upon tariffs are increased or decreased annually at a rate equal to the percentage change in PPI, but not below the initial tariff rate. Contractual minimums under our long-term service agreements are as follows:

                         Minimum Annualized
                             Commitment         Year of
       Agreement           (In millions)       Maturity             Contract Type
  Holly PTA              $        41.2             2019       Minimum revenue commitment
  Holly IPA                       13.3             2020       Minimum revenue commitment
  Holly CPTA                      26.7             2022       Minimum revenue commitment
  Alon PTA                        22.0             2020        Minimum volume commitment
  Alon capacity lease             7.0            Various     Capacity lease


  Total                  $       110.2

We depend on our agreements with Holly and Alon for the majority of our revenues. A significant reduction in revenues under these agreements would have a material adverse effect on our results of operations.
In October 2007, we entered into an agreement with Holly that amends the Holly PTA under which we have agreed to expand our refined products pipeline system between Artesia, New Mexico and El Paso, Texas (the "South System"). The expansion of the South System includes replacing 85 miles of 8-inch pipe with 12-inch pipe, adding 150,000 barrels of refined product storage at our El Paso Terminal, improving existing pumps, adding a tie-in to the Kinder Morgan pipeline to Tucson and Phoenix, Arizona and making related modifications. The cost of this project is estimated to be $48.3 million. Currently, we are expecting to complete this project by January 2009.
Under certain provisions of the Omnibus Agreement that we entered into with Holly in July 2004 and expires in 2019, we pay Holly an annual administrative fee for the provision by Holly or its affiliates of various general and administrative services to us. Effective March 1, 2008, the annual fee was increased from $2.1 million to $2.3 million to cover additional general and administrative services attributable to the operations of our Crude Pipelines and Tankage Assets. This fee does not include the salaries of pipeline and terminal personnel or the cost of their employee benefits which are separately charged to us by Holly. We also reimburse Holly and its affiliates for direct expenses they incur on our behalf.

RESULTS OF OPERATIONS (Unaudited)
Income, Distributable Cash Flow and Volumes
The following tables present income, distributable cash flow and volume
information for the three and nine months ended September 30, 2008 and 2007.

                                                  Three Months Ended                Nine Months Ended
                                                    September 30,                     September 30,
                                                2008             2007             2008             2007
                                                          (In thousands, except per unit data)
Revenues
Pipelines:
Affiliates - refined product pipelines        $  10,553        $   8,815        $  28,994        $  26,464
Affiliates - intermediate pipelines               2,953            3,327            9,002           10,390
Affiliates - crude pipelines                      6,776                -           15,524                -

                                                 20,282           12,142           53,520           36,854
Third parties- refined product pipelines          5,773            8,300           19,289           26,473

                                                 26,055           20,442           72,809           63,327
Terminals and truck loading racks:
Affiliates                                        2,455            2,685            7,690            8,088
Third parties                                     1,001            1,338            3,063            4,053

                                                  3,456            4,023           10,753           12,141
Other - affiliates                                    -            2,748                -            2,748

Total revenues                                   29,511           27,213           83,562           78,216
Operating costs and expenses
Operations                                       11,033            7,939           30,745           23,861
Depreciation and amortization                     5,884            3,594           16,259           10,873
General and administrative                        1,596            1,406            4,241            3,962

                                                 18,513           12,939           51,245           38,696

Operating income                                 10,998           14,274           32,317           39,520
Interest income                                      25              101              146              431
Interest expense, including amortization         (5,161 )         (3,383 )        (14,201 )        (10,112 )
Gain on sale of assets                                -                -               36              298
Other income                                      1,007                -            1,007                -
Minority interest in Rio Grande                    (164 )           (233 )           (834 )           (814 )

Income before income taxes                        6,705           10,759           18,471           29,323
State income tax                                    (84 )            (69 )           (237 )           (193 )

Net income                                        6,621           10,690           18,234           29,130
Less general partner interest in net
income, including incentive
distributions (1)                                   905              794            2,526            2,100

Limited partners' interest in net income      $   5,716        $   9,896        $  15,708        $  27,030

Net income per limited partner unit -
basic and diluted (1)                         $    0.35        $    0.61        $    0.96        $    1.68

Weighted average limited partners' units
outstanding                                      16,328           16,108           16,279           16,108

EBITDA (2)                                    $  17,725        $  17,635        $  48,785        $  49,877

Distributable cash flow (3)                   $  15,749        $  13,683        $  43,452        $  38,666

Volumes (bpd)(4)
Pipelines:
Affiliates - refined product pipelines           79,192           71,987           79,852           75,638
Affiliates - intermediate pipelines              54,583           62,072           58,014           63,337
Affiliates - crude pipelines                    132,120                -          103,465                -

                                                265,895          134,059          241,331          138,975
Third parties- refined product pipelines         25,046           59,024           31,635           62,877

                                                290,941          193,083          272,966          201,852
Terminals and truck loading racks:
Affiliates                                      102,128          110,545          107,611          117,957
Third parties                                    27,845           38,409           32,073           46,114

                                                129,973          148,954          139,684          164,071

Total for pipelines and terminal assets
(bpd)                                           420,914          342,037          412,650          365,923

(1) Net income is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. Net income allocated to the general partner includes any incentive distributions declared in the period. Incentive distributions of $0.8 million and $0.6 million were declared during the three months ended September 30, 2008 and 2007, respectively, and $2.2 million and $1.5 million during the nine months ended September 30, 2008 and 2007, respectively. The net income applicable to the limited partners is divided by the weighted average limited partner units outstanding in computing the net income per unit applicable to limited partners.

(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is calculated as net income plus
(i) interest expense net of interest income,
(ii) state income tax and
(iii) depreciation and amortization. EBITDA is not a calculation based upon U.S. generally accepted accounting principles ("U.S. GAAP"). However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for compliance with financial covenants.

Set forth below is
our calculation of
EBITDA.

                                                  Three Months Ended                Nine Months Ended
                                                    September 30,                     September 30,
                                                 2008             2007            2008             2007
                                                                    (In thousands)
Net income                                    $    6,621        $ 10,690        $  18,234        $ 29,130
Add interest expense                               4,902           3,091           13,462           9,213
Add amortization of discount and
deferred debt issuance costs                         259             292              739             899
Subtract interest income                             (25 )          (101 )           (146 )          (431 )
Add state income tax                                  84              69              237             193
Add depreciation and amortization                  5,884           3,594           16,259          10,873


EBITDA                                        $   17,725        $ 17,635        $  48,785        $ 49,877

(3) Distributable cash flow is not a calculation based upon U.S. GAAP. However, the amounts included in the calculation are derived from amounts separately presented in our consolidated financial statements, with the exception of maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to net income or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. We believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating.

Set forth below is our calculation of distributable cash flow.

                                                  Three Months Ended                Nine Months Ended
                                                    September 30,                     September 30,
                                                 2008             2007            2008             2007
                                                                    (In thousands)
Net income                                    $    6,621        $ 10,690        $  18,234        $ 29,130
Add depreciation and amortization                  5,884           3,594           16,259          10,873
Add amortization of discount and
deferred debt issuance costs                         259             292              739             899
Add (subtract) increase (decrease) in
deferred revenue                                   3,857             120           10,638            (870 )
Subtract maintenance capital
expenditures*                                       (872 )        (1,013 )         (2,418 )        (1,366 )


Distributable cash flow                       $   15,749        $ 13,683        $  43,452        $ 38,666

* Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of our assets and to extend their useful lives.

(4) The amounts reported for the nine months ended September 30, 2008 include volumes transported on the crude pipelines for the period from March 1, 2008 through September 30, 2008 only. Volumes shipped during the months of March through September 2008 averaged 132.5 thousand barrels per day ("mbpd"). For the nine months ended September 30, 2008, crude pipeline volumes are based on volumes for the months of March through September, averaged over the 274 days in the first nine months of 2008. Under the Holly CPTA, fees are based on volumes transported on each pipeline component comprising the crude pipeline system (the crude oil gathering pipelines and the crude oil trunk lines). Accordingly, volumes transported on the crude pipelines represent the sum of volumes transported on both pipeline components. In cases where volumes are transported over both components of the crude pipeline system, such volumes are reflected twice in the total crude oil pipeline volumes.

                                          September 30,      December 31,
                                               2008              2007
                                                   (In thousands)
             Balance Sheet Data
             Cash and cash equivalents    $       2,118      $     10,321
             Working capital(5)           $     (27,560 )    $      5,446
             Total assets                 $     430,086      $    238,904
             Long-term debt               $     354,522      $    181,435
             Partners' equity             $      17,585      $     27,816

(5) Reflects $24.0 million of short-term borrowings that were classified as current liabilities at September 30, 2008.

As a master limited partnership, we distribute our available cash, which historically has exceeded net income because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in partners' equity since our regular quarterly distributions have exceeded our quarterly net income.
Results of Operations - Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007
Summary
Net income for the three months ended September 30, 2008 was $6.6 million, a $4.1 million decrease compared to the same period in 2007. This decrease was due principally the effects of limited production at Alon's Big Spring Refinery resulting from an explosion and fire in February and an increase in operating costs and expenses and interest expense. These factors were partially offset by revenues

attributable to our crude pipeline assets acquired in the first quarter of 2008 and an increase in previously deferred revenue realized. Revenue of $5.2 million relating to deficiency payments associated with certain guaranteed shipping contracts was deferred during the three months ended September 30, 2008. Such revenue will be recognized in future periods either as payment for shipments in excess of guaranteed levels or when shipping rights expire unused after a twelve-month period.
On February 18, 2008, Alon experienced an explosion and fire at its Big Spring refinery that resulted in the shutdown of production. In early April, Alon reopened its Big Spring refinery and resumed production at about one-half of refining capacity until late September when production was restored to full capacity. Lost production and reduced operations attributable to this incident resulted in a decrease in third party shipments on our refined product pipelines during the first nine months of 2008. Under our pipelines and terminals agreement with Alon, Alon has committed to a level of product shipments that generally results in a minimum level of annual revenue. If Alon does not meet their minimum commitments, we bill them quarterly an amount related to such shortfalls. Although these shortfall billings are required to be recorded as deferred revenues, such shortfall billings are included in our distributable cash flow as they occur. Deferred revenue amounts are later recognized as revenue and included in net income when no longer subject to recapture. This typically occurs within one year after the shortfall occurs and does not affect distributable cash flow.
Revenues
Total revenues for the three months ended September 30, 2008 were $29.5 million, a $2.3 million increase compared to the three months ended September 30, 2007. This increase was due principally to revenues attributable to our crude pipeline and tankage assets acquired in the first quarter of 2008, an increase in affiliate refined product pipeline shipments, the effect of tariff increases and a net increase in previously deferred revenue realized. These increases were partially offset by the effects of limited production at Alon's Big Spring Refinery resulting from an explosion and fire in February and a decrease in shipments on our intermediate pipeline system. Also affecting our revenue comparison was 2007 third quarter revenue of $2.7 million related to our sale of inventory of accumulated overages of refined products at our terminals. There was no comparable revenue for the current year's third quarter.
Revenues from our refined product pipelines were $16.3 million, a decrease of $0.8 million compared to the third quarter of 2007. This decrease was due principally to a decline in third party refined product pipeline shipments during the third quarter. This decrease was partially offset by an increase in affiliate refined product pipeline shipments, the effect of the annual tariff increase on refined product shipments and a $0.3 million increase in previously deferred revenue realized. Shipments on our refined product pipeline system decreased to an average of 104.2 mbpd compared to 131.0 mbpd for the same period last year.
Revenues from the intermediate pipelines were $3.0 million, a decrease of $0.4 million compared to the third quarter of 2007. This decrease was due to a decline in volumes shipped on our intermediate pipelines and a $0.1 million decrease in previously deferred revenue realized. These decreases were partially offset by the effect of the annual tariff increase on intermediate pipeline shipments. Shipments on our intermediate product pipeline system decreased to an average of 54.6 mbpd compared to 62.1 mbpd for the same period last year. Revenues from our crude pipelines were $6.8 million; third quarter shipments averaged 132.1 mbpd.
Revenues from terminal, tankage and truck loading rack fees were $3.5 million, a decrease of $0.6 million compared to the third quarter of 2007. Refined products terminalled in our facilities decreased to an averaged 130.0 mbpd compared to 149.0 mbpd for the same period last year.
Other revenues for the three months ended September 30, 2007 consisted of $2.7 million related to the sale of inventory of accumulated terminal overages of refined product to Holly. These overages arose from net product gains at our terminals from the beginning of 2005 through the third quarter of 2007. In the fourth quarter of 2007, we amended our pipelines and terminals agreement with Holly to provide that, on a go-forward basis, such terminal overages of refined product belong to Holly.

Operating Costs
Operations expense for three months ended September 30, 2008 increased by $3.1 million compared to the three months ended September 30, 2007. This increase was due principally to the operations of our crude pipelines commencing March 1, 2008 and increased pipeline maintenance and payroll costs. Depreciation and Amortization
Depreciation and amortization for the three months ended September 30, 2008 increased by $2.3 million compared to the three months ended September 30, 2007, due principally to depreciation and amortization attributable to our newly acquired crude pipelines, tankage assets and transportation agreement. General and Administrative
General and administrative costs for the three months ended September 30, 2008 increased by $0.2 million compared to the three months ended September 30, 2007. Interest Expense
Interest expense for the three months ended September 30, 2008 totaled $5.2 million, an increase of $1.8 million compared to the three months ended September 30, 2007. This increase is due principally to interest attributable to advances from our revolving credit agreement that were used to finance our crude pipeline asset purchase in the first quarter as well as capital projects. For the three months ended September 30, 2008, our aggregate effective interest rate was 5.5% compared to 7.3% for the same period last year. Other Income
Other income of $1.0 million for the three months ended September 30, 2008 represents a reimbursement from Alon for certain pipeline repair and maintenance costs that were incurred and expensed over a two year period. Minority Interest in Earnings of Rio Grande The minority interest related to the 30% of Rio Grande that we do not own reduced our income by $0.2 million for each of the three months ended September 30, 2008 and 2007.
State Income Tax
State income taxes were $0.1 million for each of the three months ended September 30, 2008 and 2007.
Results of Operations - Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 2007
Summary
Net income for the nine months ended September 30, 2008 was $18.2 million, a $10.9 million decrease compared to the same period in 2007. This decrease was due principally to the effects of limited production at Alon's Big Spring Refinery resulting from an explosion and fire in February, a decrease in intermediate pipeline revenue as a result of downtime at Holly's Navajo Refinery in the second quarter, a net decrease in previously deferred revenue realized and an increase in operating costs and expenses and interest expense. These factors were partially offset by revenues attributable to our crude pipeline assets that were acquired in the first quarter of 2008. Revenue of $13.9 million relating to deficiency payments associated with certain transportation contracts was deferred during the nine months ended September 30, 2008. Such revenue will be recognized in future periods either as payment for shipments in excess of minimum required levels or when shipping rights expire unused after a . . .