General

We are a limited liability company, formed in Delaware in February 2001, which has elected to be treated as a corporation for United States federal income tax purposes. Our shares trade on the New York Stock Exchange under the symbol "KMR." Our voting shares are owned by Kinder Morgan G.P., Inc., of which Knight Inc. owns all the outstanding common equity. Kinder Morgan G.P., Inc. is the general partner of Kinder Morgan Energy Partners, L.P. Kinder Morgan G.P., Inc. has delegated to us, to the fullest extent permitted under Delaware law and the Kinder Morgan Energy Partners L.P. partnership agreement, all of its rights and powers to manage and control the business and affairs of Kinder Morgan Energy Partners L.P. and its subsidiary operating limited partnerships and their subsidiaries, subject to Kinder Morgan G.P., Inc.'s right to approve specified actions.

Knight Inc., a Kansas corporation and a private company, is one of the largest energy transportation and storage companies in North America, operating, either for itself or on behalf of Kinder Morgan Energy Partners, L.P., or owning an interest in approximately 37,000 miles of pipelines that transport primarily natural gas, crude oil, petroleum products and carbon dioxide, and approximately 170 terminals that store, transfer and handle products like gasoline and coal. On May 30, 2007, Kinder Morgan, Inc. merged with a wholly owned subsidiary of Knight Holdco LLC, with Kinder Morgan, Inc. continuing as the surviving legal entity and subsequently renamed Knight Inc. Knight Holdco LLC is a private company owned by Richard D. Kinder, our Chairman and Chief Executive Officer; our co-founder William V. Morgan; former Kinder Morgan, Inc. board members Fayez Sarofim and Michael C. Morgan; other members of Knight Inc.'s senior management, most of whom are also senior officers of Kinder Morgan G.P., Inc. and us; and affiliates of (i) Goldman Sachs Capital Partners, (ii) Highstar Capital, (iii) The Carlyle Group, and (iv) Riverstone Holdings LLC. This transaction is referred to in this report as the Going Private transaction.

The acquisition was accounted for under the purchase method of accounting, as required by Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. The purchase price of Knight Inc. has been "pushed-down" and allocated to the assets and liabilities of its subsidiary companies, including us. As a result of this transaction, we have adopted a new basis of accounting for our assets and liabilities. Therefore, in the accompanying financial information, transactions and balances prior to the closing of the Going Private transaction (the amounts labeled "Pre-Acquisition Basis") reflect the historical basis of accounting for our assets and liabilities, while the amounts subsequent to the closing (the amounts labeled "Post-Acquisition Basis") reflect the push-down of Knight Inc.'s new accounting basis to our financial statements. Additional information on this transaction and its effect on our financial information is contained in Note 2 of the accompanying Notes to Consolidated Financial Statements.

Kinder Morgan Energy Partners, L.P. is one of the largest publicly traded pipeline limited partnerships in the United States in terms of market capitalization, and is a leading pipeline transportation and energy storage company in North America. Kinder Morgan Energy Partners, L.P. owns an interest in or operates approximately 26,000 miles of pipelines and approximately 170 terminals. Kinder Morgan Energy Partners, L.P.'s pipelines transport natural gas, gasoline, crude oil, carbon dioxide and other products, and its terminals store petroleum products and chemicals and handle bulk materials like coal and petroleum coke. Kinder Morgan Energy Partners, L.P. is also the leading provider of carbon dioxide for enhanced oil recovery projects in North America.

We are a limited partner in Kinder Morgan Energy Partners, L.P. and manage and control its business and affairs pursuant to a delegation of control agreement. Our success is dependent upon our operation and management of Kinder Morgan Energy Partners, L.P. and its resulting performance. Therefore, we have attached hereto as Annex A Kinder Morgan Energy Partners, L.P.'s Annual Report on Form 10-K for the year ended December 31, 2008. The following discussion should be read in conjunction with the accompanying financial statements and related notes.

Business

Kinder Morgan G.P., Inc. has delegated to us, to the fullest extent permitted under Delaware law and Kinder Morgan Energy Partners, L.P.'s limited partnership agreement, all of its rights and powers to manage and control the business and affairs of Kinder Morgan Energy Partners, L.P. subject to Kinder Morgan G.P., Inc.'s right to approve specified actions.

Results of Operations

Our results of operations consist of the offsetting expenses and receipts associated with our managing and controlling the business and affairs of Kinder Morgan Energy Partners, L.P. and our equity in the earnings of Kinder Morgan Energy Partners, L.P. attributable to the i-units we own. At December 31, 2008, through our ownership of i-units, we owned approximately 29.3% of all of Kinder Morgan Energy Partners, L.P.'s outstanding limited partner interests. We use the equity method of accounting for our investment in Kinder Morgan Energy Partners, L.P. and record earnings as described below.

Item 7. Management's Discussion and Analysis Kinder Morgan
of Financial Condition and Management, LLC Form Results of Operations. (continued) 10-K

Our percentage ownership in Kinder Morgan Energy Partners, L.P. changes over time upon the distribution of additional i-units to us or upon issuances of additional common units or other equity securities by Kinder Morgan Energy Partners, L.P.

Our earnings, as reported in the accompanying Consolidated Statements of Income, represent equity in earnings of Kinder Morgan Energy Partners, L.P. attributable to the i-units we own, reduced by a deferred income tax provision and adjusted for the push down effect of Knight Inc.'s purchase of us and Kinder Morgan Energy Partners, L.P. The deferred income tax provision is calculated based on the book/tax basis difference created by our recognition, under accounting principles generally accepted in the United States of America, of our share of the earnings of Kinder Morgan Energy Partners, L.P. Our earnings per share (both basic and diluted) is our net income divided by our weighted-average number of outstanding shares during each period presented. There are no securities outstanding that may be converted into or exercised for our shares.

Notwithstanding the consolidation of Kinder Morgan Energy Partners L.P. and its subsidiaries into Knight Inc.'s financial statements, it is not liable for, and its assets are not available to satisfy, the obligations of Kinder Morgan Energy Partners and/or its subsidiaries and vice versa. Responsibility for payments of obligations reflected in Knight Inc.'s or Kinder Morgan Energy Partners L.P.'s financial statements is a legal determination based on the entity that incurs the liability.

Kinder Morgan Energy Partners, L.P.'s acquisitions from Knight Inc. of Trans Mountain pipeline system in April 2007, the one-third interest in the Express pipeline system ("Express") and the full interest of the net assets of the Jet Fuel pipeline system ("Jet Fuel") in August 2008 were accounted for as transfers of net assets between entities under common control. The carrying amounts of net assets recognized in the balance sheets of each combining entity were carried forward to the balance sheet of the combined entity, and no other assets or liabilities were recognized as a result of the combination (that is, no recognition was made for a purchase premium or discount representing any difference between the cash consideration and the book value of the net assets acquired). Trans Mountain (included in the Kinder Morgan Canada segment) has been incorporated into Kinder Morgan Energy Partners' financial statements beginning January 1, 2006, the date of common control. Kinder Morgan Canada recorded charges of $377.1 million in 2007 related to the impairment of Trans Mountain goodwill. This amount is included in Kinder Morgan Canada's 2007 net loss of $293.6 million. Due to the immaterial impact of Express and Jet Fuel operations and earnings, Kinder Morgan Energy Partners, L.P. and we have only included these operations and earnings in our financial statements for the four months ended December 31, 2008.

For the years ended December 31, 2008, 2007 and 2006, Kinder Morgan Energy Partners, L.P. reported limited partners' net income (loss) of $499.0 million, ($21.3) million and $490.8 million, respectively. Our net income (loss) for the year ended December 31, 2008, seven months ended December 31, 2007, five months ended May 31, 2007 and year ended December 31, 2006 was $83.2 million, $50.4 million, ($41.3) million and $84.1 million, respectively.

Following is summarized restated income statement information and segment earnings contribution by business segment for Kinder Morgan Energy Partners, L.P. Additional information on Kinder Morgan Energy Partners, L.P.'s results of operation and financial position are contained in its Annual Report on Form 10-K for the year ended December 31, 2008, attached hereto as Annex A.

                      Kinder Morgan Energy Partners, L.P.

                                                          Year Ended December 31,
                                                     2008          2007          2006
                                                               (In millions)
Segment Earnings Contribution:
Product Pipelines                                 $   546.2     $   569.6     $   491.2
Natural Gas Pipelines                                 760.6         600.2         574.8
CO2                                                   759.9         537.0         488.2
Terminals                                             523.8         416.0         408.1
Kinder Morgan Canada                                  141.2        (293.6 )        76.5
Total Segment Earnings                              2,731.7       1,829.2       2,038.8
Depreciation, Depletion and Amortization Expenses    (702.7 )      (547.0 )      (432.8 )
Amortization of Excess Cost of Investments             (5.7 )        (5.8 )        (5.7 )
General Administrative Expenses                      (297.9 )      (278.7 )      (238.4 )
Interest and Other Non-Operating Expenses1           (420.6 )      (407.4 )      (357.8 )
Net Income                                        $ 1,304.8     $   590.3     $ 1,004.1

General Partner's Interest in Net Income          $   805.8     $   611.6     $   513.3

Limited Partners' Interest in Net Income          $   499.0     $   (21.3 )   $   490.8


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Item 7. Management's Discussion and Analysis Kinder Morgan
of Financial Condition and Management, LLC Form Results of Operations. (continued) 10-K

1 Includes unallocated interest income and income tax expense, interest and debt expense, and minority interest expense.

Income Taxes

We are a limited liability company that has elected to be treated as a corporation for financial and tax reporting purposes. Our entire income tax provision (benefit) consists of deferred income tax, and deferred income tax assets and liabilities are recognized for temporary differences between the basis of our assets and liabilities. Under our new basis of accounting, we have excluded nondeductible goodwill associated with our investment in Kinder Morgan Energy Partners, L.P. Prior to the Going Private transaction we recognized temporary differences between the basis of our assets and liabilities for financial and tax reporting purposes including nondeductible goodwill associated with our investment in Kinder Morgan Energy Partners, L.P. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective.

We are a party to a tax indemnification agreement with Knight Inc. Pursuant to this tax indemnification agreement, Knight Inc. agreed to indemnify us for any tax liability attributable to our formation or our management and control of the business and affairs of Kinder Morgan Energy Partners, L.P. and for any taxes arising out of a transaction involving the i-units we own to the extent the transaction does not generate sufficient cash to pay our taxes with respect to such transaction.

The year ended December 31, 2008 provision for income taxes of $59.0 million consists of $49.8 million of federal income tax expense, $1.6 million of state income tax expense, and $7.7 million of out of period adjustments attributable to the nondeductible goodwill associated with our investment in Kinder Morgan Energy Partners, L.P. These income tax expenses were offset by approximately $0.1 million of other items.

The seven months ended December 31, 2007 provision for income taxes of $15.0 million consists of $23.1 million of federal income tax expense and $0.5 million of state income taxes. These income tax expenses were offset by a tax benefit of $8.6 million attributable to the nondeductible goodwill associated with our investment in Kinder Morgan Energy Partners, L.P.

The five months ended May 31, 2007 benefit for income taxes of $23.3 million consists of $22.6 million of federal income tax benefit and $0.7 million of state income tax expenses.

The year ended December 31, 2006 provision for income taxes of $47.0 million consists of $45.9 million of federal income tax expense and $1.1 million of state income taxes.

See Notes 6 and 7 of the accompanying Notes to Consolidated Financial Statements for additional information on income taxes and the out of period adjustments, respectively.

Liquidity and Capital Resources

Our authorized capital structure consists of two classes of interests: (1) our listed shares and (2) our voting shares, collectively referred to in this document as our "shares." Additional classes of interests may be approved by our board and holders of a majority of our shares, excluding shares held by Knight Inc. and its affiliates. Our only off-balance sheet arrangement is our equity investment in Kinder Morgan Energy Partners, L.P.

The number of our shares outstanding will at all times equal the number of i-units of Kinder Morgan Energy Partners, L.P., all of which we own. Under the terms of our limited liability company agreement, except in connection with our liquidation, we do not pay distributions on our shares in cash but we make distributions on our shares in additional shares or fractions of shares. At the same time Kinder Morgan Energy Partners, L.P. makes a distribution on its common units and i-units, we distribute on each of our shares that fraction of a share determined by dividing the amount of the cash distribution to be made by Kinder Morgan Energy Partners, L.P. on each common unit by the average market price of a share determined for a ten-trading day period ending on the trading day immediately prior to the ex-dividend date for our shares. On February 13, 2009, we paid a share distribution of 0.024580 shares per outstanding share (1,917,189 total shares) to shareholders of record as of January 30, 2009, based on the $1.05 per common unit distribution declared by Kinder Morgan Energy Partners, L.P.

On May 15, 2007, we issued 5.7 million listed shares in a public offering at a price of $52.26 per share. We used the net proceeds of $297.9 million from the sale to purchase 5.7 million i-units from Kinder Morgan Energy Partners, L.P.

Kinder Morgan Energy Partners, L.P.'s partnership agreement requires that it distribute 100% of available cash, as defined in the partnership agreement, to its partners within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available cash consists generally of all of Kinder Morgan Energy Partners, L.P.'s cash receipts, including cash received by its operating partnerships and net reductions in reserves, less cash disbursements and net additions to reserves and amounts payable to the former general partner of SFPP, L.P. in respect of its remaining 0.5% interest in SFPP, L.P.

Kinder Morgan Energy Partners, L.P.'s general partner is granted discretion by the partnership agreement, which discretion has been delegated to us, subject to the approval of the general partner in certain cases, to establish, maintain and adjust

Item 7. Management's Discussion and Analysis Kinder Morgan
of Financial Condition and Management, LLC Form Results of Operations. (continued) 10-K

reserves for future operating expenses, debt service, maintenance capital expenditures, rate refunds and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When we determine Kinder Morgan Energy Partners, L.P.'s quarterly distributions, we consider current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level.

The general partner and owners of Kinder Morgan Energy Partners, L.P.'s common units and Class B units receive distributions in cash, while we, the sole owner of Kinder Morgan Energy Partners, L.P.'s i-units, receive distributions in additional i-units. For each outstanding i-unit, a fraction of an i-unit will be issued. The fraction is calculated by dividing the amount of cash being distributed per Kinder Morgan Energy Partners, L.P. common unit by the average closing price of our shares over the ten consecutive trading days preceding the date on which the shares begin to trade ex-dividend under the rules of the New York Stock Exchange. The cash equivalent of distributions of i-units is treated as if it had actually been distributed for purposes of determining the distributions to the general partner, although Kinder Morgan Energy Partners, L.P. does not distribute cash to i-unit owners but retains the cash for use in its business.

Available cash is initially distributed 98% to the limited partners and 2% to the general partner. These distribution percentages are modified to provide for incentive distributions to be paid to the general partner in the event that quarterly distributions to unitholders exceed certain specified targets.

Kinder Morgan Energy Partners, L.P.'s available cash for each quarter is distributed:

· first, 98% to the owners of all classes of units pro rata and 2% to the general partner until the owners of all classes of units have received a total of $0.15125 per unit in cash or equivalent i-units for such quarter;

· second, 85% of any available cash then remaining to the owners of all classes of units pro rata and 15% to the general partner until the owners of all classes of units have received a total of $0.17875 per unit in cash or equivalent i-units for such quarter;

· third, 75% of any available cash then remaining to the owners of all classes of units pro rata and 25% to the general partner until the owners of all classes of units have received a total of $0.23375 per unit in cash or equivalent i-units for such quarter; and

· fourth, 50% of any available cash then remaining to the owners of all classes of units pro rata, to owners of common units and Class B units in cash and to owners of i-units in the equivalent number of i-units, and 50% to the general partner.

Incentive distributions are generally defined as all cash distributions paid to the general partner that are in excess of 2% of the aggregate value of cash and i-units being distributed. The general partner's incentive distribution for the distributions that Kinder Morgan Energy Partners, L.P. declared for 2008 was $800.8 million. The general partner's incentive distribution that Kinder Morgan Energy Partners, L.P. paid during 2008 to the general partner (for the fourth quarter of 2007 and the first nine months of 2008) was $754.6 million. The difference between declared and paid distributions is due to the fact that distributions for the fourth quarter of each year are declared and paid in the first quarter of the following year.

We expect that our expenditures associated with managing and controlling the business and affairs of Kinder Morgan Energy Partners, L.P. and the reimbursement for these expenditures received by us from Kinder Morgan Energy Partners, L.P. will continue to be equal. As stated above, the distributions we expect to receive on the i-units we own will be in the form of additional i-units. Therefore, we expect neither to generate nor to require significant amounts of cash in ongoing operations. We currently have no debt and have no plans to incur any debt. Any cash received from the sale of additional shares will immediately be used to purchase additional i-units. Accordingly, we do not anticipate any other sources or needs for additional liquidity.

Recent Accounting Pronouncements

Refer to Note 8 of the accompanying Notes to Consolidated Financial Statements for information regarding recent accounting pronouncements.

Information Regarding Forward-looking Statements

This filing includes forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "believe," "intend," "plan," "projection," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," or the negative of those terms or other variations of them or comparable terminology. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow or to pay dividends or make distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks,

Item 7. Management's Discussion and Analysis Kinder Morgan
of Financial Condition and Management, LLC Form Results of Operations. (continued) 10-K

uncertainties and assumptions. Future actions, conditions or events and future results of our operations and those of Kinder Morgan Energy Partners, L.P. may differ materially from those expressed in these forward-looking statements. Please see "Information Regarding Forward-Looking Statements" for Kinder Morgan Energy Partners, L.P. included in Annex A. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include:

· price trends and overall demand for natural gas liquids, refined petroleum products, oil, carbon dioxide, natural gas, electricity, coal and other bulk materials and chemicals in North America;

· economic activity, weather, alternative energy sources, conservation and technological advances that may affect price trends and demand;

· changes in tariff rates charged by Kinder Morgan Energy Partners L.P.'s pipeline subsidiaries implemented by the Federal Energy Regulatory Commission, other regulatory agency or the California Public Utilities Commission;

· Kinder Morgan Energy Partners, L.P.'s ability to acquire new businesses and assets and integrate those operations into its existing operations, as well as the ability to expand its facilities;

· difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to or from Kinder Morgan Energy Partners L.P.'s terminals or pipelines;

· Kinder Morgan Energy Partners, L.P.'s ability to successfully identify and close acquisitions and make cost-saving changes in operations;

· shut-downs or cutbacks at major refineries, petrochemical or chemical plants, ports, utilities, military bases or other businesses that use Kinder Morgan Energy Partners, L.P.'s services or provide services or products to it;

· crude oil and natural gas production from exploration and production areas that Kinder Morgan Energy Partners L.P. serves, such as the Permian Basin area of West Texas, the U.S. Rocky Mountains and the Alberta oil sands;

· changes in laws or regulations, third-party relations and approvals and decisions of courts, regulators and governmental bodies that may adversely affect Kinder Morgan Energy Partners, L.P.'s business or its ability to compete;

· changes in accounting pronouncements that impact the measurement of Kinder Morgan Energy Partners, L.P.'s or our results of operations, the timing of when such measurements are to be made and recorded, and the disclosures surrounding these activities;

· our ability to offer and sell equity securities, and Kinder Morgan Energy Partners' ability to offer and sell equity securities and its ability to sell debt securities or obtain debt financing in sufficient amounts to implement that portion of Kinder Morgan Energy Partners' business plan that contemplates growth through acquisitions of operating businesses and assets and expansions of its facilities;

· Kinder Morgan Energy Partners, L.P.'s indebtedness, which could make it vulnerable to general adverse economic and industry conditions, limit its ability to borrow additional funds and/or place it at competitive disadvantages compared to its competitors that have less debt or have other adverse consequences;

· interruptions of electric power supply to Kinder Morgan Energy Partners, L.P.'s facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes;

· our or Kinder Morgan Energy Partners, L.P.'s ability to obtain insurance coverage without significant levels of self-retention of risk;

· acts of nature, sabotage, terrorism or other similar acts causing damage greater than Kinder Morgan Energy Partners, L.P.'s insurance coverage limits;

· capital and credit markets conditions, including availability of credit generally, as well as inflation and interest rates;

· the political and economic stability of the oil producing nations of the world;

· national, international, regional and local economic, competitive and regulatory conditions and developments;

· our ability to achieve cost savings and revenue growth;

Item 7. Management's Discussion and Analysis Kinder Morgan
of Financial Condition and Management, LLC Form Results of Operations. (continued) 10-K

· foreign exchange fluctuations;

· the timing and extent of changes in commodity prices for oil, natural gas, electricity and certain agricultural products;

· the extent of Kinder Morgan Energy Partners L.P.'s success in discovering, developing and producing oil and gas reserves, including the risks inherent in exploration and development drilling, well completion and other development activities;

· engineering and mechanical or technological difficulties that Kinder Morgan Energy Partners L.P. may experience with operational equipment, in well completions and workovers, and in drilling new wells;

· the uncertainty inherent in estimating future oil and natural gas production or reserves that Kinder Morgan Energy Partners L.P. may experience;

· the ability of Kinder Morgan Energy Partners L.P. to complete expansion projects on time and on budget;

. . .