----

**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,      D. C. 20549**

**_______________**

**FORM      10-Q**

**For      the quarterly period ended **

**June      30, 2006**

**Commission      File No. 1-2921**

**_______________**

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

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

**(713)      989-7000**

| Title                of each Class                   |   | Name                of each exchange in which registered |
|------------------------------------------------------|--------|----------------------------------------------------------|
| 4.80%                Senior Notes due 2008, Series B |   | New                York Stock Exchange                   |
| 6.05%                Senior Notes due 2013, Series B |   | New                York Stock Exchange                   |

**P**

**P**
** **

** **
**P**

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**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**FORM      10-Q**

**June      30, 2006**

**Table      of Contents**

| **PART                I. FINANCIAL INFORMATION:**                                                                                                    | Page(s) |
|------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                 |    |
| ITEM                1. Financial Statements (Unaudited):                                                                                             |    |
|                                                                                                                                                 |    |
| Condensed                consolidated statement of operations - three and six                months ended June 30, 2006 and 2005.                    | 2-3     |
|                                                                                                                                                      |    |
| Condensed                consolidated balance sheet - June 30, 2006 and                December 31, 2005.                                            | 4-5     |
|                                                                                                                                                 |    |
| Condensed                consolidated statement of cash flows                -                six months ended June 30, 2006 and 2005.               | 6       |
|                                                                                                                                                 |    |
| Condensed                consolidated statement of partners’ capital and                comprehensive income - six months ended June 30, 2006. | 7       |
|                                                                                                                                                 |    |
| Notes                to condensed consolidated financial                statements.                                                                  | 8-21    |
|                                                                                                                                                 |    |
| ITEM                2. Management's Discussion and Analysis of                Financial Condition and Results of Operations.                         | 22-25   |
|                                                                                                                                                 |    |
| ITEM                3. Quantitative and Qualitative                Disclosures About Market Risk.                                                    | 25      |
|                                                                                                                                                 |    |
| ITEM                4. Controls and                Procedures.                                                                                       | 25      |
|                                                                                                                                                 |    |
| **PART                II. OTHER INFORMATION:**                                                                                                       |    |
|                                                                                                                                                 |    |
| ITEM                1. Legal Proceedings.                                                                                                            | 27      |
|                                                                                                                                                 |    |
| ITEM                1A. Risk Factors.                                                                                                                | 27      |
|                                                                                                                                                 |    |
| ITEM                2. Unregistered Sales of Equity Securities                and Use of Proceeds.                                                   | 27      |
|                                                                                                                                                 |    |
| ITEM                3. Defaults Upon Senior                Securities.                                                                               | 27      |
|                                                                                                                                                 |    |
| ITEM                4. Submission of Matters to a Vote of                Security Holders.                                                           | 27      |
|                                                                                                                                                 |    |
| ITEM                5. Other Information.                                                                                                            | 27      |
|                                                                                                                                                 |    |
| ITEM                6. Exhibits.                                                                                                                     | 27-28   |
|                                                                                                                                                 |    |
| SIGNATURES                                                                                                                                           | 29      |
|                                                                                                                                                 |    |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**CONDENSED      CONSOLIDATED STATEMENT OF OPERATIONS**

**(UNAUDITED)**

|                                                             |   |                                                   | **Three                  Months Ended June 30, **  |           |
|------------------------------------------------------------------|--------|--------------------------------------------------------|--------------------------------------------------------------|----------------|
|                                                             |   | **2006**                                               |                                                         |  **2005** |   |
|                                                                  |   |  (In                  thousands of dollars)  |                                                         |
| **Operating                  revenue**                           |   |                                                   |                                                         |           |   |   |   |
| Transportation                  and storage of natural gas  |   | $                                                      | 101,780                                                      |           | $ | 94,742 |   |
| LNG                  terminalling revenue                   |   |                                                   | 27,014                                                       |           |   | 13,561 |   |
| Other                  revenue                              |   |                                                   | 5,315                                                        |           |   | 2,118 |   |
| Total                  operating revenue                         |   |                                                   | 134,109                                                      |           |   | 110,421 |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |
| **Operating                  expenses**                          |   |                                                   |                                                         |           |   |   |   |
| Operation,                  maintenance and general         |   |                                                   | 51,314                                                       |           |   | 48,132 |   |
| Depreciation                  and amortization              |   |                                                   | 16,924                                                       |           |   | 15,025 |   |
| Taxes,                  other than on income                |   |                                                   | 7,392                                                        |           |   | 6,869 |   |
| Total                  operating expenses                        |   |                                                   | 75,630                                                       |           |   | 70,026 |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |
| **Operating                  income**                            |   |                                                   | 58,479                                                       |           |   | 40,395 |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |
| **Other                  income (expense)**                      |   |                                                   |                                                         |           |   |   |   |
| Interest                  expense, net                      |   |                                                   | (16,241                                                      | )              |   | (11,499 | )  |
| Other,                  net                                 |   |                                                   | 3,576                                                        |           |   | 1,849 |   |
| Total                  other income (expense)                    |   |                                                   | (12,665                                                      | )              |   | (9,650 | ) |
|                                                             |   |                                                   |                                                         |           |   |   |   |
| **Earnings                  before income taxes**                |   |                                                   | 45,814                                                       |           |   | 30,745 |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |
| **Income                  taxes**                                |   |                                                   | 17,757                                                       |           |   | 12,075 |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |
| **Net                  earnings**                                |   | $                                                      | 28,057                                                       |           | $ | 18,670 |   |
|                                                             |   |                                                   |                                                         |           |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**CONDENSED      CONSOLIDATED STATEMENT OF OPERATIONS**

**(UNAUDITED)**

|                                                             |   |                                                   | **Six                  Months Ended June 30, **  |           |
|------------------------------------------------------------------|--------|--------------------------------------------------------|------------------------------------------------------------|----------------|
|                                                             |   |  **2006**                                         |                                                       |  **2005** |   |
|                                                             |   |  (In                  thousands of dollars)  |                                                       |
| **Operating                  revenue**                           |   |                                                   |                                                       |           |   |   |   |
| Transportation                  and storage of natural gas  |   | $                                                      | 223,112                                                    |           | $ | 214,762 |   |
| LNG                  terminalling revenue                   |   |                                                   | 46,569                                                     |           |   | 26,769 |   |
| Other                  revenue                              |   |                                                   | 9,071                                                      |           |   | 4,290 |   |
| Total                  operating revenue                         |   |                                                   | 278,752                                                    |           |   | 245,821 |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |
| **Operating                  expenses**                          |   |                                                   |                                                       |           |   |   |   |
| Operation,                  maintenance and general         |   |                                                   | 97,412                                                     |           |   | 98,315 |   |
| Depreciation                  and amortization              |   |                                                   | 34,398                                                     |           |   | 30,392 |   |
| Taxes,                  other than on income                |   |                                                   | 14,742                                                     |           |   | 14,205 |   |
| Total                  operating expenses                        |   |                                                   | 146,552                                                    |           |   | 142,912 |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |
| **Operating                  income**                            |   |                                                   | 132,200                                                    |           |   | 102,909 |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |
| **Other                  income (expense)**                      |   |                                                   |                                                       |           |   |   |   |
| Interest                  expense, net                      |   |                                                   | (29,116                                                    | )              |   | (23,347 | ) |
| Other,                  net                                 |   |                                                   | 6,817                                                      |           |   | 2,746 |   |
| Total                  other income (expense)                    |   |                                                   | (22,299                                                    | )              |   | (20,601 | ) |
|                                                             |   |                                                   |                                                       |           |   |   |   |
| **Earnings                  before income taxes**                |   |                                                   | 109,901                                                    |           |   | 82,308 |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |
| **Income                  taxes**                                |   |                                                   | 42,779                                                     |           |   | 32,168 |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |
| **Net                  earnings**                                |   | $                                                      | 67,122                                                     |           | $ | 50,140 |   |
|                                                             |   |                                                   |                                                       |           |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**CONDENSED      CONSOLIDATED BALANCE SHEET**

**(UNAUDITED)      **

|                                                                                                             |   |                                             |      |                                         |   |      |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|-----------|----------------------------------------------|--------|-----------|--------|
|                                                                                                             |   |  ****June                  30, 2005****     |      |  **December                  31, 2005** |   |
| **Assets**                                                                                                       |   |  (In                  thousands of dollars) |      |
|                                                                                                             |   |                                             |      |                                         |   |      |   |
| **Property,                  plant and equipment**                                                               |   |                                             |      |                                         |   |      |   |
| Plant                  in service                                                                           |   | $                                                | 2,284,950 |                                         | $      | 2,163,474 |   |
| Construction                  work-in-progress                                                              |   |                                             | 128,676   |                                         |   | 176,370   |   |
|                                                                                                             |   |                                             | 2,413,626 |                                         |   | 2,339,844 |   |
| Less                  accumulated depreciation and amortization                                             |   |                                             | 174,786   |                                         |   | 145,550   |   |
| Net                  property, plant and equipment                                                               |   |                                             | 2,238,840 |                                         |   | 2,194,294 |   |
|                                                                                                             |   |                                             |      |                                         |   |      |   |
| **Investment                  in affiliate**                                                                     |   |                                             | 1,562     |                                         |   | 1,468     |   |
|                                                                                                             |   |                                             |      |                                         |   |      |   |
| **Current                  assets**                                                                              |   |                                             |      |                                         |   |      |   |
| Cash                  and cash equivalents                                                                  |   |                                             | 182       |                                         |   | 585       |   |
| Accounts                  receivable, less allowances of $1,168 and $1,168, respectively                    |   |                                             | 52,596    |                                         |   | 55,786    |   |
| Accounts                  receivable - related parties                                                      |   |                                             | 21,406    |                                         |   | 9,556     |   |
| Gas                  imbalances - receivable                                                                |   |                                             | 76,810    |                                         |   | 105,233   |   |
| System                  gas and operating supplies (Note 3)                                                 |   |                                             | 102,386   |                                         |   | 89,620    |   |
| Deferred                  income taxes, net                                                                 |   |                                             | 2,646     |                                         |   | 2,086     |   |
| Note                  receivable - Southern Union                                                           |   |                                             | 182,830   |                                         |   | 110,580   |   |
| Other                                                                                                       |   |                                             | 6,555     |                                         |   | 11,501    |   |
| Total                  current assets                                                                            |   |                                             | 445,411   |                                         |   | 384,947   |   |
|                                                                                                             |   |                                             |      |                                         |   |      |   |
| Intangibles,                  net                                                                           |   |                                             | 7,801     |                                         |   | 8,031     |   |
| Debt                  issuance cost                                                                         |   |                                             | 3,005     |                                         |   | 3,634     |   |
| Non-current                  system gas                                                                     |   |                                             | 17,856    |                                         |   | 25,087    |   |
| Other                                                                                                       |   |                                             | 2,588     |                                         |   | 1,853     |   |
|                                                                                                             |   |                                             |      |                                         |   |      |   |
| **Total                  assets**                                                                           |   | $                                                | 2,717,063 |                                         | $      | 2,619,314 |   |
|                                                                                                             |   |                                             |      |                                         |   |      |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**CONDENSED      CONSOLIDATED BALANCE SHEET**

**(UNAUDITED)      **

|                                                                   |   | **June                  30, 2006**                     |      | **December                  31, 2005** |   |
|------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|----------------------------------------|--------|
|                                                                        |   |  (In                  thousands of dollars)  |      |
| **Partners'                  Capital**                                 |   |                                                   |      |                                   |   |   |   |
| Partners'                  capital                                |   | $                                                      | 971,090   |                                   | $      | 903,968 |   |
| Accumulated                  other comprehensive income (Note 8)  |   |                                                   | 781       |                                   |   | 1,339 |   |
| Tax                  sharing note receivable - Southern Union     |   |                                                   | (43,699   | )                                      |   | (50,862 | ) |
| Total                  partners' capital                               |   |                                                   | 928,172   |                                   |   | 854,445 |   |
|                                                                   |   |                                                   |      |                                   |   |   |   |
| Long-term                  debt (Note 7)                          |   |                                                   | 728,397   |                                   |   | 1,179,534 |   |
| Total                  capitalization                                  |   |                                                   | 1,656,569 |                                   |   | 2,033,979 |   |
|                                                                   |   |                                                   |      |                                   |   |   |   |
| **Current                  liabilities**                               |   |                                                   |      |                                   |   |   |   |
| Current                  portion of long-term debt (Note 7)       |   |                                                   | 451,165   |                                   |   | - |   |
| Accounts                  payable                                 |   |                                                   | 3,268     |                                   |   | 3,054 |   |
| Accounts                  payable - overdrafts                    |   |                                                   | 7,804     |                                   |   | 7,866 |   |
| Accounts                  payable - related parties               |   |                                                   | 19,639    |                                   |   | 8,560 |   |
| Gas                  imbalances - payable                         |   |                                                   | 113,538   |                                   |   | 124,297 |   |
| Accrued                   taxes                                   |   |                                                   | 26,510    |                                   |   | 15,228 |   |
| Accrued                  interest                                 |   |                                                   | 19,130    |                                   |   | 19,569 |   |
| Retained                  fuel obligation                         |   |                                                   | 24,216    |                                   |   | 32,863 |   |
| Labor                  and benefit accruals                       |   |                                                   | 12,465    |                                   |   | 16,643 |   |
| Other                  operating expense accruals                 |   |                                                   | 9,629     |                                   |   | 11,938 |   |
| Capital                  accruals                                 |   |                                                   | 20,413    |                                   |   | 11,681 |   |
| Post-retirement                  benefits-current                 |   |                                                   | 7,812     |                                   |   | 7,812 |   |
| Other                                                             |   |                                                   | 26,539    |                                   |   | 22,365 |   |
| Total                  current liabilities                             |   |                                                   | 742,128   |                                   |   | 281,876 |   |
|                                                                   |   |                                                   |      |                                   |   |   |   |
| Deferred                  income taxes, net                       |   |                                                   | 232,101   |                                   |   | 205,787 |   |
| Post-retirement                  benefits                         |   |                                                   | 21,894    |                                   |   | 26,103 |   |
| Other                                                             |   |                                                   | 64,371    |                                   |   | 71,569 |   |
| Commitments                  and contingencies (Note 11)          |   |                                                   |      |                                   |   |   |   |
|                                                                   |   |                                                   |      |                                   |   |   |   |
| **Total                  partners' capital and liabilities**      |   | $                                                      | 2,717,063 |                                   | $      | 2,619,314 |   |
|                                                                   |   |                                                   |      |                                   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**CONDENSED      CONSOLIDATED STATEMENT OF CASH FLOWS**

**(UNAUDITED)      **

|                                                                                                                  |   | **Six                  Months Ended June 30,** |     |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|----------|
|                                                                                                                  |   | **2006**                                       |     | **2005** |   |
|                                                                                                                  |   | (In                  thousands of dollars)     |     |
| **Cash                  flows provided by (used in) operating activities:**                                           |   |                                           |     |   |   |
| Net                  earnings                                                                                         |   | $                                              | 67,122   |   | $ | 50,140 |   |
| Adjustments                  to reconcile net earnings to net cash provided by operating                  activities: |   |                                           |     |   |   |   |   |
| Depreciation                  and amortization                                                                        |   |                                           | 34,398   |   |   | 30,392 |   |
| Deferred                  income taxes                                                                                |   |                                           | 26,128   |   |   | 18,247 |   |
| Gain                  on sale of assets                                                                               |   |                                           | (2,264   | ) |   | - |   |
| Debt                  premium and discount amortization, net                                                          |   |                                           | (652     | ) |   | (667 | ) |
| Changes                  in operating assets and liabilities:                                                         |   |                                           |     |   |   |   |   |
| Accounts                  receivable                                                                                  |   |                                           | (8,660   | ) |   | 8,877 |   |
| Inventory                                                                                                             |   |                                           | 3,492    |   |   | 5,570 |   |
| Gas                  imbalances - receivable                                                                          |   |                                           | -        |   |   | 563 |   |
| Other                  assets                                                                                         |   |                                           | 4,117    |   |   | 3,107 |   |
| Payables                                                                                                              |   |                                           | 11,293   |   |   | 12,715 |   |
| Accrued                  taxes                                                                                        |   |                                           | 18,819   |   |   | 16,533 |   |
| Interest                  accrued                                                                                     |   |                                           | (439     | ) |   | (272 | ) |
| Gas                  imbalances - payable                                                                             |   |                                           | (65      | ) |   | (533 | ) |
| Other                  liabilities                                                                                    |   |                                           | (20,823  | ) |   | (13,564 | ) |
| Net                  cash flows provided by operating activities                                                      |   |                                           | 132,466  |   |   | 131,108 |   |
|                                                                                                                  |   |                                           |     |   |   |   |   |
| **Cash                  flows provided by (used in) investing activities:**                                           |   |                                           |     |   |   |   |   |
| Net                  increase in note receivable - Southern Union                                                     |   |                                           | (72,250  | ) |   | (44,310 | ) |
| Capital                  and investment expenditures                                                                  |   |                                           | (61,881  | ) |   | (96,139 | ) |
| Sale                  of assets                                                                                       |   |                                           | 2,450    |   |   | - |   |
| Purchase                  of system gas, net                                                                          |   |                                           | -        |   |   | (29 | ) |
| Other                                                                                                                 |   |                                           | (1,126   | ) |   | (383 | ) |
| Net                  cash flows used in investing activities                                                          |   |                                           | (132,807 | ) |   | (140,861 | ) |
|                                                                                                                  |   |                                           |     |   |   |   |   |
| **Cash                  flows provided by (used in) financing activities:**                                           |   |                                           |     |   |   |   |   |
| Decrease                  in bank overdrafts                                                                          |   |                                           | (62      | ) |   | (12,565 | ) |
| Debt                  issuance                                                                                        |   |                                           | -        |   |   | 255,626 |   |
| Debt                  retirements                                                                                     |   |                                           | -        |   |   | (258,433 | ) |
| Debt                  issuance costs                                                                                  |   |                                           | -        |   |   | (318 | ) |
| Net                  cash flows used in financing activities                                                          |   |                                           | (62      | ) |   | (15,690 | ) |
|                                                                                                                  |   |                                           |     |   |   |   |   |
| Change                  in cash and cash equivalents                                                                  |   |                                           | (403     | ) |   | (25,443 | ) |
|                                                                                                                  |   |                                           |     |   |   |   |   |
| Cash                  and cash equivalents at beginning of period                                                     |   |                                           | 585      |   |   | 26,054 |   |
| **Cash                  and cash equivalents at end of period**                                                       |   | $                                              | 182      |   | $ | 611 |   |
|                                                                                                                  |   |                                           |     |   |   |   |   |

----

**PANHANDLEEASTERN      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, 2006                                    |   | $                                                            | 903,968 |                                                              | $      | 1,339                                                                                 |   | $                               | (50,862 | ) | $ | 854,445 |   |
|                                                                        |   |                                                         |    |                                                              |   |                                                                                  |   |                            |    |   |   |   |   |
|                                                                        |   |                                                         |    |                                                              |   |                                                                                  |   |                            |    |   |   |   |   |
| Comprehensive                  income:                                      |   |                                                         |    |                                                              |   |                                                                                  |   |                            |    |   |   |   |   |
| Net                  earnings                                               |   |                                                         | 67,122  |                                                              |   | -                                                                                     |   |                            | -       |   |   | 67,122 |   |
| Net                  gain related to interest rate swaps, net of tax        |   |                                                         | -       |                                                              |   | (558                                                                                  | )      |                            | -       |   |   | (558 | ) |
| Comprehensive                  income                                       |   |                                                         |    |                                                              |   |                                                                                  |   |                            |    |   |   | 66,564 |   |
|                                                                        |   |                                                         |    |                                                              |   |                                                                                  |   |                            |    |   |   |   |   |
| Settlement                  against tax sharing receivable - Southern Union |   |                                                         | -       |                                                              |   | -                                                                                     |   |                            | 7,163   |   |   | 7,163 |   |
|                                                                        |   |                                                         |    |                                                              |   |                                                                                  |   |                            |    |   |   |   |   |
| Balance                  June 30, 2006                                      |   | $                                                            | 971,090 |                                                              | $      | 781                                                                                   |   | $                               | (43,699 | ) | $ | 928,172 |   |
|                                                                        |   |                                                         |    |                                                              |   |                                                                                  |   |                            |    |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**ITEM      1. Financial Statements**

*PEPL*
*Panhandle,      *
*      the      Company*
** **
*SEC*
*GAAP*

**1.      Corporate Structure**

*LNG*
*FERC*

| ·   | 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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

*Bcf/d*
*Bcf*

**2.      New Accounting Principles**

***FIN      48,” Accounting for Uncertainty in Income Taxes - an Interpretation of FASB      Statement 109”***
**      (**
***FIN      48***
**      or **
***the      Interpretation***
**):**
*FASB*
*Accounting      for Income Taxes*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**3.      System Gas and Operating Supplies**

*MMBtu*

**4.      Regulatory Matters**

*Construction      work-in-progress*

*NGSA*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**5.      Related Party Transactions**

*Panhandle      Acquisition*

|                                                                                                                                                                                                                                                                                                    |   |                  **Three                  Months Ended June 30,** |           |                  **Six                  Months Ended June 30,** |           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|----------------|----------------------------------------------------------------------|----------------|
| **Related                  Party Transactions**                                                                                                                                                                                                                                                    |        |                                                                   |  **2006** |                                                                 |  **2005** |   |  **2006** |   |  **2005** |   |
|                                                                                                                                                                                                                                                                                               |   |  (In                  thousands)                                  |           |  (In                  thousands)                                |           |
|                                                                                                                                                                                                                                                                                               |   |                                                                   |           |                                                                 |           |   |   |   |   |   |   |   |   |
| Transportations                  and storage of natural gas revenue                                                                                                                                                                                                                                |   | $                                                                      | 901            |                                                                 | $              | 960 |   | $ | 2,357 |   | $ | 1,855 |   |
| Operation                  and maintenance:                                                                                                                                                                                                                                                        |   |                                                                   |           |                                                                 |           |   |   |   |   |   |   |   |   |
| Management                  & royalty fees                                                                                                                                                                                                                                                     |   |                                                                   | 3,351          |                                                                 |           | 2,759 |   |   | 6,968 |   |   | 6,145 |   |
| Other                  expenses (1)                                                                                                                                                                                                                                                                |   |                                                                   | 6,407          |                                                                 |           | 4,756 |   |   | 9,548 |   |   | 8,392 |   |
| Other                  income, net                                                                                                                                                                                                                                                                 |   |                                                                   | 2,158          |                                                                 |           | 870 |   |   | 3,638 |   |   | 1,433 |   |
|                                                                                                                                                                                                                                                                                               |        |                                                                   |           |                                                                 |           |   |   |   |   |   |   |   |   |   |
| (1)                  Includes expenses for corporate services provided by Southern Union                  and                  other related parties. Such corporate services primarily include                  executive                  management, accounting, auditing, legal, and treasury. |   |
|                                                                                                                                                                                                                                                                                               |   |                                                                   |           |                                                                 |           |   |   |   |   |   |   |   |   |

*Other,      net*
*Note      receivable - Southern Union*

*CCE      Holdings*
*CrossCountry      Energy*
*Management      Agreement*
*Manager*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*Accounts      receivable - related parties*
*Other      current liabilities*

| **Related                    Party**                                                                                                                                                                                                                             |        |                                    |  **June                    30, 2006** |   |  **December                    31, 2005** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------------------------------------------|--------|------------------------------------------------|--------|
| **Accounts                    receivable - related parties:**                                                                                                                                                                                                    |   |  (In                    thousands) |                                       |
| Southern                    Union (1)                                                                                                                                                                                                                            |   | $                                       | 13,264                                     |   | $                                              | 6,837  |   |
| Valley                    Pipeline (2)                                                                                                                                                                                                                           |   |                                    | 5,791                                      |   |                                           | -      |   |
| Other                    (3)                                                                                                                                                                                                                                     |   |                                    | 2,351                                      |   |                                           | 2,719  |   |
|                                                                                                                                                                                                                                                             |   |                                    | 21,406                                     |   |                                           | 9,556  |   |
| **Accounts                    payable - related parties:**                                                                                                                                                                                                       |   |                                    |                                       |   |                                           |   |   |
| Southern                    Union (4)                                                                                                                                                                                                                            |   |                                    | 18,285                                     |   |                                           | 8,410  |   |
| Other                    (5)                                                                                                                                                                                                                                     |   |                                    | 1,354                                      |   |                                           | 150    |   |
|                                                                                                                                                                                                                                                             |   | $                                       | 19,639                                     |   | $                                              | 8,560  |   |
|                                                                                                                                                                                                                                                             |   |                                    |                                       |   |                                           |   |   |
| (1)                    Primarily related to liabilities for expenditures made on behalf                    of                    Southern Union and interest associated with the Note receivable– Southern                    Union.                       |   |
| (2)                    Primarily related to project capital expenditures.                                                                                                                                                                                        |   |
| (3)                    Primarily related to administrative and management fees associated                    with                    the Management Agreement.                                                                                                   |   |
| (4)                    Primarily related to corporate services provided by Southern                    Union and                    reimbursable medical and insurance costs paid by Southern Union                    on behalf                    of Panhandle |   |
| (5)                    Primarily related to various administrative and operating costs                    paid by                    other affiliate companies on behalf of Panhandle.                                                                           |   |

**6.      Accounting for Derivatives and Hedging Activities**

*Credit      Agreement*
*Accumulated      other comprehensive income*

*Note      7 - Debt*
*Accounting      for Derivative Instruments and Hedging Activities*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**7.      Debt**

| **Long-term                  Debt**                                                                                                     |        |                                       |   | **Year                  Due** |    | **June                  30, 2006** |   | **December                  31, 2005** |      |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------|---------|------------------------------------|--------|----------------------------------------|-----------|
|                                                                                                                                    |   |  (In                  thousands) |   |
|                                                                                                                                    |   |                                  |   |                          |    |                               |   |                                   |      |   |
| 6.50%                  Senior Notes                                                                                                     |   |  2009                            |   | $                             | 60,623  |                               | $      | 60,623                                 |      |
| 8.25%                  Senior Notes                                                                                                     |   |  2010                            |   |                          | 40,500  |                               |   | 40,500                                 |      |
| 7.00%                  Senior Notes                                                                                                     |   |  2029                            |   |                          | 66,305  |                               |   | 66,305                                 |      |
| 4.80%                  Senior Notes                                                                                                     |   |  2008                            |   |                          | 300,000 |                               |   | 300,000                                |      |
| 6.05%                  Senior Notes                                                                                                     |   |  2013                            |   |                          | 250,000 |                               |   | 250,000                                |      |
| 2.75%                  Senior Notes                                                                                                     |   |  2007                            |   |                          | 200,000 |                               |   | 200,000                                |      |
| Bank                  loans (floating rate)                                                                                             |   |  2007                            |   |                          | 255,626 |                               |   | 255,626                                |      |
| Total                  debt outstanding                                                                                                 |   |                                  |   |                          |    | 1,173,054                          |   |                                   | 1,173,054 |   |
| Interest                  rate swaps (2.75% Senior Notes)                                                                               |   |                                  |   |                          |    | (4,416                             | )      |                                   | (5,725    | ) |
| Unamortized                  debt premium, net                                                                                          |   |                                  |   |                          |    | 10,924                             |   |                                   | 12,205    |   |
| Less:                  Current portion of long-term debt (1)                                                                            |   |                                  |   |                          |    | (451,165                           | )      |                                   | -         |   |
| Total                  long-term debt                                                                                                   |   |                                  |   |                          | $       | 728,397                            |   | $                                      | 1,179,534 |   |
|                                                                                                                                    |        |                                  |   |                          |    |                               |   |                                   |      |   |   |
| (1)                  Includes $4.4 million of fair value swaps related to debt classified                  as                  current. |   |                                  |   |                          |    |                               |   |                                   |      |   |
|                                                                                                                                    |   |                                  |   |                          |    |                               |   |                                   |      |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**8.      Accumulated Other Comprehensive Income**

|                                                                                                             |   | **Three                    Months Ended** |                                    | **Six                    Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------------------------------------|-----------------------------------------|--------|
|                                                                                                             |   | **June                    30,**           |                                    | **June                    30,**         |   |
| **Other                    Comprehensive Income (Loss)**                                                         |   | **2006**                                  |                                    | **2005**                                |   | **2006** |   | **2005** |   |
|                                                                                                             |   |                                      | (In                    thousands)  |                                    |
| Net                    Earnings                                                                                  |   | $                                         | 28,057                                  |                                    | $      | 18,670 |   | $ | 67,122 |   | $ | 50,140 |   |
| Realized                    gain (loss) on cash flow hedging                                                     |   |                                      |                                    |                                    |   |   |   |   |   |   |   |   |   |
| activities,                    net of tax of $(186), $(384), $(371) and $(1,170)                    respectively |   |                                      | (280                                    | )                                       |   | (580 | ) |   | (556 | ) |   | (1,810 | ) |
| Unrealized                    gain (loss) on cash flow hedging                                                   |   |                                      |                                    |                                    |   |   |   |   |   |   |   |   |   |
| activities,                    net of tax of $(3), $200, $(3) and $1,612, respectively                           |   |                                      | -                                       |                                    |   | 311 |   |   | (2 | ) |   | 2,471 |   |
| Total                    other comprehensive income (loss)                                                       |   |                                      | (280                                    | )                                       |   | (269 | ) |   | (558 | ) |   | 661 |   |
| Total                    comprehensive income                                                                    |   | $                                         | 27,777                                  |                                    | $      | 18,401 |   | $ | 66,564 |   | $ | 50,801 |   |
|                                                                                                             |   |                                      |                                    |                                    |   |   |   |   |   |   |   |   |   |

*Accumulated      other comprehensive income*

|                                                                     |   | **June                  30,**   |   |  **December                  31,** |   |
|---------------------------------------------------------------------|--------|---------------------------------|--------|-----------------------------------------|--------|
|                                                                |   |  **2006**                  |   |  **2005**                          |   |
|                                                                |   | (In                  thousands) |   |
| Interest                  rate hedges, net                          |   | $                               | 781    |                                    | $      | 1,339 |   |
| Accumulated                  other comprehensive income, net of tax |   | $                               | 781    |                                    | $      | 1,339 |   |
|                                                                |   |                            |   |                                    |   |   |   |

**9.      Benefits**

**Components      of Net Periodic Benefit Cost**

*OPEB*

|                                                     |   |                  **Three                  Months Ended June 30,** |           |  **Six                  Months Ended June 30,** |           |
|-----------------------------------------------------|--------|------------------------------------------------------------------------|----------------|------------------------------------------------------|----------------|
| **OPEB**                                            |        |                                                                   |  **2006** |                                                 |  **2005** |   |  **2006** |   |  **2005** |   |
|                                                |   | (In                  thousands)                                        |           |  (In                  thousands)                |           |
|                                                |   |                                                                   |           |                                                 |           |   |   |   |   |   |   |   |   |
| Service                  cost                       |   | $                                                                      | 440            |                                                 | $              | 619 |   | $ | 880 |   | $ | 1,343 |   |
| Interest                  cost                      |   |                                                                   | 544            |                                                 |           | 823 |   |   | 1,088 |   |   | 1,751 |   |
| Expected                  return on plan assets     |   |                                                                   | (344           | )                                                    |           | (266 | ) |   | (688 | ) |   | (464 | ) |
| Amortization                  of prior service cost |   |                                                                   | (911           | )                                                    |           | (56 | ) |   | (1,822 | ) |   | (111 | ) |
| Recognized                  actuarial gain          |   |                                                                   | 127            |                                                 |           | 17 |   |   | 254 |   |   | 212 |   |
|                                                |   |                                                                   |           |                                                 |           |   |   |   |   |   |   |   |   |
| Net                  periodic benefit cost          |   | $                                                                      | (144           | )                                                    | $              | 1,137 |   | $ | (288 | ) | $ | 2,731 |   |
|                                                |   |                                                                   |           |                                                 |           |   |   |   |   |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**10.      Stock Based Compensation**

**Stock      Award Plans.**
*Amended      2003 Plan*

| ·   | An                increase from 7,000,000 to 9,000,000 in the aggregate number of shares                of                stock that may be issued under the Amended 2003                Plan; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | An                increase from 725,000 to 1,500,000 in the total number of shares                of stock                that may be issued pursuant to stock awards, performance units and                other                equity-based rights; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | An                increase from 4,000 to 5,000 in the maximum number of shares of restricted                common stock that each non-employee director is eligible to receive                annually. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*MDTE*

**Stock      Options. **
*Share-Based      Payment*
*Statement      No. 123R*
*Accounting      for Stock Issued to Employees*

*Accounting      for Stock-Based Compensation*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*Operating      income*
*Earnings      before income taxes*
*Net      earnings*

|                                               |   |                                          |   |                                  |                                  |   |   |
|----------------------------------------------------|--------|-----------------------------------------------|--------|---------------------------------------|---------------------------------------|--------|--------|
|                                               |   |  **Three                  Months Ended** |   |                                  | **Six                  Months Ended** |   |
|                                                    |   |  **June                  30, 2005**      |   |                                  | **June                  30, 2005**    |   |
|                                                    |   |  (In                  thousands)         |   |  (In                  thousands) |                                  |
|                                               |   |                                          |   |                                  |                                  |   |   |
| Net                  earnings, as reported         |   | $                                             | 18,670 |                                  | $                                     | 50,140 |   |
| Deduct                  stock-based employee       |   |                                          |   |                                  |                                  |   |   |
| compensation                  expense determined   |   |                                          |   |                                  |                                  |   |   |
| under                  fair value based method for |   |                                          |   |                                  |                                  |   |   |
| all                  awards, net of related taxes  |   |                                          | 51     |                                  |                                  | 102    |   |
| Pro                  forma net earnings            |   | $                                             | 18,619 |                                  | $                                     | 50,038 |   |
|                                               |   |                                          |   |                                  |                                  |   |   |

|                                         |                                        |
|----------------------------------------------|---------------------------------------------|
|                                         |  **At                  June 30, 2006** |
| Expected                  volatility         |  36.75%                  to 37.36%     |
| Weighted                  average volatility |  36.98%                                |
| Expected                  dividend yield     |  1.67%                                 |
| Risk-free                  interest rate     |  4.06%                  to 4.95%       |
| Expected                  life in years      |  6.00                  to 6.25         |
|                                         |                                        |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

|                                                        |   |             |    |            |  **Weighted-**      |           |  **Weighted-**   |                 |                |   |   |
|-------------------------------------------------------------|--------|------------------|---------|-----------------|--------------------------|----------------|-----------------------|-----------------|---------------------|--------|--------|
|                                                             |   |             |    |            |  **Average**   |           |  **Average**     |            |  **Aggregate** |   |
|                                                             |   |             |    |            |  **Exercise**  |           |  **Contractual** |            |  **Intrinsic** |   |
| **Stock                  Options**                          |   |  **Shares** |    |  **Price** |                     |  **Life** |                  |  **Value** |                |
|                                                        |   |             |    |            |                     |           |                  |            |                |   |   |   |   |
| **Outstanding                  options at January 1, 2006** |   |             | 353,861 |            | $                        | 19.88          |                  |            |                |   |   |   |   |
| Granted                                                     |   |             | -       |            |                     | -              |                  |            |                |   |   |   |   |
| Exercised                                                   |   |             | (10,910 | )               | $                        | 16.83          |                  |            |                |   |   |   |   |
| Forfeited                                                   |   |             | (3,862  | )               | $                        | 16.83          |                  |            |                |   |   |   |   |
| **Outstanding                  options at June 30, 2006**   |   |             | 339,089 |            | $                        | 20.01          |                  |            | 8.51                |   | $      | 2,318,600 |   |
| **Exercisable                  options at June 30, 2006**   |   |             | 54,566  |            | $                        | 16.83          |                  |            | 7.61                |   | $      | 546,997 |   |
|                                                        |   |             |    |            |                     |           |                  |            |                |   |   |   |   |

**Restricted      Stock. **

|                                                            |   |  **Number                  of **    |   |  **Weighted-Average** |   |
|-----------------------------------------------------------------|--------|----------------------------------------------------|--------|----------------------------|--------|
|                                                            |   |  **Restricted                  Shares**  |   |  **Grant-Date**  |   |
| **Nonvested                  Restricted Shares**                |   |  **Outstanding**                              |   |  **Fair-Value**  |   |
|                                                            |   |                                               |   |                       |   |   |   |
| Nonvested                  restricted shares at January 1, 2006 |   |                                               | 43,050 |                       | $      | 24.06 |   |
| Granted                                                         |   |                                               | -      |                       |   |   |   |
| Vested                                                          |   |                                               | -      |                       |   |   |   |
| Forfeited                                                       |   |                                               | -      |                       |   |   |   |
| Nonvested                  restricted shares at June 30, 2006   |   |                                               | 43,050 |                       | $      | 24.06 |   |
|                                                            |   |                                               |   |                       |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**11.      Commitments and Contingencies**

**Litigation.      **
*Accounting      for Contingencies*

*Hope      Land*

**Environmental      Matters**

*Environmental      Remediation Liabilities,*

**Environmental      Remediation.**
*PCBs*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*Pierce      Waste Oil sites*
*U.S.      EPA*
*PRP*

*Illinois      EPA*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

|                                                  |   | **June                  30,**         |   |  **December                  31,** |   |
|--------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|--------|
|                                             |   |  **2006**                        |   |  **2005**                          |   |
|                                             |   |  (In                  thousands) |   |
|                                             |   |                                  |   |                                    |   |   |   |
| Current                                          |   | $                                     | 2,354  |                                    | $      | 2,337 |   |
| Noncurrent                                       |   |                                  | 7,815  |                                    |   | 8,385 |   |
| Total                  Environmental Liabilities |   | $                                     | 10,169 |                                    | $      | 10,722 |   |
|                                             |   |                                  |   |                                    |   |   |   |

**Air      Quality Control.**
*NOx      SIP Call*
*NOx*

*HAPs*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**Spill      Control. **
*SPCC*

**Other      Commitments and Contingencies**
***.***

*MMS*

**Controlled      Group Pension Liabilities.**

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

----

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

**Overview**

*TBtu*

----

**Results      of Operations**

|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
|------------------------------------------------------------|--------|--------------------------------------------------------------|---------|----------------|--------|------------------|--------|--------|--------|--------|
|                                                            |   |  **Three                  Months Ended June 30,**  |    |           |   |             |
|                                                       |   |  **2006**                                               |    |  **2005** |   |  **Change** |   |
|                                                       |   |  (In                  thousands)                        |    |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
| **Operating                  revenue:**                    |   |                                                         |    |           |   |             |   |   |   |   |
| Transportation                  and storage of natural gas |   | $                                                            | 101,780 |           | $      | 94,742           |   | $      | 7,038  |   |
| LNG                  terminalling revenue                  |   |                                                         | 27,014  |           |   | 13,561           |   |   | 13,453 |   |
| Other                  revenue                             |   |                                                         | 5,315   |           |   | 2,118            |   |   | 3,197  |   |
| Total                  operating revenue                   |   |                                                         | 134,109 |           |   | 110,421          |   |   | 23,688 |   |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
| **Operating                  expenses:**                   |   |                                                         |    |           |   |             |   |   |   |   |
| Operation,                  maintenance and general        |   |                                                         | 51,314  |           |   | 48,132           |   |   | 3,182  |   |
| Depreciation                  and amortization             |   |                                                         | 16,924  |           |   | 15,025           |   |   | 1,899  |   |
| Taxes,                  other than on income               |   |                                                         | 7,392   |           |   | 6,869            |   |   | 523    |   |
| Total                  operating expenses                  |   |                                                         | 75,630  |           |   | 70,026           |   |   | 5,604  |   |
| **Operating                  income**                      |   |                                                         | 58,479  |           |   | 40,395           |   |   | 18,084 |   |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
| **Other                  income (expense):**               |   |                                                         |    |           |   |             |   |   |   |   |
| Interest                  expense, net                     |   |                                                         | (16,241 | )              |   | (11,499          | )      |   | (4,742 | )      |
| Other,                  net                                |   |                                                         | 3,576   |           |   | 1,849            |   |   | 1,727  |   |
| Total                  other expense, net                  |   |                                                         | (12,665 | )              |   | (9,650           | )      |   | (3,015 | )      |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
| **Earnings                  before income taxes**          |   |                                                         | 45,814  |           |   | 30,745           |   |   | 15,069 |   |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
| **Income                  taxes**                          |   |                                                         | 17,757  |           |   | 12,075           |   |   | 5,682  |   |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |
| **Net                  earnings**                          |   | $                                                            | 28,057  |           | $      | 18,670           |   | $      | 9,387  |   |
|                                                       |   |                                                         |    |           |   |             |   |   |   |   |

***Operating      Revenue.***

***Operating      Expenses.***

***Other      Expense, Net.***
** **
*Note      5 - Related Party Transactions*

----

***Income      Taxes.***

|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
|------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|----------------|--------|------------------|--------|--------|--------|---------|
|                                                       |   |  **Six                  Months Ended June                  30,** |    |           |   |             |
|                                                       |   |  **2006**                                                        |    |  **2005** |   |  **Change** |   |
|                                                       |   |  (In                  thousands)                                 |    |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
| **Operating                  revenue:**                    |   |                                                                  |    |           |   |             |   |   |   |    |
| Transportation                  and storage of natural gas |   | $                                                                     | 223,112 |           | $      | 214,762          |   | $      | 8,350  |    |
| LNG                  terminalling revenue                  |   |                                                                  | 46,569  |           |   | 26,769           |   |   | 19,800 |    |
| Other                  revenue                             |   |                                                                  | 9,071   |           |   | 4,290            |   |   | 4,781  |    |
| Total                  operating revenue                   |   |                                                                  | 278,752 |           |   | 245,821          |   |   | 32,931 |    |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
| **Operating                  expenses:**                   |   |                                                                  |    |           |   |             |   |   |   |    |
| Operation,                  maintenance and general        |   |                                                                  | 97,412  |           |   | 98,315           |   |   | (903   | )       |
| Depreciation                  and amortization             |   |                                                                  | 34,398  |           |   | 30,392           |   |   | 4,006  |    |
| Taxes,                  other than on income               |   |                                                                  | 14,742  |           |   | 14,205           |   |   | 537    |    |
| Total                  operating expenses                  |   |                                                                  | 146,552 |           |   | 142,912          |   |   | 3,640  |    |
| **Operating                  income**                      |   |                                                                  | 132,200 |           |   | 102,909          |   |   | 29,291 |    |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
| **Other                  income (expense):**               |   |                                                                  |    |           |   |             |   |   |   |    |
| Interest                  expense, net                     |   |                                                                  | (29,116 | )              |   | (23,347          | )      |   | (5,769 | )       |
| Other,                  net                                |   |                                                                  | 6,817   |           |   | 2,746            |   |   | 4,071  |    |
| Total                  other expense, net                  |   |                                                                  | (22,299 | )              |   | (20,601          | )      |   | (1,698 | )  |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
| **Earnings                  before income taxes**          |   |                                                                  | 109,901 |           |   | 82,308           |   |   | 27,593 |    |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
| **Income                  taxes**                          |   |                                                                  | 42,779  |           |   | 32,168           |   |   | 10,611 |    |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |
| **Net                  earnings**                          |   | $                                                                     | 67,122  |           | $      | 50,140           |   | $      | 16,982 |    |
|                                                       |   |                                                                  |    |           |   |             |   |   |   |    |

***Operating      Revenue.***

***Operating      Expenses.***

***Other      Expense, Net.***
** **

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*Note      5 - Related Party Transactions*
*** ***

***Income      Taxes.***

**OTHER      MATTERS**

***Contingencies***

*PART      I, ITEM 1. Financial Statements (Unaudited), Note 11 - Commitments and      Contingencies *
*      Note      4 - Regulatory Matters*

***Regulatory***

*PART      I, ITEM 1. Financial Statements (Unaudited), Note 4 - Regulatory      Matters*

***Insurance***

***Debt        Refinancing***

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

**ITEM      4. Controls and Procedures**

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

*Exchange        Act*
*COO*
*CFO*

***Changes      in Internal Controls***

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**Cautionary      Statement Regarding Forward-Looking Information**

| ·   | 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; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. |
|--------------------|---------------------------------------------------|

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**PART      II. OTHER INFORMATION**

**ITEM      1. Legal Proceedings**

*ITEM      1. Financial Statements (Unaudited), Note 11 - Commitments and      Contingencies*
*ITEM      2. Management’s Discussion and Analysis of Financial Condition and Results of      Operations*
*Part      I. Financial Information*

**ITEM      1A. Risk Factors.**

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

**ITEM      3. Defaults Upon Senior      Securities**

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

**ITEM      5. Other Information**

**ITEM      6. Exhibits **

**              **
**Exhibit      No.**
**                                      **
**Description**

| 3(a)   | Certificate                of Formation of Panhandle Eastern Pipe Line  Company,                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                Issuerand                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                hereinby                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.)                                                                                                                                                                                                     |

| 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. |

----

**SIGNATURES**

|                                | PANHANDLE                EASTERN PIPE LINE COMPANY, LP                                                                                                                                                                                                                                                          |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                                                                                                                                                                                                            |
|                                |                                                                                                                                                                                                                                                                                                            |
|                                |                                                                                                                                                                                                                                                                                                            |
|                                |                                                                                                                                                                                                                                                                                                            |
| Date:                August 7, 2006 | By:                /s/                ROBERT O. BOND                                                                                                                                                                                                                                                            |
|                                | Robert                O. Bond                                                                                                                                                                                                                                                                                   |
|                                | President                and Chief Operating Officer(authorized                officer)       /s/                GARY W. LEFELARGary                W. LefelarSenior                Vice President and Chief Accounting Officer(principal                accounting officer) |
|                                |                                                                                                                                                                                                                                                                                                            |
|                                |                                                                                                                                                                                                                                                                                                            |
|                                |                                                                                                                                                                                                                                                                                                            |

----