UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D. C.  20549


_______________





FORM
10-Q





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





For the quarterly period
ended





September
30, 2008








Commission
File No. 1-2921





_______________








PANHANDLE
EASTERN PIPE LINE COMPANY, LP


(Exact
name of registrant as specified in its charter)





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








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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes P    No
___





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


Large
accelerated filer    Accelerated
filer ___   Non-accelerated filer P   (Do
not check if smaller reporting company)   Smaller reporting
company ___





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


Yes     No
P





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








PANHANDLE
EASTERN PIPE LINE COMPANY, LP


FORM
10-Q


September
30, 2008


Table of Contents





PART
      I. FINANCIAL INFORMATION:
            Page(s)Glossary
            2ITEM
      1. Financial Statements (Unaudited):Condensed consolidated statement of
    operations.
            3Condensed consolidated balance sheet.
            4-5Condensed consolidated statement of cash
    flows.
            6Condensed consolidated statement of partners’ capital and
      comprehensive income.
            7Notes to condensed consolidated financial
      statements.
            8ITEM 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations.
            20ITEM 3. Quantitative and Qualitative Disclosures About Market
      Risk.
            25ITEM 4. Controls and Procedures.
            25PART
      II. OTHER INFORMATION:ITEM 1. Legal Proceedings.
            26ITEM 1A.  Risk Factors.
            26ITEM 2.  Unregistered Sales of Equity Securities and
      Use of Proceeds.
            27ITEM 3.  Defaults Upon Senior
      Securities.
            27ITEM 4.  Submission of Matters to a Vote of Security
      Holders.
            27ITEM 5.  Other Information.
            27ITEM 6. Exhibits.
            27SIGNATURES
            29










1
 Table of Contents


GLOSSARY





The
abbreviations, acronyms and industry terminology used in this quarterly report
on Form 10-Q are defined as follows:





Bcf                                                            Billion cubic
feet


Bcf/d                                                        Billion cubic feet
per day


CFO                                                          Chief
Financial Officer


COO                                                         Chief
Operating Officer


EITR                                                         Effective income tax
rate


EPA                                                          Environmental
Protection Agency


Exchange
Act                                                               Securities
Exchange Act of 1934, as amended


FASB                                                                  Financial
Accounting Standards Board


FERC                                                                 
 Federal Energy Regulatory Commission


GAAP                                                                 Generally
Accepted Accounting Principles


IEPA                                                         Illinois
Environmental Protection Agency


IPCB                                                                    Illinois
Pollution Control Board


KDHE                                                               
  Kansas Department of Health and Environment


LNG                                                          Liquefied
Natural Gas


LNG
Holdings                                                               Trunkline
LNG Holdings, LLC


Panhandle                                                         
 PEPL and its subsidiaries


PCBs                                                                   Polychlorinate
biphenyls


PEPL                                                                   
Panhandle Eastern Pipe Line Company, LP


Sea
Robin                                                          
Sea Robin Pipeline Company, LLC


SEC                                                          
Securities Exchange Commission


Southern
Union                                                            Southern
Union Company and its subsidiaries


Southwest
Gas
Storage                                               Pan
Gas Storage, LLC (d.b.a. Southwest Gas)


SPCC                                                                 
 Spill Prevention Control and Countermeasure


Tbtu                                                         Trillion British
thermal units


The
Company                                                               PEPL
and its subsidiaries


Trunkline                                                          
 Trunkline Gas Company, LLC


Trunkline
LNG                                                              Trunkline
LNG Company, LLC










2
 Table of Contents
 PANHANDLE
EASTERN PIPE LINE COMPANY, LP
 CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
 (UNAUDITED)


Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,2008
              
              
              2007
              
              
              2008
              
              
              2007(In
      thousands)Operating
      revenueTransportation
      and storage of natural gas
              
              $
              139,189
              
              
              $
              122,340
              
              
              $
              427,293
              
              
              $
              376,752LNG
      terminalling revenue
              
              
              31,882
              
              
              
              34,034
              
              
              
              93,663
              
              
              
              104,155Other
      revenue
              
              
              2,329
              
              
              
              2,589
              
              
              
              7,828
              
              
              
              8,792Total
      operating revenue
              
              
              173,400
              
              
              
              158,963
              
              
              
              528,784
              
              
              
              489,699Operating
      expensesOperation,
      maintenance and general
              
              
              72,857
              
              
              
              65,905
              
              
              
              196,210
              
              
              
              186,759Depreciation
      and amortization
              
              
              26,133
              
              
              
              21,863
              
              
              
              76,885
              
              
              
              63,634Taxes,
      other than on income
              
              
              8,225
              
              
              
              7,340
              
              
              
              24,418
              
              
              
              22,436Total
      operating expenses
              
              
              107,215
              
              
              
              95,108
              
              
              
              297,513
              
              
              
              272,829Operating
      income
              
              
              66,185
              
              
              
              63,855
              
              
              
              231,271
              
              
              
              216,870Other
      income (expense)Interest
      expense, net
              
              
              (23,804
              )
              
              
              (19,492
              )
              
              
              (66,089
              )
              
              
              (62,979
              )Other,
      net
              
              
              7,033
              
              
              
              9,258
              
              
              
              20,558
              
              
              
              31,055Total
      other income (expense)
              
              
              (16,771
              )
              
              
              (10,234
              )
              
              
              (45,531
              )
              
              
              (31,924
              )Earnings
      before income taxes
              
              
              49,414
              
              
              
              53,621
              
              
              
              185,740
              
              
              
              184,946Income
      taxes
              
              
              19,424
              
              
              
              20,961
              
              
              
              72,597
              
              
              
              72,186Net
      earnings
              
              $
              29,990
              
              
              $
              32,660
              
              
              $
              113,143
              
              
              $
              112,760





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


3
 Table of Contents
 PANHANDLE
EASTERN PIPE LINE COMPANY, LP
 CONDENSED
CONSOLIDATED BALANCE SHEET
 (UNAUDITED)




September
      30, 2008
                
                
                December
      31, 2007Assets
                
                (In
      thousands)Current
      assetsCash
      and cash equivalents
                
                $
                24
                
                
                $
                320Accounts
      receivable, billed and unbilled, less allowances of$1,161
      and $1,163 respectively
                
                
                64,564
                
                
                
                68,219Accounts
      receivable - related parties (Note 4)
                
                
                8,658
                
                
                
                12,067Gas
      imbalances - receivable
                
                
                185,700
                
                
                
                104,124System
      gas and operating supplies (Note 3)
                
                
                154,472
                
                
                
                180,801Note
      receivable - CrossCountry Citrus (Note 4)
                
                
                -
                
                
                
                9,831Other
                
                
                25,407
                
                
                
                19,865Total
      current assets
                
                
                438,825
                
                
                
                395,227Property,
      plant and equipmentPlant
      in service
                
                
                3,159,647
                
                
                
                2,830,068Construction
      work-in-progress
                
                
                375,987
                
                
                
                355,6953,535,634
                
                
                
                3,185,763Less
      accumulated depreciation and amortization
                
                
                370,590
                
                
                
                290,465Net
      property, plant and equipment
                
                
                3,165,044
                
                
                
                2,895,298Note
      receivable - Southern Union (Note 4)
                
                
                129,255
                
                
                
                221,655Note
      receivable - CrossCountry Citrus (Note 4)
                
                
                392,391
                
                
                
                402,389Non-current
      system gas (Note 3)
                
                
                15,542
                
                
                
                18,947Other
                
                
                18,971
                
                
                
                16,686Total
      assets
                
                $
                4,160,028
                
                
                $
                3,950,202







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


4
 Table of Contents
 PANHANDLE
EASTERN PIPE LINE COMPANY, LP
 CONDENSED
CONSOLIDATED BALANCE SHEET
 (UNAUDITED)




September
      30, 2008
              
              
              December
      31, 2007(In
      thousands)Partners'
      CapitalPartners'
      capital
              
              $
              1,305,290
              
              
              $
              1,192,147Accumulated
      other comprehensive income (loss)
              
              
              (6,865
              )
              
              
              1,636Tax
      sharing note receivable - Southern Union (Note 4)
              
              
              (9,442
              )
              
              
              (12,704
              )Total
      partners' capital
              
              
              1,288,983
              
              
              
              1,181,079Long-term
      debt (Note 5)
              
              
              1,874,752
              
              
              
              1,581,061Total
      capitalization
              
              
              3,163,735
              
              
              
              2,762,140Current
      liabilitiesCurrent
      portion of long-term debt (Note 5)
              
              
              60,888
              
              
              
              309,680Accounts
      payable
              
              
              11,804
              
              
              
              21,114Accounts
      payable - related parties (Note 4)
              
              
              43,803
              
              
              
              56,706Gas
      imbalances - payable
              
              
              314,059
              
              
              
              271,450Accrued
      taxes
              
              
              22,935
              
              
              
              14,501Accrued
      interest
              
              
              22,559
              
              
              
              20,304Capital
      accruals
              
              
              65,093
              
              
              
              97,662Other
              
              
              75,726
              
              
              
              54,043Total
      current liabilities
              
              
              616,867
              
              
              
              845,460Deferred
      income taxes, net
              
              
              282,448
              
              
              
              256,448Other
              
              
              96,978
              
              
              
              86,154Commitments
      and contingencies (Note 8)Total
      partners' capital and liabilities
              
              $
              4,160,028
              
              
              $
              3,950,202











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


5
 Table of Contents
 PANHANDLE
EASTERN PIPE LINE COMPANY, LP
 CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
 (UNAUDITED)




Nine
      Months Ended September 30,2008
              
              
              2007(In
      thousands)Cash
      flows provided by (used in) operating activities:Net
      earnings
              
              $
              113,143
              
              
              $
              112,760Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              76,885
              
              
              
              63,634Deferred
      income taxes
              
              
              36,464
              
              
              
              17,559Other
              
              
              4,130
              
              
              
              (4,255
              )Changes
      in operating assets and liabilities
              
              
              22,884
              
              
              
              48,881Net
      cash flows provided by operating activities
              
              
              253,506
              
              
              
              238,579Cash
      flows provided by (used in) investing activities:Net
      decrease (increase) in note receivable - Southern Union
              
              
              92,400
              
              
              
              85,150Net
      decrease in income taxes payable - related parties
              
              
              (5,842
              )
              
              
              -Decrease
      in note receivable - CrossCountry Citrus
              
              
              19,829
              
              
              
              37,691Additions
      to property, plant and equipment
              
              
              (393,711
              )
              
              
              (315,134
              )Other
              
              
              (2,723
              )
              
              
              1,536Net
      cash flows used in investing activities
              
              
              (290,047
              )
              
              
              (190,757
              )Cash
      flows provided by (used in) financing activities:Decrease
      in book overdraft
              
              
              (7,874
              )
              
              
              (6,990
              )Issuance
      of long-term debt
              
              
              400,000
              
              
              
              455,000Repayment
      of debt
              
              
              (351,829
              )
              
              
              (493,316
              )Issuance
      costs of debt
              
              
              (2,912
              )
              
              
              (2,363
              )Other
              
              
              (1,140
              )
              
              
              -Net
      cash flows provided by (used in) financing activities
              
              
              36,245
              
              
              
              (47,669
              )Change
      in cash and cash equivalents
              
              
              (296
              )
              
              
              153Cash
      and cash equivalents at beginning of period
              
              
              320
              
              
              
              531Cash
      and cash equivalents at end of period
              
              $
              24
              
              
              $
              684








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


6
 Table of Contents
 PANHANDLE
EASTERN PIPE LINE COMPANY, LP
 CONDENSED
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL AND COMPREHENSIVE
INCOME
 (UNAUDITED)





Partners'
      Capital
              
              
              Accumulated
      Other Comprehensive Income (Loss)
              
              
              Tax
      Sharing Note Receivable-Southern Union
              
              Total(In
      thousands)Balance
      December 31, 2007
              
              $
              1,192,147
              
              
              $
              1,636
              
              
              $
              (12,704
              )
              
              $
              1,181,079Tax
      sharing receivable - Southern Union
              
              
              -
              
              
              
              -
              
              
              
              3,262
              
              
              
              3,262Comprehensive
      income:Net
      earnings
              
              
              113,143
              
              
              
              -
              
              
              
              -
              
              
              
              113,143Net
      change in other comprehensive loss (Note 6)
              
              
              -
              
              
              
              (8,501
              )
              
              
              -
              
              
              
              (8,501
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              104,642Balance
      September 30, 2008
              
              $
              1,305,290
              
              
              $
              (6,865
              )
              
              $
              (9,442
              )
              
              $
              1,288,983














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


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


The
accompanying unaudited interim condensed consolidated financial statements of
PEPL, a Delaware limited partnership, and its subsidiaries have been prepared
pursuant to the rules and regulations of the SEC for quarterly reports on Form
10-Q.  These statements do not include all of the information and note
disclosures required by GAAP, and should be read in conjunction with Panhandle’s
financial statements and notes thereto for the year ended December 31, 2007,
which are included in Panhandle’s Form 10-K filed with the SEC.  The
accompanying unaudited interim condensed consolidated financial statements have
been prepared in accordance with GAAP and reflect adjustments that are, in the
opinion of management, necessary for a fair statement of results for the interim
period.  The year-end condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
GAAP.  Due to the seasonal nature of the Company’s operations, the
results of operations and cash flows for any interim period are not necessarily
indicative of the results that may be expected for the full year.





The
Company does not currently apply FASB Statement No. 71 “Accounting for the Effects of
Certain Types of Regulation” (Statement No. 71).  In 1999, the
Company discontinued application of Statement No. 71 primarily due to the level
of discounting from tariff rates and its inability to pass through and recover
all costs.  The accounting required by the statement differs from the
accounting required for businesses that do not apply its
provisions.  Transactions that are generally recorded differently as a
result of applying regulatory accounting requirements include, among others,
recognition of regulatory assets, capitalization of an equity component on
regulated capital projects and depreciation on assets.





1.  Description of Business





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





·
            PEPL,
      an indirect wholly-owned subsidiary of Southern Union
    Company;


·
            Trunkline,
      a direct wholly-owned subsidiary of
PEPL;


·
            Sea
      Robin, an indirect wholly-owned subsidiary of
  PEPL;


·
            LNG
      Holdings, an indirect wholly-owned subsidiary of
  PEPL;


·
            Trunkline
      LNG, a direct wholly-owned subsidiary of LNG Holdings;
  and


·
            Southwest
      Gas Storage, a direct wholly-owned subsidiary of
  PEPL.





The
Company’s pipeline assets include approximately 10,000 miles of interstate
pipelines that transport natural gas from the Gulf of Mexico, South Texas and
the panhandle regions of Texas and Oklahoma to major U.S. markets in the Midwest
and Great Lakes region.  The pipelines have a combined peak day
delivery capacity of 5.5 Bcf/d and approximately 68 Bcf of owned underground
storage capacity.  Trunkline LNG, located on Louisiana's Gulf Coast,
operates one of the largest LNG import terminals in North America, based on
current send out capacity, and has 9.0 Bcf of above ground LNG storage
capacity.





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





2.  New
Accounting Principles





Accounting
Principles Recently Adopted.





FASB Statement
No. 157, “Fair Value Measurements” (Statement No. 157):Issued by
the FASB in September 2006, this Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Where applicable, this Statement simplifies and codifies related
guidance within GAAP.  This Statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years.  In February 2008, the FASB released a FASB
Staff Position (FSP FAS 157-2, “Effective Date of FASB Statement No.
157”), which delays the effective date of this Statement for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), to fiscal years beginning after November 15,
2008.  The Company’s major categories of non-financial assets and
non-financial liabilities




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




that are
recognized or disclosed at fair value for which, in accordance with FSP FAS
157-2, the Company has not applied the provisions of Statement No. 157 as of
January 1, 2008 are (i) fair value calculations associated with annual or
periodic impairment tests, and (ii) asset retirement obligations measured at
fair value upon initial recognition or upon certain remeasurement events under
FASB Statement No. 143, “Accounting for Asset Retirement
Obligations”.  The partial adoption on January 1, 2008 of this
Statement for financial assets and liabilities did not have a material impact on
the Company’s consolidated financial statements.  See Note 9 – Fair Value
Measurement for more information.  In October 2008, the FASB
issued FASB Staff Position FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active”(FSP FAS
157-3).  FSP FAS 157-3 provides clarifying guidance with
respect to the application of Statement No. 157 in determining the fair value of
a financial asset when the market for that asset is not active.  FSP
FAS 157-3 was effective upon its issuance.  The application of FSP FAS
157-3 did not have a material impact on the Company’s consolidated financial
statements.





FASB Statement
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an Amendment of FASB Statement No. 115”:  Issued by the
FASB in February 2007, this Statement permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value.  Unrealized gains and
losses on items for which the fair value option has been elected are reported in
earnings.  The Statement does not affect any existing accounting
literature that requires certain assets and liabilities to be carried at fair
value.  The Statement is effective for fiscal years beginning after
November 15, 2007.  At January 1, 2008, the Company did not elect the
fair value option under the Statement and, therefore, there was no impact on the
Company’s consolidated financial statements.





Staff Accounting
Bulletin No. 110(SAB
110):Issued by the SEC in December 2007, SAB 110 expresses the views of the
SEC staff regarding the use of a “simplified” method, as discussed in SAB No.
107, in developing an estimate of expected term of “plain vanilla” share options
in accordance with Statement No. 123R,“Accounting for Stock-Based
Compensation”.  The SEC staff indicated in SAB No. 107 that it would
accept a company’s election to use the simplified method, regardless of whether
the company has sufficient information to make more refined estimates of
expected term, for options granted prior to December 31, 2007.  In SAB 110,
the SEC staff states that it will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31, 2007. 
Pursuant to the guidance provided in SAB 110, the Company has elected to
continue utilizing the simplified method in developing the estimate of the
expected term for its share options.





Accounting
Principles Not Yet Adopted.





FASB Statement
No. 141(revised), “Business
Combinations”.  Issued by the FASB in December 2007, this
Statement changes the accounting for business combinations including the
measurement of acquirer shares issued in consideration of a business
combination, the recognition of contingent consideration, the accounting for
preacquisition gain and loss contingencies, the recognition of capitalized
in-process research and development costs, the accounting for
acquisition-related restructuring cost accruals, the treatment of
acquisition-related transaction costs and the recognition of changes in the
acquirer’s income tax valuation allowance. The Statement is effective for
transactions occurring in fiscal years beginning after December 15, 2008,
with early adoption prohibited.




FASB Statement
No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51”.  Issued by the FASB in December
2007, this Statement changes the accounting for noncontrolling (minority)
interests in consolidated financial statements, including the requirements to
classify noncontrolling interests as a component of consolidated stockholders’
equity, and the elimination of minority interest accounting in results of
operations with earnings attributable to noncontrolling interests reported as
part of consolidated earnings. Additionally, the Statement revises the
accounting for both increases and decreases in a parent’s controlling ownership
interest. The Statement is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited.  The Company is
currently evaluating the impact of this Statement on its consolidated financial
statements.





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





FASB Statement
No. 161, “Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133”.  Issued by the FASB in
March 2008, this Statement requires disclosure of how and why an entity uses
derivative instruments, how derivative instruments and related hedged items are
accounted for and how derivative instruments and related hedged items affect an
entity’s financial position, financial performance and cash flows. The Statement
is effective for fiscal years beginning after November 15, 2008, with early
adoption permitted.  The Company is currently evaluating the impact of this
Statement on its consolidated financial statements.





3.  System
Gas and Operating Supplies





System
gas and operating supplies consist of gas held for operations and materials and
supplies, both of which are stated at the lower of weighted average cost or
market, while gas received from or owed back to customers is valued at
market.  The gas held for operations that the Company does not expect
to consume in its operations in the next twelve months is reflected in
non-current assets.





The
components of inventory at the dates indicated is as follows:




September
      30,
              
              
              December
      31,2008
              
              
              2007(In
      thousands)Natural
      gas (1)
              
              $
              140,870
              
              
              $
              168,010Materials
      and supplies
              
              
              13,602
              
              
              
              12,791Total
      current
              
              
              154,472
              
              
              
              180,801Natural
      gas (1)
              
              
              15,542
              
              
              
              18,947$
              170,014
              
              
              $
              199,748
 _____________________________


(1)
            Natural
      gas volumes held for operations at September 30, 2008 and December 31,
      2007 were 20,333,000 MMBtu and 26,001,000 MMBtu,
    respectively.





4.  Related
Party Transactions





The
following table provides a summary of related party transactions for the periods
presented.


Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,Related Party Transactions
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007(In
      thousands)Transportation
      and storage of natural gas  (1)
              
              $
              863
              
              
              $
              788
              
              
              $
              3,122
              
              
              $
              3,094Operation
      and maintenance:Management
      and royalty fees
              
              
              4,373
              
              
              
              3,966
              
              
              
              13,305
              
              
              
              12,219Other
      expenses  (2)
              
              
              4,607
              
              
              
              7,375
              
              
              
              14,446
              
              
              
              22,668Other
      income, net
              
              
              6,303
              
              
              
              9,195
              
              
              
              19,034
              
              
              
              29,946
 _________________


(1)
            Represents
      transportation revenues from Missouri Gas Energy, a Southern Union
      division.


(2)
            Primarily
      includes allocations of corporate charges from Southern Union, partially
      offset for expenses attributable to services provided by Panhandle on
      behalf of other affiliate
companies.





Pursuant
to a demand note with Southern Union Company under a cash management program, as
of September 30, 2008, the Company had loaned excess cash, net of repayments,
totaling $129.3 million to Southern Union since Southern Union acquired the
Company.  Net receipts of $92.4 million were recorded during the
nine-month period ended September 30, 2008.  The Company is credited
with interest on the note at a one-month LIBOR rate.  Included in
Other, net in the
accompanying unaudited interim Condensed Consolidated Statement of Operations is
interest income of $2 million and $4.6 million for the three- and nine-month
periods ended September 30, 2008, respectively, with $1.3 million and $5.2 for
the three- and nine-month periods ended




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






September
30, 2007, respectively, related to interest on the Note receivable – Southern
Union.  Given the uncertainties regarding the timing of the
Company’s cash flows, including financings, capital expenditures and operating
cash flows, the Company has reported the Note receivable – Southern Unionas a non-current asset.  The Company does have access to the
funds via the demand note and does expect repayment to ultimately occur to also
fund capital expenditures.





On
December 1, 2006, LNG Holdings, as borrower, and PEPL and CrossCountry Citrus,
as guarantors, entered into a $465 million unsecured term loan facility due
April 4, 2008 (2006 Term
Loan), which was later amended and restated to extend the maturity to
June 29, 2012.  On December 1, 2006, LNG Holdings loaned the proceeds
of the 2006 Term Loan to CrossCountry Citrus in exchange for an interest-bearing
promissory note with a principal amount of $465 million, the amount of the 2006
Term Loan.  The promissory note was amended and restated to extend the
maturity when the 2006 Term Loan was amended and restated.  Accrued
interest under the promissory note is payable quarterly.  The interest
rate under the promissory note is based on the interest rate under the amended
and restated term loan facility plus a credit spread over LIBOR of 112.5 basis
points.  Included in Other, net in the
accompanying unaudited interim Condensed Consolidated Statement of Operations is
interest income of $4.2 million and $14.2 million for the three- and
nine-month periods ended September 30, 2008, respectively, with $7.8 million and
$24.5 million for the three- and nine-month periods ended September 30, 2007,
respectively, related to interest on the Note receivable – CrossCountry
Citrus.





Southern
Union structured the acquisition of PEPL in a manner intended to qualify as a
like-kind exchange of property under Section 1031 of the Internal Revenue Code
of 1986.  For tax purposes, the Company’s assets that were part of the
exchange were recorded at the tax basis of the Southern Union Company assets for
which they were exchanged.  The resulting transaction generated an
estimated deferred tax liability at the acquisition date and a corresponding
receivable from Southern Union reflected as a reduction to Partners’ Capital on the
Company’s unaudited interim Condensed Consolidated Balance
Sheet.  Repayment of the receivable from Southern Union is limited to
actual tax liabilities otherwise payable by the Company pursuant to the tax
sharing agreement with Southern Union Company.  For the nine months
ended September 30, 2008, the Company recorded $3.3 million of income tax
liability settlements against the tax sharing note receivable.





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





Related
      Party
              
              Nine
      Months Ended September 30, 2008
              
              
              Year
      Ended December 31,2007(In
      thousands)Accounts
      receivable - related parties:Southern
      Union (1)
              
              $
              3,277
              
              
              $
              1,174Other
      (2)
              
              
              5,381
              
              
              
              10,8938,658
              
              
              
              12,067Accounts
      payable - related parties:Southern
      Union - income taxes  (3)
              
              
              35,578
              
              
              $
              41,420Southern
      Union - other (4)
              
              
              7,872
              
              
              
              14,945Other
      (5)
              
              
              353
              
              
              
              341$
              43,803
              
              
              $
              56,706
 ______________________________


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


(2)
            Primarily
      related to interest from CrossCountry
Citrus.


(3)
            Related
      to income taxes payable to Southern Union per the tax sharing agreement,
      which was amended in September 2007, to provide for taxes to be remitted
      upon the filing of the tax return.


(4)
            Primarily
      related to payroll funding provided by Southern
  Union.


(5)
            Primarily
      related to various administrative and operating costs paid by other
      affiliate companies on behalf of the
Company.








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





5.  Debt





The
following table sets forth the debt obligations of the Company at the dates
indicated:





Long-term Debt Obligations
              
              September
      30, 2008
              
              
              December
      31, 2007(In
      thousands)4.80%
      Senior Notes due 2008
              
              $
              -
              
              
              $
              300,0006.05%
      Senior Notes due 2013
              
              
              250,000
              
              
              
              250,0006.20%
      Senior Notes due 2017
              
              
              300,000
              
              
              
              300,0006.50%
      Senior Notes due 2009
              
              
              60,623
              
              
              
              60,6238.25%
      Senior Notes due 2010
              
              
              40,500
              
              
              
              40,5007.00%
      Senior Notes due 2029
              
              
              66,305
              
              
              
              66,3057.00%
      Senior Notes due 2018
              
              
              400,000
              
              
              
              -Term
      Loans due 2012
              
              
              815,391
              
              
              
              867,220Net
      premiums on long-term debt
              
              
              2,821
              
              
              
              6,093Total
      debt outstanding
              
              
              1,935,640
              
              
              
              1,890,741Current
      portion of long-term debt
              
              
              (60,888
              )
              
              
              (309,680
              )Total
      long-term debt
              
              $
              1,874,752
              
              
              $
              1,581,061


7.00% Senior
Notes due 2018.In June 2008, the Company issued $400 million in
senior notes due June 15, 2018 with an interest rate of 7.00 percent (7.00% Senior Notes).  In
connection with the issuance of the 7.00% Senior Notes, the Company incurred
underwriting costs and debt discount totaling approximately $4.1 million,
resulting in approximately $395.9 million in proceeds to the Company.  The
proceeds were initially loaned to Southern Union Company, under the demand note
between the Company and Southern Union Company.  Such advanced amounts
were repaid by Southern Union to the Company and used to repay the $300 million
of 4.80% Senior Notes due August 15, 2008.





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





6.  Comprehensive
Income





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





Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,2008
              
              
              2007
              
              
              2008
              
              
              2007(In
      thousands)
              
              
              (In
      thousands)Net
      earnings
              
              $
              29,990
              
              
              $
              32,660
              
              
              $
              113,143
              
              
              $
              112,760Realized
      gain on interest rate hedges net of tax of$0,
      $0, $197 and $0, respectively
              
              
              -
              
              
              
              -
              
              
              
              309
              
              
              
              -Reclassification
      of realized (gain) loss on interest rate hedges intoearnings,
      net of tax of $1,051, $(186), $2,284 and $(341),
    respectively
              
              
              1,564
              
              
              
              (385
              )
              
              
              3,407
              
              
              
              (614
              )Reduction
      of prior service credit relating to other postretirementbenefits,
      net of tax of $0, $0, $(3,231) and $0, respectively
              
              
              -
              
              
              
              -
              
              
              
              (6,603
              )
              
              
              -Change
      in fair value of interest rate hedges, net of tax of$(2,096),
      $(4,329), $(3,090) and $(1,374), respectively
              
              
              (3,118
              )
              
              
              (6,318
              )
              
              
              (4,634
              )
              
              
              (1,923
              )Reclassification
      of actuarial gain and prior service creditrelating
      to other postretirement benefits into earnings, net of taxof
      $(157), $(1,218), $(557) and $(1,662), respectively
              
              
              (269
              )
              
              
              (2,252
              )
              
              
              (980
              )
              
              
              (3,608
              )Total
      other comprehensive loss
              
              
              (1,823
              )
              
              
              (8,955
              )
              
              
              (8,501
              )
              
              
              (6,145
              )Total
      comprehensive income
              
              $
              28,167
              
              
              $
              23,705
              
              
              $
              104,642
              
              
              $
              106,615


See Note 7 – Postretirement
Benefits for a discussion related to an amendment of the Company’s
postretirement benefit plan in March 2008, which resulted in a $6.6 million net
of tax reduction in the prior service credit included in Accumulated other comprehensive
income (loss).





7.  Postretirement
Benefits





Net
periodic benefit cost for the three- and nine-month periods ended September 30,
2008 and 2007 includes the components noted in the table below.




Postretirement
      Benefits
              
              
              Postretirement
      BenefitsThree
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007(In
      thousands)
              
              
              (In
      thousands)Service
      cost
              
              $
              525
              
              
              $
              336
              
              
              $
              1,450
              
              
              $
              1,008Interest
      cost
              
              
              825
              
              
              
              511
              
              
              
              2,350
              
              
              
              1,534Expected
      return on plan assets
              
              
              (605
              )
              
              
              (484
              )
              
              
              (1,780
              )
              
              
              (1,451
              )Prior
      service credit amortization
              
              
              (436
              )
              
              
              (900
              )
              
              
              (1,536
              )
              
              
              (2,701
              )Transfer
      of net obligation from affiliate
              
              
              -
              
              
              
              1,912
              
              
              
              -
              
              
              
              1,912Net
      periodic benefit cost
              
              $
              309
              
              
              $
              1,375
              
              
              $
              484
              
              
              $
              302


In March
2008, a postretirement benefit plan change was approved for retirements
beginning April 1, 2008.  The change resulted in a pre-tax
postretirement benefit obligation increase of approximately $9.8
million.





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




8.  Commitments
and Contingencies





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





Jack
Grynberg, an individual, filed actions for damages against a number of
companies, including the Company, now transferred to the U.S. District Court for
the District of Wyoming, alleging mis-measurement of gas volumes and Btu
content, resulting in lower royalties to mineral interest owners.  On
October 20, 2006, the District Judge adopted in part the earlier recommendation
of the Special Master in the case and ordered the dismissal of the case against
the Company.  Grynberg is appealing that action to the Tenth Circuit
Court of Appeals.  Grynberg’s opening brief was filed on July 31,
2007.  Respondents filed their brief rebutting Grynberg’s arguments on
November 21, 2007.  A hearing before the Court of Appeals was held on
September 25, 2008.  The Court has not yet ruled on Grynberg’s
appeal.  A similar action, known as the Will Price litigation, also
has been filed against a number of companies, including the Company, in U.S.
District Court for the District of Kansas.  The Company is currently
awaiting the decision of the trial judge on the defendants’ motion to dismiss
the Will Price action.  The Company believes that its measurement
practices conformed to the terms of its FERC gas tariff, which was filed with
and approved by FERC.  As a result, the Company believes that it has
meritorious defenses to these lawsuits (including FERC-related affirmative
defenses, such as the filed rate/tariff doctrine, the primary/exclusive
jurisdiction of FERC, and the defense that the Company complied with the terms
of its tariff) and will continue to vigorously defend against them, including
any appeal from the dismissal of the Grynberg case.  The Company does
not believe the outcome of these cases will have a material adverse effect on
its consolidated financial position, results of operations or cash
flows.





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





Environmental
Remediation.  The Company is responsible for environmental
remediation at certain sites on its gas transmission systems for contamination
resulting from the past use of lubricants containing PCBs in compressed air
systems; the past use of paints containing PCBs; and the prior use of wastewater
collection facilities and other on-site disposal areas.  The Company
has developed and is implementing a program to remediate such
contamination.  Remediation and decontamination has been completed at
each of the 35 compressor station sites where auxiliary buildings that house the
air compressor equipment were impacted by the past use of lubricants containing
PCBs.  At some locations, PCBs have been identified in paint that was
applied many years ago.  A program has been implemented to remove and
dispose of PCB impacted paint during painting activities.  At one
location on the Trunkline system, PCBs were discovered on the painted surfaces
of equipment in a building that is outside the scope of the compressed air
system program and the existing PCB impacted paint program.  The
estimated cost to remediate the painted surfaces at this location is
approximately $300,000.  Preliminary assessments were completed at all
compressor station locations as of September 30, 2008.  Subsequent
focused assessments indicated PCBs at regulated levels in a small number of
samples at 18 locations.  Until the complete results of the assessment
program are available and the analysis is completed, the costs associated with
remediation of the painted surfaces cannot be reasonably estimated.




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





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





PEPL and
Trunkline, together with other non-affiliated parties, were identified as
potentially liable for conditions at three former waste oil disposal sites in
Illinois – the Pierce Oil Springfield site, the Dunavan Waste Oil site and the
McCook site (collectively, the
Pierce Waste Oil Sites).  PEPL and Trunkline received notices
of potential liability from the U.S. EPA for the Dunavan site by letters dated
September 30, 2005.  Although no formal notice has been received for
the Pierce Oil Springfield site, special notice letters are anticipated and the
process of listing the site on the National Priority List has
begun.  No formal notice has been received for the McCook
site.  The Company believes the outcome of these matters will not have
a material adverse effect on its consolidated financial position, results of
operations or cash flows.





On June
16, 2005, PEPL experienced a release of liquid hydrocarbons near Pleasant Hill,
Illinois.  The EPA took the lead role in overseeing the subsequent
cleanup activities, which have been completed.  PEPL has resolved
claims of affected boat owners and the marina operator.  PEPL received
a violation notice from the IEPA alleging that PEPL was in apparent violation of
several sections of the Illinois Environmental Protection Act by allowing the
release.  The violation notice did not propose a
penalty.  Responses to the violation notice were submitted and the
responses were discussed with the agency.  In December 2005, the IEPA
notified PEPL that the matter might be considered for referral to the Office of
the Attorney General, the State’s Attorney or the EPA for formal enforcement
action and the imposition of penalties.  The only contact from the
IEPA on this matter has been three requests for information to which the Company
responded in January 2007, April 2008 and August 2008.  The Company
believes the outcome of this matter will not have a material adverse effect on
its consolidated financial position, results of operations or cash
flows.





The table
below reflects the amount of accrued liabilities recorded in the unaudited
interim Condensed Consolidated Balance Sheet at September 30, 2008 and December
31, 2007 to cover probable environmental response actions:





September
      30,
              
              
              December
      31,2008
              
              
              2007(In
      thousands)Current
              
              $
              1,061
              
              
              $
              996Noncurrent
              
              
              5,713
              
              
              
              6,901Total
      Environmental Liabilities
              
              $
              6,774
              
              
              $
              7,897
  Air Quality
Control. In early April 2007, the IEPA proposed a rule to the
IPCBfor adoption
to control NOx emissions from reciprocating engines and turbines, including a
provision applying the rule beyond issues addressed by federal provisions,
pursuant to a blanket statewide application. After objections were filed
with the IPCB, the IEPA filed an amended proposal withdrawing the statewide
applicability provisions of the proposed rule and applying the rule requirements
to non-attainment areas. The amended proposal was approved on January 10,
2008.  No controls on PEPL and Trunkline stations are required under
the most recent proposal. However, the IEPA indicated in earlier industry
discussions that it was reserving the right to make future proposals for
statewide controls.  In the event the IEPA proposes a statewide rule
again, preliminary estimates indicate the cost of compliance would require
minimum capital expenditures of approximately $45 million for emission
controls.




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


The KDHE
has established certain contingency measures as part of the agency’s ozone
maintenance plan for the Kansas City area.  These measures will be
triggered if there are any new elevated ozone readings in the Kansas City
area.  One of the NOx emission sources that will be impacted is the
PEPL Louisburg compressor station.  In addition, the U.S. EPA has
revised the ozone standard and the Kansas City area will likely be designated as
a non-attainment area under the new and stricter standard.  A meeting
was held with KDHE on August 14, 2008 to discuss issues associated with reducing
emissions at the Louisburg compressor station.  In the event KDHE
requires emission reductions, it is estimated that approximately $14 million in
capital expenditures will be required.





SPCC
Rules.  In May 2007, the
EPA extended the SPCC rule compliance dates until July 1, 2009, permitting
owners and operators of facilities to prepare or amend and implement SPCC Plans
in accordance with previously enacted modifications to the
regulations.  In October 2007, the EPA proposed amendments to the SPCC
rules with the stated intention of providing greater clarity, tailoring
requirements, and streamlining requirements.  The Company is currently
reviewing the impact of the modified regulations on its operations and may incur
costs for tank integrity testing, alarms and other associated corrective actions
as well as potential upgrades to containment structures.  Costs
associated with such activities cannot be estimated with certainty at this time,
but the Company believes such costs will not have a material adverse effect on
its consolidated financial position, results of operations or cash
flows.





Other
Commitments and Contingencies.





2008 Hurricane
Damage.In September 2008, Hurricanes Gustav and Ike came
ashore on the Louisiana and Texas coasts.  Offshore facilities,
including Sea Robin and Trunkline’s Terrebonne system, suffered damage to
several platforms and are continuing to experience reduced volumes.





With
respect to the Company’s preliminary damage assessments associated with
Hurricane Gustav, the Company estimates an expense impact to its facilities
totaling approximately $3 million, which was recorded in the third quarter of
2008.  The capital expenditure amount related to the hurricane was
insignificant.  As these amounts are below the $10 million property
insurance deductible, the Company does not expect any of the repair and
replacement costs associated with Hurricane Gustav to be reimbursed by its
property insurance carrier.





With
respect to the Company’s preliminary damage assessments associated with
Hurricane Ike, the Company estimates an expense impact related to its facilities
totaling approximately $7 million, which was recorded in the third quarter of
2008.  The Company also preliminarily estimates that capital
expenditures relating to the hurricane will total approximately $90 million in
2008 and 2009.  These estimates are subject to further revision as the
assessment of the damage to the Company’s facilities is ongoing.  The
Company anticipates reimbursement from its property insurance carrier for a
significant portion of the damages in excess of its $10 million deductible;
however, the recoverable amount is subject to pro-rata reduction to the
extent that the level of total accepted claims from all insureds exceeds the
carrier’s $750 million aggregate exposure limit.  The Company’s
insurance provider has announced that it expects to reach the $750 million
limit, but the amount of any applicable pro rata reduction cannot be determined
until the Company’s insurance provider has completed its assessment of all
submitted claims.





2005 Hurricane
Damage.  Late in the third quarter of 2005, Hurricanes Katrina
and Rita came ashore along the Upper Gulf Coast.  These hurricanes
caused damage to property and equipment owned by Sea Robin, Trunkline and
Trunkline LNG.  The Company has filed approximately $32 million of
damage claims related to the hurricanes, primarily amounts for repairs,
replacement or abandonment of damaged property and equipment at Sea Robin and
Trunkline. The Company has received reimbursement from its property insurance
carrier for a significant portion of the damages in excess of the $5 million
deductible in effect in 2005.  Such reimbursement is currently
estimated by the Company’s property insurance carrier to be limited to 63
percent of the portion of the claimed damages accepted by the insurance carrier,
based on a pro rata reduction to the extent accepted claims exceeded the
carrier’s $1 billion aggregate exposure limit.  As of September 30,
2008, the Company has received payments of $13 million from its insurance
carrier, representing a 55 percent payout to date of the 63 percent payout
ultimately expected.  No additional receivables due from the insurance
carrier have been recorded related to the hurricane claims as of September 30,
2008.




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




Controlled Group
Pension Liabilities.  Southern Union Company (including certain
of its divisions) sponsors a number of defined benefit pension plans for
employees.  Under applicable pension and tax laws, upon being acquired
by Southern Union, the Company became a member of Southern Union Company’s
“controlled group” with respect to those plans and, along with Southern Union
Company and any other members of that group, is jointly and severally liable for
any failure by Southern Union (along with any other persons that may be or
become a sponsor of any such plan) to fund any of these pension plans or to pay
any unfunded liabilities that these plans may have if they are ever
terminated.  In addition, if any of the obligations of any of these
pension plans is not paid when due, a lien in favor of that plan or the Pension
Benefit Guaranty Corporation may be created against the assets of each member of
Southern Union Company’s controlled group, including the Company and each of its
subsidiaries.  Based on the latest actuarial information available as
of December 31, 2007, the aggregate amount of the projected benefit obligations
of these pension plans was approximately $162.8 million and the estimated fair
value of all of the assets of these plans was approximately $128.3
million.





9.
Fair Value Measurement





Adoption of
Statement No. 157.Effective January 1,
2008, the Company partially adopted Statement No. 157, which provides a
framework for measuring fair value (see Note 2 – New Accounting
Principles).  As defined in Statement No. 157, fair value is
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.  The Company utilizes market data or assumptions
that market participants would use in pricing the asset or liability, including
assumptions about credit risk (both the Company’s own credit risk and
counterparty credit risk) and the risks inherent in the inputs to any applicable
valuation techniques.  These inputs can be readily observable, market
corroborated, or generally unobservable.  The Company endeavors to
utilize the best available information, including valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable
inputs.  Statement No. 157 establishes a three-tier fair value
hierarchy, which prioritizes the inputs used to measure fair value as
follows:





·
            Level
      1 – Observable inputs such as quoted prices in active markets for
      identical assets or liabilities;





·
            Level
      2 – Observable inputs such as: (i) quoted prices for similar assets or
      liabilities in active markets; (ii) quoted prices for identical or similar
      assets or liabilities in markets that are not active; or (iii) valuations
      based on pricing models where significant inputs (e.g., interest rates,
      yield curves, etc.) are observable for the assets or liabilities, are
      derived principally from observable market data, or can be corroborated by
      observable market data, for substantially the full term of the assets or
      liabilities; and





·
            Level
      3 – Unobservable inputs, including valuations based on pricing models,
      discounted cash flow methodologies or similar techniques where at least
      one significant model assumption or input is
      unobservable.  Unobservable inputs are used to the extent that
      observable inputs are not available and reflect the Company’s own
      assumptions about the assumptions market participants would use in pricing
      the assets or liabilities.  Unobservable inputs are based on the
      best information available in the circumstances, which might include the
      Company’s own data.





Financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement.  The
Company’s assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation of these assets and
liabilities and their placement within the fair value hierarchy.





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





At
September 30, 2008, the Company had no financial assets measured at fair value
on a recurring basis in accordance with Statement No. 157. The following table
sets forth the Company’s financial liabilities that are measured at fair value
on a recurring basis at September 30, 2008.





Fair
      Value
              
              
              Fair
      Value Measurements at September 30, 2008as
      of
              
              
              Using
      Fair Value HierarchySeptember
      30, 2008
              
              
              Level
      1
              
              
              Level
      2
              
              
              Level
      3Liabilities:Interest-rate
      derivatives
              
              $
              18,325
              
              
              $
              -
              
              
              $
              -
              
              
              $
              18,325Total
              
              $
              18,325
              
              
              $
              -
              
              
              $
              -
              
              
              $
              18,325
  The
Company’s Level 3 instruments include interest-rate swap derivatives that are
valued using an income approach where at least one significant assumption or
input to the underlying pricing model, discounted cash flow methodology or
similar technique is unobservable – i.e., interest rate swap valuations include
composite yield curves provided by the bank counterparty.  The financial
liabilities that the Company has categorized in Level 3 may later be
reclassified to Level 2 when the Company is able to obtain additional observable
market data to corroborate the unobservable inputs to models used to measure the
fair value of these liabilities.





The
following tables present a reconciliation of the change in the Company’s Level 3
financial liabilities measured at fair value on a recurring basis using
significant unobservable inputs for the periods indicated.




Three
      Months EndedSeptember
      30, 2008(In
      thousands)Interest-rate
      DerivativesBalance
      June 30, 2008
              
              $
              15,664Total
      gains or losses (realized and unrealized):Included
      in earnings
              
              
              -Included
      in other comprehensive income
              
              
              5,194Purchases
      and settlements, net
              
              
              (2,533
              )Balance
      September 30, 2008
              
              $
              18,325
  Nine
      Months EndedSeptember
      30, 2008(In
      thousands)Interest-rate
      DerivativesBalance
      January 1, 2008
              
              $
              17,121Total
      gains or losses (realized and unrealized):Included
      in earnings
              
              
              -Included
      in other comprehensive income
              
              
              6,229Purchases
      and settlements, net
              
              
              (5,025
              )Balance
      September 30, 2008
              
              $
              18,325


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





10.  Taxes
on Income





The
company’s estimated annual consolidated federal and state EITRfor each of
the three-month and nine-month periods ended September 30, 2008 and 2007 was 39
percent.





The
Company is no longer subject to U.S. federal, state or local examinations for
the tax year ended June 30, 2004 and prior years.  The Company’s
parent, Southern Union Company, settled the IRS examination of the year ended
June 30, 2003 in November 2006.  Generally, the state impact of the
federal change remains subject to state and local examination for a period of up
to one year after formal notification to the state and local
jurisdictions.  In 2007, Southern Union Company filed all required
state amended returns as a result of the federal change.  Therefore,
the state and local statutes will expire with respect to the tax year ended June
30, 2003 in 2008.





11.
Regulatory Matters





The
Company commenced construction of an enhancement at its Trunkline LNG terminal
in February 2007.  This infrastructure enhancement project, which was
originally expected to cost approximately $250 million, plus capitalized
interest, will increase send out flexibility at the terminal and lower fuel
costs.  Recent cost projections indicate the construction costs will
likely be approximately $400 million, plus capitalized interest.  The
revised costs, which are under review, reflect increases in the quantities and
cost of materials required, higher contract labor costs, including reduced
productivity due to an August 2008 tropical storm and the two September 2008
hurricanes, and an allowance for additional contingency funds, if
needed.  The negotiated rate with the project’s customer, BG LNG
Services, will be adjusted based on final capital costs pursuant to a
contract-based formula.  The project is currently expected to be in
operation around the end of the second quarter of 2009.  In addition,
Trunkline LNG and BG LNG Services agreed to extend the existing terminal and
pipeline services agreements to coincide with the infrastructure enhancement
project contract, which runs 20 years from the in-service
date.  Approximately $311.9 million and $178.3 million of costs are
included in the line item Construction work-in-progress
at September 30, 2008 and December 31, 2007, respectively.





Sea Robin
filed a rate case with FERC in June 2007, requesting an increase in its maximum
rates.  Several parties submitted protests to the rate increase filing
with FERC.  On July 30, 2007, FERC suspended the effectiveness of the
filed rate increase until January 1, 2008.  The filed rates were put
into effect on January 1, 2008, subject to refund.  On February 14,
2008, at the request of the participants in the proceeding, the procedural
schedule was suspended to facilitate the filing of a settlement.  On
April 29, 2008, Sea Robin submitted to FERC a Stipulation and Agreement (Settlement) that would
resolve all issues in the proceeding.  The Administrative Law Judge
certified the Settlement to the FERC on June 3, 2008.  The Settlement
is currently pending further FERC action.  Customer refund liability
provisions of approximately $3.4 million, including interest, have been recorded
as of September 30, 2008.


19
 Table of Contents


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





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





Overview





The
Company is primarily engaged in the interstate transportation and storage of
natural gas and also provides LNG terminalling and regasification services, with
rates and services regulated by FERC.  The Company’s entities include
PEPL, Trunkline, Sea Robin, Trunkline LNG and Southwest Gas
Storage.  Collectively, the pipeline assets include approximately
10,000 miles of interstate pipelines that transport natural gas from the Gulf of
Mexico, South Texas and the panhandle regions of Texas and Oklahoma to major
U.S. markets in the Midwest and Great Lakes region.  The pipelines
have a combined peak day delivery capacity of 5.5 Bcf/d and approximately 68 Bcf
of owned underground storage capacity.  Trunkline LNG, located on
Louisiana's Gulf Coast, operates one of the largest LNG import terminals in
North America, based on current send out capacity, and has 9.0 Bcf of above
ground LNG storage capacity.





The
Company earns the majority of its revenue by entering into firm transportation
and storage contracts, providing capacity for customers to transport or store
natural gas in its facilities.  The Company provides firm
transportation services under contract to local distribution company customers
and their affiliates, gas marketers, producers, other pipelines, electric power
generators and a variety of end-users.  In addition, the Company’s
pipelines offer both firm and interruptible transportation to customers on a
short-term or seasonal basis.  Demand for gas transmission on the
Company’s pipeline systems is seasonal, with the highest throughput and a higher
portion of annual total operating revenues and net earnings occurring in the
traditional winter heating season in the first and fourth calendar
quarters.  Average reservation revenue rates realized by the Company
are dependent on certain factors, including but not limited to rate regulation,
customer demand for reserved capacity, capacity sold levels for a given period
and, in some cases, utilization of capacity.  Commodity revenues are
also dependent upon a number of variable factors including weather, storage
levels, and customer demand for firm interruptible and parking
services.  The majority of Panhandle’s revenues are related to firm
capacity reservation charges.  For the nine-month periods ended
September 30, 2008 and 2007, the Company’s combined throughput, including supply
area and market area deliveries, was 1,085 TBtu and 1,116 TBtu,
respectively.  For the years 2007, 2006 and 2005 the Company’s
combined throughput, including supply area and market area deliveries, was 1,454
TBtu, 1,180 TBtu and 1,214 TBtu, respectively.





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








20
 Table of Contents







Results
of Operations





Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2008
                
                
                2007
                
                
                2008
                
                
                2007(In
      thousands)Operating
      revenueTransportation
      and storage of natural gas
                
                $
                139,189
                
                
                $
                122,340
                
                
                $
                427,293
                
                
                $
                376,752LNG
      terminalling revenue
                
                
                31,882
                
                
                
                34,034
                
                
                
                93,663
                
                
                
                104,155Other
      revenue
                
                
                2,329
                
                
                
                2,589
                
                
                
                7,828
                
                
                
                8,792Total
      operating revenue
                
                
                173,400
                
                
                
                158,963
                
                
                
                528,784
                
                
                
                489,699Operating
      expensesOperation,
      maintenance and general
                
                
                72,857
                
                
                
                65,905
                
                
                
                196,210
                
                
                
                186,759Depreciation
      and amortization
                
                
                26,133
                
                
                
                21,863
                
                
                
                76,885
                
                
                
                63,634Taxes,
      other than on income
                
                
                8,225
                
                
                
                7,340
                
                
                
                24,418
                
                
                
                22,436Total
      operating expenses
                
                
                107,215
                
                
                
                95,108
                
                
                
                297,513
                
                
                
                272,829Operating
      income
                
                
                66,185
                
                
                
                63,855
                
                
                
                231,271
                
                
                
                216,870Other
      income (expense)Interest
      expense, net
                
                
                (23,804
                )
                
                
                (19,492
                )
                
                
                (66,089
                )
                
                
                (62,979
                )Other,
      net
                
                
                7,033
                
                
                
                9,258
                
                
                
                20,558
                
                
                
                31,055Total
      other income (expense)
                
                
                (16,771
                )
                
                
                (10,234
                )
                
                
                (45,531
                )
                
                
                (31,924
                )Earnings
      before income taxes
                
                
                49,414
                
                
                
                53,621
                
                
                
                185,740
                
                
                
                184,946Income
      taxes
                
                
                19,424
                
                
                
                20,961
                
                
                
                72,597
                
                
                
                72,186Net
      earnings
                
                $
                29,990
                
                
                $
                32,660
                
                
                $
                113,143
                
                
                $
                112,760


Three-month
period ended September 30, 2008 versus the three-month period ended September
30, 2007





Operating
Revenue.  For the
three-month period ended September 30, 2008, operating revenue increased $14.4
million versus the same time period in 2007 primarily as the result
of:


·
            Increased
      transportation and storage revenue of $16.8 million primarily attributable
      to:


o
            Higher
      transportation reservation revenues of $14.8 million primarily due to the
      phased completion of the Trunkline Field Zone Expansion project during the
      period December 2007 to February 2008 and reduced discounting resulting in
      higher average rates realized on contracts driven by higher customer
      demand;


o
            Higher
      storage revenues of $1.9 million due to additional contracted storage
      capacity;


o
            Higher
      commodity revenues of $300,000 primarily due to a rate increase on Sea
      Robin, net of related customer liability refund provisions, which includes
      the impact of approximately $1.4 million of lower revenues attributable to
      reduced volumes flowing after Hurricane Ike and lower parking revenues of
      $1.2 million due to market
conditions.


·
            A
      $2.2 million decrease in LNG terminalling revenue due to lower volumes
      from a reduced number of LNG cargoes during
  2008.





The
Company preliminarily estimates lost revenue opportunities of $3 million will be
experienced in the fourth quarter of 2008 as a result of Hurricane
Ike.  Such preliminary estimate is subject to further update based
upon the timing of the Company completing the repair and replacement of its
damaged property and equipment, and the timing of producers completing their
interconnects to the Company’s offshore system.  Currently, the
Company anticipates the majority of the interconnects will be completed by the
2008 year end.





21
 Table of Contents





Operating
Expenses.  Operating expenses for the three-month period ended
September 30, 2008 increased $12.1 million versus the same period in 2007
primarily as the result of:


·
            Higher
      operation, maintenance and general expenses of $7 million primarily
      attributable to:


o
            Expense
      of $9.5 million for the estimated impact related to damages to
      the Company’s facilities resulting from Hurricanes Gustav and
      Ike;


o
            A
      $2.3 million increase in contract storage costs resulting from an increase
      in leased storage capacity;


o
            A
      $1.1 million decrease in LNG power costs resulting from a reduced number
      of cargoes during 2008;


o
            A
      $1.7 million decrease in fuel tracker costs primarily due to a net
      over-recovery in 2008 versus a net under-recovery in 2007;
    and


o
            A
      $1.6 million decrease in hydrostatic testing costs primarily due to a
      higher number of tests performed in the 2007
  period.


·
            Increased
      depreciation and amortization expense of $4.3 million due to a $643.9
      million increase in property, plant and equipment placed in service after
      September 30, 2007.  Depreciation and amortization expense is
      expected to continue to increase primarily due to higher capital spending,
      primarily from the LNG terminal infrastructure enhancement and compression
      modernization construction projects;
and


·
            Increased
      taxes, other than on income, of $900,000 primarily due to higher property
      taxes attributable to higher property tax assessments resulting from
      increased earnings, partially offset by lower compressor fuel tax
      resulting from decreased LNG
cargoes.





Other Expense,
Net.  Other expense, net for the three-month period ended
September 30, 2008 increased $6.5 million versus the same period in 2007
primarily as a result of:


·
            Higher
      interest expense of $4.3 million primarily attributable to the $400
      million 7.00% Senior Notes issued in June 2008 and the $300 million 6.20%
      Senior Notes issued in October 2007, partially offset by lower interest
      expense resulting from the retirement of the $300 million 4.80% Senior
      Notes in August 2008, lower interest rates on the Company’s variable rate
      debt, and higher capitalized interest resulting from increased capital
      expenditures in the 2008 period versus the 2007 period;
  and


·
            A
      decrease in Other, net of $2.2 million primarily due to lower interest
      income associated with the affiliate note receivables resulting from lower
      LIBOR rates in the 2008 period compared to the 2007 period, partially
      offset by higher interest income associated with higher outstanding
      average affiliate note receivable balances resulting from the $400 million
      7.00% Senior Notes issued in June
2008.





Income
Taxes.  The Company’s EITR was 39 percent for both three-month
periods ended September 30, 2008 and 2007.  Income taxes during the
three-month period ended September 30, 2008, versus the same period in 2007,
decreased $1.5 million due to lower pretax income.





Nine-month
period ended September 30, 2008 versus the nine-month period ended September 30,
2007





Operating
Revenue.  For the
nine-month period ended September 30, 2008, operating revenue increased $39.1
million versus the same time period in 2007 primarily as the result
of:


·
            Increased
      transportation and storage revenue of $50.5 million primarily attributable
      to:


o
            Higher
      transportation reservation revenues of $37.9 million primarily due to the
      phased completion of the Trunkline Field Zone Expansion project during the
      period December 2007 to February 2008 and reduced discounting resulting in
      higher average rates realized on contracts driven by higher customer
      demand, and approximately $1.2 million of additional revenues attributable
      to the extra day in the 2008 leap
year;


o
            Higher
      commodity revenues of $7.1 million primarily due to a rate increase on Sea
      Robin, net of related customer liability refund provisions and the impact
      of approximately $1.4 million of lower revenues attributable to reduced
      volumes flowing after Hurricane Ike;
and


o
            Higher
      storage revenues of $5.5 million due to increased leased storage
      capacity.


·
            A
      $10.5 million decrease in LNG terminalling revenue due to lower volumes
      from decreased LNG cargoes during
2008.





The
Company preliminarily estimates lost revenue opportunities of $3 million will be
experienced in the fourth quarter of 2008 as a result of Hurricane
Ike.  Such preliminary estimate is subject to further update based
upon the timing of the Company completing the repair and replacement of its
damaged property and equipment, and the timing of producers completing their
interconnects to the Company’s offshore system.  Currently, the
Company anticipates the majority of the interconnects will be completed by the
2008 year end.





22
 Table of Contents





Operating
Expenses.  Operating expenses for the nine-month period ended
September 30, 2008 increased $24.7 million versus the same period in 2007
primarily as the result of:


·
            Higher
      operation, maintenance and general expenses of $9.5 million primarily
      attributable to:


o
            Expense
      of $9.5 million for the estimated impact related to damages
      to the Company’s facilities resulting from Hurricanes Gustav and
      Ike;


o
            An
      $8 million increase in contract storage costs resulting from an increase
      in leased storage capacity;


o
            A
      $3.1 million increase in insurance costs primarily due to higher property
      premiums;


o
            A
      $1.9 million increase in benefits primarily due to higher active and
      retiree medical costs experienced in the 2008 period and higher defined
      contribution savings plan expenses resulting from an increase in Panhandle
      savings plan benefits in March 2008, partially offset by the impact of
      $1.9 million of expense in the 2007 period associated with other
      post-retirement benefit costs for transferred
  employees;


o
            A
      $1 million increase in outside services costs related to field operations
      primarily attributable to painting and other maintenance
      costs;


o
            A
      $9.5 million decrease in LNG power costs resulting from a reduced number
      of LNG cargoes during 2008; and


o
            A $6.2million decrease in fuel tracker
      costs primarily due to a net over-recovery in 2008 versus a net
      under-recovery in 2007.





·
            Increased
      depreciation and amortization expense of $13.3 million due to a $643.9
      million increase in property, plant and equipment placed in service after
      September 30, 2007.  Depreciation and amortization expense is
      expected to continue to increase primarily due to higher capital spending,
      primarily from the LNG terminal infrastructure enhancement and compression
      modernization construction projects and other capital expenditures;
      and


·
            Increased
      taxes, other than on income, of $2 million primarily due to higher
      property taxes attributable to higher property tax assessments resulting
      from increased earnings, partially offset by lower compressor fuel tax on
      a reduced number of LNG cargoes.





Other Expense,
Net.  Other expense, net for the nine-month period ended
September 30, 2008 increased $13.6 million versus the same period in 2007
primarily as a result of:


·
            Higher
      interest expense of $3.1 million primarily attributable to the $400
      million 7.00% Senior Notes issued in June 2008 and the $300 million 6.20%
      Senior Notes issued in October 2007, partially offset by lower interest
      expense resulting from the retirement of the $300 million 4.80% Senior
      Notes in August 2008, lower interest rates on the Company’s variable rate
      debt, and higher capitalized interest resulting from increased capital
      expenditures in the 2008 period versus the 2007 period;
  and


·
            Adecrease in Other,
      net of $10.5 million primarily due to lower interest income associated
      with the affiliate note receivables resulting from lower LIBOR rates in
      the 2008 period compared to the 2007 period, partially offset by higher
      interest income associated with higher outstanding average affiliate note
      receivable balances resulting from the $400 million 7.00% Senior Notes
      issued in June 2008.





Income
Taxes.  The Company’s EITR was 39 percent for both nine-month
periods ended September 30, 2008 and 2007.  Income taxes during the
nine-month period ended September 30, 2008, versus the same period in 2007,
increased $400,000 due to higher pretax income.





OTHER
MATTERS





Contingencies





See Part I, Item 1.  Financial
Statements (Unaudited), Note 8 – Commitments and Contingencies in this
Quarterly Report on Form 10-Q.





Recently
Issued Accounting Standards





See Part I, Item 1. Financial Statements
(Unaudited), Note 2 – New Accounting Principles, in this Quarterly Report
on Form 10-Q.





23
 Table of Contents





Liquidity
and Capital Resources





Cash
generated from internal operations constitutes the Company’s primary source of
liquidity.  The $178 million working capital deficit at September 30, 2008
is expected to be funded by cash flows from operations and from repayments of
intercompany loans with Southern Union.  Based on the Company’s current
level of operations, management believes that cash flow from operations,
available existing cash, and other sources, including liquid working capital and
new borrowings, will be adequate to meet liquidity needs for the next several
years, although no assurances can be given as to the sufficiency of cash flows
or the ability to refinance existing obligations.





2008 Capital
Expenditure Funding Sources.  The Company intends to cover its
2008 cash requirements, resulting from planned capital expenditures, from
various sources including cash flows from operations, repayments of intercompany
loans made to Southern Union, loans or advances from other affiliates, or other
borrowings, although no assurances can be given as to the sufficiency of cash
flows, the availability of funds from Southern Union or other affiliates, or the
ability to obtain financing.





Potential Sea
Robin Impairment.Sea Robin,
comprised primarily of offshore facilities, suffered damage related to several
platforms from Hurricane Ike.  The Company has estimated capital
expenditures of $45 million to replace damaged property and equipment of Sea
Robin.  This estimate is subject to further revision as the damage
assessment is ongoing.  The Company anticipates reimbursement from its
property insurance carrier for   its damages in excess of its $10
million deductible, except for certain expenditures not reimbursable under the
insurance policy terms.  See Part I, Item 1. Financial Statements
(Unaudited), Note 8 – Commitments and Contingencies – 2008 Hurricane Damagefor additional related information.  To the extent the
Company’s capital expenditures are not recovered through insurance proceeds, its
net investment in Sea Robin’s property and equipment would increase without
necessarily generating additional revenues unless the incremental costs are
recovered through future rate proceedings.  If the amount of Sea
Robin’s insurance reimbursements are significantly reduced or it experiences
other adverse developments incrementally impacting the Company’s related net
investment or anticipated future cash flows that are not remedied through rate
proceedings, the Company could potentially be required to record an impairment
of its net investment in Sea Robin pursuant to FASB Statement No. 144, “Accounting for Impairment or
Disposal of Long-Lived Assets.”





Financial
Sector Exposure





Recent
events in the global financial markets have caused the Company to place
increased scrutiny on its liquidity position and the financial condition of its
critical third-party business partners.  The purpose of this
heightened review, which was based on publicly available information, was to
assess the potential impact of the credit crisis and related liquidity issues on
its business partners and to assess the associated business risks to the
Company.  The review focused on the Company’s future capital needs
(including long-term borrowing needs and potential refinancing plans) of the
Company, derivative counterparties, customer and other contractual
relationships.





The
Company notes that while there is no way to predict the extent or duration of
any negative impact that the current credit disruptions in the economy will have
on its liquidity position, there is no current expectation that the impact on
the Company would be significant.  However, the Company does believe
credit spreads will remain elevated throughout 2009, compared to recent
years.  As such, the Company is considering refinancing obligations
that mature in 2009 prior to their maturity dates and timing of any required
capital market transactions to take advantage of favorable issuance windows that
may become evident in the markets.





Inflation





The
Company believes that inflation has caused, and will continue to cause,
increases in certain operating expenses, and will continue to require higher
capital replacement and construction costs.  The Company continually
reviews the adequacy of its customer rates in relation to the impact of market
conditions, the increasing cost of providing services and the inherent
regulatory lag experienced in adjusting those rates.





24
 Table of Contents





ITEM 3.  Quantitative and Qualitative Disclosures About Market
Risk





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





ITEM 4.  Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





The
Company has established disclosure controls and procedures to ensure that
information required to be disclosed by the Company, including consolidated
entities, in reports filed or submitted under the Exchange Act, is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.  The Company’s disclosure controls and
procedures are designed to ensure that information required to be disclosed in
the reports it files or submits under the Exchange Act is accumulated and
communicated to management, including the Company’s COO and CFO, as appropriate,
to allow timely decisions regarding required disclosure.  The Company
performed an evaluation under the supervision and with the participation of
management, including its COO and CFO, and with the participation of personnel
from its Legal, Internal Audit, Risk Management and Financial Reporting
Departments, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report.  Based on that
evaluation, Panhandle’s COO and CFO concluded that the Company’s disclosure
controls and procedures were effective as of September 30, 2008.





Changes
in Internal Controls





Management’s
assessment of internal control over financial reporting as of December 31, 2007
was included in Panhandle’s Form 10-K filed on February 29, 2008.





There
have been no changes in internal control over financial reporting that occurred
during the first nine months of 2008 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





Cautionary
Statement Regarding Forward-Looking Information





The
disclosure and analysis in this Form 10-Q contains some forward-looking
statements that set forth anticipated results based on management’s plans and
assumptions.  From time to time, the Company also provides
forward-looking statements in other materials it releases to the public as well
as oral forward-looking statements.  Such statements give the
Company’s current expectations or forecasts of future events; they do not relate
strictly to historical or current facts.  The Company has tried,
wherever possible, to identify such statements by using words such as
“anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,”
“will” and similar expressions in connection with any discussion of future
operating or financial performance.  In particular, these include
statements relating to future actions, future performance or results of current
and anticipated products, expenses, interest rates, the outcome of
contingencies, such as legal proceedings, and financial results.





The
Company cannot guarantee that any forward-looking statement will be realized,
although management believes that the Company has been prudent in its plans and
assumptions.  Achievement of future results is subject to risks,
uncertainties and potentially inaccurate assumptions.  If known or
unknown risks or uncertainties should materialize, or if underlying assumptions
should prove inaccurate, actual results could differ materially from past
results and those anticipated, estimated or projected.  Readers should
bear this in mind as they consider forward-looking statements.





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






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





·
            changes
      in demand for natural gas and related services 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;


·
            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 natural
      disasters;


·
            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
      outcome of pending and future
litigation;


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


·
            unanticipated
      environmental liabilities;


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


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


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


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


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


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


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


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


·
            other
      risks and unforeseen events.





PART
II.  OTHER INFORMATION





ITEM 1. Legal Proceedings





The
Company and certain of its affiliates are occasionally parties to lawsuits and
administrative proceedings incidental to their businesses involving, for
example, claims for personal injury and property damage, contractual matters,
various tax matters, and rates and licensing.  The Company and its
affiliates are also subject to various federal, state and local laws and
regulations relating to the environment.  Several of these companies
have been named parties to various actions involving environmental
issues.  Based on our present knowledge and subject to future legal
and factual developments, the Company’s management believes that it is unlikely
that these actions, individually or in the aggregate, will have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.  For additional information regarding various pending
administrative and judicial proceedings involving regulatory, environmental and
other legal matters, reference is made to ITEM 1. Financial Statements
(Unaudited), Note 8 – Commitments and Contingencies, as well as to ITEM 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations included in
Part I. Financial
Information.





ITEM 1A.  Risk Factors





There
have been no material changes to the risk factors previously disclosed in the
Company’s Form 10-K filed with the SEC on February 29, 2008.





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





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





ITEM 3.  Defaults Upon Senior Securities





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





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





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





ITEM 5.  Other Information





N/A





ITEM 6. Exhibits




Exhibit
      No.
              Description3(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)
              First
      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)
              Second
      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)
              Third
      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)
              Fourth
      Supplemental Indenture dated as of March 12, 2004, between Panhandle, as
      Issuer and J.P. Morgan Trust Company, National Association, as
      Trustee.  (Filed as Exhibit 4.E to the Form 10-K for the year
      ended December 31, 2004 and incorporated herein by
reference.)
  27
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4(f)
                
                
                4(g)
              Fifth
      Supplemental Indenture dated as of October 26, 2007, between Panhandle and
      The Bank of New York Trust Company, N.A., as Trustee (Filed as Exhibit 4.1
      to Panhandle’s Current Report on Form 8-K filed on October 29, 2007 and
      incorporated herein by reference.)
                
                Form
      of Sixth Supplemental Indenture, dated as of June 12, 2008, between
      Panhandle and The Bank of New York Trust Company, N.A., as Trustee (Filed
      as Exhibit 4.1 to Panhandle’s Current Report on Form 8-K filed on June 11,
      2008 and incorporated herein by reference.)4(h)
              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.)10(a)
              Amended
      and Restated Credit Agreement between Trunkline LNG Holdings, LLC, as
      borrower, Panhandle Eastern Pipe Line Company, LP and CrossCountry Citrus,
      LLC, as guarantors, the financial institutions listed therein and
      Bayerische Hypo-Und Vereinsbank AG, New York Branch, as administrative
      agent, dated as of June 29, 2007 (Filed as Exhibit 10.1 to Panhandle’s
      Current Report on Form 8-K filed on July 6, 2007 and incorporated herein
      by reference.)10(b)
              Amendment
      Number 1 to the Amended and Restated Credit Agreement between Trunkline
      LNG Holdings, LLC, as borrower, Panhandle Eastern Pipe Line Company, LP
      and CrossCountry Citrus, LLC, as guarantors, the financial institutions
      listed therein and Bayerische Hypo-Und Vereinsbank AG, New York Branch, as
      administrative agent, dated as of June 13, 2008 (Filed
      as Exhibit 10(b) to the Form 10-Q for the quarter ended June 30, 2008 and
      incorporated herein by reference.)10(c)
              Credit
      Agreement between Trunkline LNG Holdings, LLC, as borrower, Panhandle
      Eastern Pipe Line Company, LP and Trunkline LNG Company, LLC, as
      guarantors, the financial institutions listed therein and Bayerische Hypo-
      Und Vereinsbank AG, New York Branch, as administrative agent, dated as of
      March 15, 2007. (Filed as Exhibit 10.1 to Panhandle’s Current Report on
      Form 8-K filed on March 21, 2007 and incorporated herein by
      reference.)10(d)
              Amended
      and Restated Promissory Note made by CrossCountry Citrus, LLC, as
      borrower, in favor of Trunkline LNG Holdings LLC, as holder, dated as of
      June 13, 2008.  (Filed as Exhibit 10(d) to the Form 10-Q for the
      quarter ended June 30, 2008 and incorporated herein by
      reference.)12
              Ratio
      of Earnings to Fixed Charges31.1
              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.




28
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SIGNATURES








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














PANHANDLE
      EASTERN PIPE LINE COMPANY, LPDate:  November
      10, 2008
            By: /s/   ROBERT
      O. BONDRobert
      O. Bond
              President
      and Chief Operating Officer
              (authorized
      officer)
              
              
              
              
              
              
              /s/   GARY
      W. LEFELAR
              Gary
      W. Lefelar
              Senior
      Vice President and Chief Accounting Officer
              (principal
      accounting officer)