition potentially increasing the number of discounted
                revenue transactions;


23
 Table
          of Contents


·
            the
                effects of inflation and the timing and extent of changes in the
                prices
                and overall demand for and availability of natural gas as well as
                electricity, oil, coal and other bulk materials and
                chemicals;


·
            adverse
                weather conditions, such as warmer than normal weather in the Company’s
                service territories, and the operational impact of disasters such
                as
                Hurricanes Katrina and Rita;


·
            changes
                in laws or regulations, third-party relations and approvals, decisions
                of
                courts, regulators and governmental bodies affecting or involving
                the
                Company, including deregulation initiatives and the impact of rate
                and
                tariff proceedings before FERC and various state regulatory
                commissions;


·
            the
                speed and degree to which additional competition is introduced to
                the
                Company’s business and the resulting effect on
                revenues;


·
            the
                outcome of pending and future
                litigation;


·
            the
                Company’s ability to comply with or to challenge successfully existing or
                new environmental regulations;


·
            unanticipated
                environmental liabilities;


·
            the
                Company’s ability to acquire new businesses and assets and integrate those
                operations into its existing operations, as well as its ability to
                expand
                its existing businesses and
                facilities;


·
            the
                Company’s ability to control costs successfully and achieve operating
                efficiencies, including the purchase and implementation of new
                technologies for achieving such
                efficiencies;


·
            the
                impact of factors affecting operations such as maintenance or repairs,
                environmental incidents, gas pipeline system constraints and relations
                with labor unions representing bargaining-unit
                employees;


·
            exposure
                to customer concentration with a significant portion of revenues
                realized
                from a relatively small number of customers and any credit risks
                associated with the financial position of those
                customers;


·
            changes
                in the ratings of the Company’s debt securities or any of its
                subsidiaries;


·
            changes
                in interest rates and other general capital markets conditions, and
                in the
                Company’s ability to continue to access the capital
                markets;


·
            acts
                of nature, sabotage, terrorism or other acts causing damage greater
                than
                the Company’s insurance coverage
                limits;


·
            market
                risks beyond the Company’s control affecting its risk management
                activities including market liquidity, commodity price volatility
                and
                counterparty creditworthiness; and


·
            other
                risks and unforeseen events.





**PART
      II. OTHER INFORMATION**





**ITEM
      1. Legal Proceedings**





The
      Company and certain of its affiliates are occasionally parties to lawsuits
      and
      administrative proceedings incidental to their businesses involving, for
      example, claims for personal injury and property damage, contractual matters,
      various tax matters, and rates and licensing. The Company and its affiliates
      are
      also subject to various federal, state and local laws and regulations relating
      to the environment. Several of these companies have been named parties to
      various actions involving environmental issues. Based on our present knowledge
      and subject to future legal and factual developments, the Company’s management
      believes that it is unlikely that these actions, individually or in the
      aggregate, will have a material adverse effect on its financial condition.
      For
      additional information regarding various pending administrative and judicial
      proceedings involving regulatory, environmental and other legal matters,
      reference is made to *ITEM
      1. Financial Statements (Unaudited), Note 11 - Commitments and
      Contingencies* ,
      as well
      as to *ITEM
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* included
      in *Part
      I. Financial Information* .





**ITEM
      1A. Risk Factors**





There
      have been no material changes to the risk factors previously disclosed in the
      Company’s Form 10-K.





**ITEM
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





Item
      2,
      Unregistered Sales of Equity Securities and Use of Proceeds, has been omitted
      from this report pursuant to the reduced disclosure format permitted by General
      Instruction H to Form 10-Q.











24
 Table
          of Contents


**ITEM
      3. Defaults Upon Senior Securities**





Item
      3,
      Defaults Upon Senior Securities, has been omitted from this report pursuant
      to
      the reduced disclosure format permitted by General Instruction H to Form
      10-Q.





**ITEM
      4. Submission of Matters to a Vote of Security
      Holders**





Item
      4,
      Submission of Matters to a Vote of Security Holders, has been omitted from
      this
      report pursuant to the reduced disclosure format permitted by General
      Instruction H to Form 10-Q.





**ITEM
      5. Other Information**





N/A





**ITEM
      6. Exhibits**





**Exhibit No.**
            **Description**3(a)
            Certificate
                of Formation of Panhandle Eastern Pipe LineCompany,
                LP. (Filed as Exhibit 3.A to the Form 10-K for the year ended December
                31,
                2004 and incorporated herein by reference.)3(b)
            Limited
                Partnership Agreement of Panhandle Eastern Pipe Line Company, LP,
                dated as
                of June 29, 2004, between Southern Union Company and Southern Union
                Panhandle LLC. (Filed as Exhibit 3.B to the Form 10-K for the year
                ended
                December 31, 2004 and incorporated herein by
                reference.)4(a)
            Indenture
                dated as of March 29, 1999, among CMS Panhandle Holding
                Company,
              Panhandle
                Eastern Pipe Line Company and NBD Bank, as Trustee. (Filed as Exhibit
                4(a)
                to the Form 10-Q for the quarter ended March 31, 1999, and incorporated
                herein by reference.)4(b)
            1st
                Supplemental Indenture dated as of March 29, 1999, among CMS Panhandle
                Holding Company, Panhandle Eastern Pipe Line Company and NBD Bank,
                as
                Trustee, including a form of Guarantee by Panhandle Eastern Pipe
                Line
                Company of the obligations of CMS Panhandle Holding Company. (Filed
                as
                Exhibit 4(b) to the Form 10-Q for the quarter ended March 31, 1999,
                and
                incorporated herein by reference.)4(c)
            2nd
                Supplemental Indenture dated as of March 27, 2000, between Panhandle,
                as
                Issuer and Bank One Trust Company, National Association, as Trustee.
                (Filed as Exhibit 4(e) to the Form S-4 filed on June 22, 2000, and
                incorporated herein by reference.)4(d)
            3rd
                Supplemental Indenture dated as of August 18, 2003, between Panhandle,
                as
                Issuer and Bank One Trust Company, National Association, as Trustee
                (Filed
                as Exhibit 4(d) to the Form 10-Q for the quarter ended September
                30, 2003,
                and incorporated herein by reference.)4(e)
            4th
                Supplemental Indenture dated as of March 12, 2004, between Panhandle,
                as
                Issuer and J.P. Morgan Trust Company, National Association, as Trustee.
                (Filed as Exhibit 4.E to the Form 10-K for the year ended December
                31,
                2004 and incorporated herein by reference.)4(f)
            Indenture
                dated as of February 1, 1993, between Panhandle and Morgan Guaranty
                Trust
                Company effective January 1, 1982, as amended December 3, 1999. (Filed
                as
                Exhibit 4 to the Form S-3 filed February 19, 1993, and incorporated
                herein
                by reference.)


25
 Table
          of Contents





10
                (a)
            Credit
                Agreement between Trunkline LNG Holdings, LLC, as borrower, Panhandle
                Eastern Pipe Line Company, LP and Trunkline LNG Company, LLC, as
                guarantors, the financial institutions listed therein and Bayerische
                Hypo-
                Und Vereinsbank AG, New York Branch, as administrative agent, dated
                as of
                March 15, 2007. (Filed as Exhibit 10.1 to Panhandle’s Current Report on
                Form 8-K filed on March 21, 2007 and incorporated herein by
                reference.)10(b)
            Credit
                Agreement between Trunkline LNG Holdings, LLC, as borrower, Panhandle
                Eastern Pipe Line Company, LP and CrossCountry Citrus, LLC, as guarantors,
                the financial institutions listed therein and Bayerische Hypo- Und
                Vereinsbank AG, New York Branch, as administrative agent, dated as
                of
                December 1, 2006. (Filed as Exhibit 10.1 to Panhandle’s Current Report on
                Form 8-K filed on December 7, 2006 and incorporated herein by
                reference.)10(c)
            $465,000,000
                Promissory Note made by CrossCountry Citrus, LLC, as borrower, in
                favor of
                Trunkline LNG Holdings LLC, as holder, dated as of December 1, 2006.
                (Filed as Exhibit 10.2 to Panhandle’s Current Report on Form 8-K filed on
                December 7, 2006 and incorporated herein by reference.)31.1
            Certificate
                by President and Chief Operating Officer pursuant to Rule 13a - 14(a)
                or
                15d - 14(a) promulgated under the Securities Exchange Act of 1934,
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            Certificate
                by Senior Vice President and Chief Financial Officer pursuant to
                Rule 13a
                - 14(a) or 15d - 14(a) promulgated under the Securities Exchange
                Act of
                1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                of
                2002.32.1
            Certificate
                by President and Chief Operating Officer pursuant to Rule 13a - 14(b)
                or
                15d - 14(b) promulgated under the Securities Exchange Act of 1934
                and
                Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                1350.32.2
            Certificate
                by Senior Vice President and Chief Financial Officer pursuant to
                Rule 13a
                - 14(b) or 15d - 14(b) promulgated under the Securities Exchange
                Act of
                1934 and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section
                1350.





26
 Table
          of Contents


**SIGNATURES**











Pursuant
      to the requirements of the Securities Exchange Act of 1934, Panhandle Eastern
      Pipe Line Company, LP has duly caused this report to be signed on its behalf
      by
      the undersigned thereunto duly authorized.














PANHANDLE
                EASTERN PIPE LINE COMPANY, LPDate:
                May 10, 2007
            By:/s/
                ROBERT O. BONDRobert
                O. Bond
              President
                and Chief Operating Officer
              (authorized
                officer)
              
              
              
              
              
              
              /s/
                GARY W. LEFELAR
              Gary
                W. Lefelar
              Senior
                Vice President and Chief Accounting Officer
              (principal
                accounting officer)


27