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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For Quarter Ended June 30, 2002





Commission File Number 333-51713





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MARKET HUB PARTNERS STORAGE, L.P.


(Exact name of Registrant as Specified in its Charter)





Delaware (State or Other
Jurisdiction of Incorporation)

76-0558052 (IRS Employer
Identification No.)





5400 Westheimer Court


P.O. Box 1642


Houston, TX 77251-1642


(Address of Principal Executive Offices)


(Zip code)





713-627-5400


(Registrants telephone number, including area code)





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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  x  No  ̈





The Registrant 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. Part I, Item 2 has been reduced and Part I, Item 3 and Part II, Items 2, 3, and 4 have been omitted in accordance with such
Instruction H.





All of the Registrants interests are indirectly owned by Duke Energy Corporation (File No.
1-4928), which files reports and proxy materials pursuant to the Securities Exchange Act of 1934.





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MARKET HUB PARTNERS STORAGE, L.P.





FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002





INDEX





Item



PagePART I.

FINANCIAL INFORMATION1.

Financial Statements

1Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001

1Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001

2Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001

3Notes to Consolidated Financial Statements

42.

Managements Discussion and Analysis of Results of Operations and Financial Condition

6PART II.

OTHER INFORMATION1.

Legal Proceedings

86.

Exhibits and Reports on Form 8-K

8Signature

9





SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995





Market Hub Partners Storage, L.P.s (MHPs) reports, filings and other public announcements may
contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You
can typically identify forward-looking statements by the use of forward-looking words, such as may, will, could, project, believe, anticipate, expect,
estimate, continue, potential, plan, forecast and other similar words. Those statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are
subject to risks, uncertainties and other factors. Many of those factors are outside our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include:





| |  |  | state and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed at
and degree to which competition enters the natural gas industry;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the outcomes of litigation and regulatory proceedings or inquiries;
| | - |  | -------------------------------------------------------------------




| |  |  | industrial, commercial and residential growth in our service territories;
| | - |  | -------------------------------------------------------------------------




| |  |  | the weather and other natural phenomena;
| | - |  | ----------------------------------------




| |  |  | the timing and extent of changes in interest rates;
| | - |  | ---------------------------------------------------




| |  |  | changes in environmental and other laws and regulations to which we and our subsidiaries are subject or other external factors over which we have no control;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the results of financing efforts, including our ability to obtain financing on favorable terms, which can be affected by various factors, including our credit
ratings and general economic conditions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the level of creditworthiness of counterparties to our transactions;
| | - |  | --------------------------------------------------------------------




| |  |  | growth in opportunities for our business;
| | - |  | -----------------------------------------




| |  |  | the performance of pipeline facilities;
| | - |  | ---------------------------------------




| |  |  | the extent of success in connecting and expanding gas markets; and
| | - |  | ------------------------------------------------------------------




| |  |  | the effect of accounting policies issued periodically by accounting standard-setting bodies.
| | - |  | --------------------------------------------------------------------------------------------




In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might
occur to a different extent or at a different time than we have described.






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PART I.    FINANCIAL INFORMATION





Item 1.Financial Statements.





MARKET HUB PARTNERS STORAGE, L.P.





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(In thousands)





Three Months Ended June
30,

Six Months Ended June
30,2002

2001

2002

2001Operating RevenuesSalt cavern storage revenues

$
10,615

$
10,115

$
21,354

$
18,659Hub service revenues


2,511


2,695


7,482


5,534Total operating revenues


13,126


12,810


28,836


24,193Operating ExpensesOperation and maintenance


651


829


2,243


1,723Depreciation and amortization


1,586


2,455


3,122


4,897Property and other taxes


213


906


772


1,414Total operating expenses


2,450


4,190


6,137


8,034Operating Income


10,676


8,620


22,699


16,159Other Income and Expenses


1


132


2


263Interest Expense


540


464


1,200


772Net Income

$
10,137

$
8,288

$
21,501

$
15,650








See Notes to Consolidated Financial
Statements.




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MARKET HUB PARTNERS STORAGE, L.P.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In thousands)


Six Months Ended June
30,2002


2001CASH FLOWS FROM OPERATING ACTIVITIES

$
23,662


$
17,737CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures


(2,245
)


(23,944
)Net (decrease)\increase in advances payableaffiliates


(21,417
)


5,396Net cash used in investing activities


(23,662
)


(18,548
)CASH FLOWS FROM FINANCING ACTIVITIES






Net decrease in cash and cash equivalents






(811
)Cash and cash equivalents at beginning of period






811Cash and cash equivalents at end of period

$



$









See Notes to Consolidated Financial
Statements.




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MARKET HUB PARTNERS STORAGE, L.P.





CONSOLIDATED BALANCE SHEETS


(In thousands)


June 30, 2002

December 31, 2001(unaudited)ASSETSCurrent AssetsAccounts receivable

$
4,499

$
5,187Accounts receivableaffiliates


1,055


487Natural gas imbalance and loan receivables


57,591


29,960Other


383


1,173Total current assets


63,528


36,807Property, Plant and EquipmentCost


240,808


238,580Less accumulated depreciation and amortization


36,422


33,319Net property, plant and equipment


204,386


205,261Goodwill, Net of Accumulated Amortization


212,616


212,616Other Assets


228


228Total Assets

$
480,758

$
454,912LIABILITIES AND PARTNERS CAPITALCurrent LiabilitiesAccounts payable

$
2

$
185Accrued interest


748


748Accrued property tax


1,742


1,804Natural gas imbalance and loan payables


57,591


29,960Other accrued liabilities


1,065


2,689Total current liabilities


61,148


35,386Long-term DebtAdvances payableaffiliates


39,160


60,577Other


27,210


27,210Total long-term debt


66,370


87,787Partners Capital


353,240


331,739Total Liabilities and Partners Capital

$
480,758

$
454,912





See Notes to Consolidated Financial Statements.




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MARKET HUB PARTNERS STORAGE, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.    Nature of Operations





Market Hub
Partners Storage, L.P. (the Company) was formed on December 31, 1997 as a Delaware limited partnership. The Company is wholly owned by indirect subsidiaries of Duke Energy Corporation (Duke Energy). The Company owns and operates two natural gas
storage facilities that function as market hubs: Moss Bluff, located near Houston, Texas and Egan, located in Acadia Parish, Louisiana. These facilities provide producers, end-users, local distribution companies, pipelines and energy marketers with
high deliverability storage services, as well as hub services, such as park and loan services, wheeling and title transfer. The Companys Egan facilities are subject to the rules and regulations of the Federal Energy Regulatory Commission
(FERC). Moss Bluff, as a Hinshaw pipeline, must also comply with some requirements under FERC regulations.





2.    Summary of Significant Accounting Policies





Consolidation.    The Consolidated Financial Statements include the accounts of the Company and all majority-owned subsidiaries, after eliminating significant intercompany transactions and balances. These
Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective periods. Amounts reported in the
interim Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods due to the effects of seasonal temperature variations on energy consumption.





New Accounting Standards.    The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, as of January 1, 2002. SFAS No. 142 requires that goodwill no longer be amortized over an estimated useful life, as previously required. Instead, goodwill amounts are subject to a fair-value-based
annual impairment assessment. The Company did not recognize any material impairment due to implementation of SFAS No. 142. The standard also requires certain identifiable intangible assets to be recognized separately and amortized as appropriate
upon reassessment. No adjustments to intangibles were identified at the Company at transition.





The
following table shows what net income would have been if amortization related to goodwill that is no longer being amortized had been excluded from prior periods.





GoodwillAdoption of SFAS No. 142 (in thousands)





Three Months Ended June 30,

Six Months Ended June
30,2002

2001

2002

2001Net IncomeReported net income

$
10,137

$
8,288

$
21,501

$
15,650Add back:  Goodwill amortization





1,099





2,184Adjusted net income

$
10,137

$
9,387

$
21,501

$
17,834




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The changes in the carrying amount of goodwill for the six months ended June 30,
2002 and June 30, 2001 are as follows:





Goodwill (in thousands)





Balance December 31,
2001

Acquired Goodwill

Other

Balance June 30,
2002$ 212,616

$ 

$       

$ 212,616Balance December 31,
2000

Acquired Goodwill

Other

Balance June 30,
2001$ 150,990

$ 

$ (1,652)

$ 149,338





The Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets on January 1, 2002. The new rules supersede SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The new rules retain many of the
fundamental recognition and measurement provisions, but significantly change the criteria for classifying an asset as held-for-sale or as a discontinued operation. Adoption of the new standard had no effect on the Companys consolidated results
of operations or financial position.





In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard
applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset.





SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of
fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the life of the asset. The liability is increased due to the passage of time
based on the time value of money until the obligation is settled.





The Company is required and plans to adopt the
provisions of SFAS No. 143 as of January 1, 2003. To accomplish this, the Company must identify any legal obligations for asset retirement obligations, and determine the fair value of these obligations on the date of adoption. The determination of
fair value is complex and requires gathering market information and developing cash flow models. Additionally, the Company will be required to develop processes to track and monitor these obligations. Because of the effort needed to comply with the
adoption of SFAS No. 143, the Company is currently assessing the new standard but has not yet determined the impact on its consolidated results of operations, cashflows or financial position.





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally the Emerging Issues Task Force (EITF) No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring.) The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of the companys commitment to an exit plan. SFAS No. 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.





3.    Related Party Transactions





Advances payable-affiliates do not bear interest. Advances are carried as open accounts and are not segregated between current and non-current amounts. Increases and decreases in advances result from the movement of funds to provide
for operations, capital expenditures and debt payments of the Company.




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At June 30, 2002 and December 31, 2001, natural gas imbalance receivables
included $56.5 million and $25 million, respectively, due from an affiliate. In addition, at June 30, 2002 and December 31, 2001, natural gas imbalance payables included $12.3 million and $4.4 million, respectively, due to an affiliate.





For the three months ended June 30, 2001, interest income included $132 thousand, and for the six months ended
June 30, 2001, interest income included $263 thousand associated with a note receivable due from an affiliate. This note receivable was repaid in December 2001





4. Credit Risk





The Company markets natural gas storage and hub services to
pipelines, local distribution companies, producers, end-users, power generators, and natural gas marketers. The Company has concentrations of receivables from such customers such as power generating companies that may affect the Companys
overall credit risk in that some customers may be similarly affected by changes in economic, regulatory or other factors. Where exposed to credit risk, the Company analyzes the counterparties financial condition prior to entering into an
agreement, establishes credit limits and monitors the appropriateness of those limits on an ongoing basis.





In
view of the current challenges in the energy sector, the Company is increasing its effort to monitor the liquidity of its customers, and will evaluate securitization and other options, as appropriate, to manage its storage contract positions and hub
services.





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





INTRODUCTION





Market Hub Partners Storage, L.P. (the Company) was formed on December 31,
1997 as a Delaware limited partnership. The Company is wholly owned by indirect subsidiaries of Duke Energy Corporation (Duke Energy). The Company markets natural gas storage services and hub services to pipelines, local distribution companies,
producers, end-users and natural gas marketers. The Company receives fees for use of its salt cavern storage facilities, which generally include a contractual demand charge for the reservation of storage space, and injection and withdrawal fees for
the actual use of the space. The Company also receives fees for interruptible hub services, including balancing, wheeling, title transfer, imbalance trading, parking and loaning of natural gas.





Managements Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements.





CAPACITY





The
Companys financial condition and results of operations are directly related to the working storage capacity of the Companys storage facilities.





June 30, 2002

June 30, 2001(Billion cubic feet (Bcf))Combined Facility TotalsWorking gas capacity(1)

26.8

25.5Average working gas capacity(2)

26.3

24.3Average leased capacity(2)

25.8

22.3


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|(1) |  | As of the date indicated.
|--- |  | -------------------------

|(2) |  | For the six-month period ended as of the date indicated.
|--- |  | --------------------------------------------------------




RESULTS OF OPERATIONS





Net income for the six months ended
June 30, 2002 was $21.5 million compared to $15.7 million for the comparable period of 2001. The increase was due primarily to an increase in salt cavern storage revenues as a result of increased leased capacity and higher rates, and an increase in
hub service revenues from increased parking and loaning activities.





Depreciation and amortization decreased since
goodwill is no longer amortized as a result of adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. These decreased expenses were partially offset by increased interest expense due to
adjustments included in the 2001 interest amounts.




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LIQUIDITY AND CAPITAL RESOURCES





Capital expenditures for the six months ended June 30, 2002 were $2.2 million and $23.9 million for the comparable 2001 period. The 2001 capital expenditures were primarily
for pad gas purchases associated with capacity expansion. The Company will continue expanding both Moss Bluff and Egan storage facilities up to a total working storage capacity of 28 Bcf by December 31, 2002 with continued expansions planned in 2003
and 2004. The Company believes that funds generated from operations and/or advances from its parent will be sufficient to meet its liquidity requirements for the foreseeable future.





QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





Credit Risk





The Company markets natural gas storage and hub services to pipelines, local distribution companies,
producers, end-users, power generators, and natural gas marketers. The Company has concentrations of receivables from such customers such as power generating companies that may affect the Companys overall credit risk in that some customers may
be similarly affected by changes in economic, regulatory or other factors. Where exposed in credit risk, the Company analyzes the counterparties financial condition prior to entering into an agreement, establishes credit limits and monitors
the appropriateness of those limits on an ongoing basis.





In view of the current challenges in the energy sector,
the Company is increasing its effort to monitor the liquidity of its customers, and will evaluate securitization and other options, as appropriate, to manage its storage contract positions and hub services.




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PART II.    OTHER INFORMATION





Item 1.Legal Proceedings.





None





Item 6.Exhibits and Reports on Form 8-K.





(a)  Exhibits





Exhibit Number99.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.99.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.





(b)  Reports on Form 8-K





The Company filed no reports on Form 8-K during the second quarter of 2002.




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SIGNATURE





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





MARKET HUB PARTNERS STORAGE, L.P.By:    MARKET HUB PARTNERS STORAGE, LLC, its general partner/s/    DOROTHY M.
ABLESDorothy M. Ables Senior Vice
President, Finance and Administration and Chief Financial Officer





August 14, 2002




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