General and Basis of Presentation

The following information should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes (included elsewhere in this report); and (ii) our consolidated financial statements, related notes and management's discussion and analysis of financial condition and results of operations included in our 2008 Form 10-K.

Critical Accounting Policies and Estimates

Accounting standards require information in financial statements about the risks and uncertainties inherent in significant estimates, and the application of generally accepted accounting principles involves the exercise of varying degrees of judgment. Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time our financial statements are prepared. These estimates and assumptions affect the amounts we report for our assets and liabilities, our revenues and expenses during the reporting period, and our disclosure of contingent assets and liabilities at the date of our financial statements. We routinely evaluate these estimates, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates.

Further information about us and information regarding our accounting policies and estimates that we consider to be "critical" can be found in our 2008 Form 10-K. There have not been any significant changes in these policies and estimates during the nine months ended September 30, 2009.

Results of Operations

Consolidated

Depreciation, depletion and amortization expense (202.9 ) (166.8 ) (36.1 ) (22 ) % Amortization of excess cost of equity
investments (1.4 ) (1.4 ) - - General and administrative expense(f) (83.7 ) (73.1 ) (10.6 ) (15 ) % Unallocable interest expense, net of
interest income(g) (107.8 ) (100.5 ) (7.3 ) (7 ) % Unallocable income tax expense (2.3 ) (3.7 ) 1.4 38 % Net income 363.7 332.9 30.8 9 % Net income attributable to
noncontrolling interests(h) (4.2 ) (3.1 ) (1.1 ) (35 ) % Net income attributable to Kinder Morgan Energy Partners, L.P. $ 359.5 $ 329.8 $ 29.7 9 %

Nine Months Ended September 30, Earnings 2009 2008 Increase/(Decrease)

Depreciation, depletion and amortization expense (616.2 ) (490.5 ) (125.7 ) (26 ) % Amortization of excess cost of equity
investments (4.3 ) (4.3 ) - - General and administrative expense(n) (238.8 ) (222.7 ) (16.1 ) (7 ) % Unallocable interest expense, net of
interest income(o) (313.7 ) (298.1 ) (15.6 ) (5 ) % Unallocable income tax expense (6.9 ) (8.1 ) 1.2 15 % Net income 959.1 1,049.9 (90.8 ) (9 ) % Net income attributable to
noncontrolling interests(p) (11.9 ) (11.2 ) (0.7 ) (6 ) % Net income attributable to Kinder Morgan Energy Partners, L.P. $ 947.2 $ 1,038.7 $ (91.5 ) (9 ) %

(a) Includes revenues, earnings from equity investments, allocable interest income and other, net, less operating expenses, allocable income taxes, and other expense (income). Operating expenses include natural gas purchases and other costs of sales, operations and maintenance expenses, and taxes, other than income taxes.

(b) 2009 and 2008 amounts include a $1.1 million increase in income and a $0.7 million decrease in income, respectively, resulting from unrealized foreign currency gains and losses on long-term debt transactions. 2009 amount also includes a $0.1 million increase in income from hurricane casualty gains. 2008 amount also includes a $9.3 million decrease in income from the settlement of certain litigation matters related to our Pacific operations' East Line pipeline, and a $0.2 million decrease in income related to hurricane clean-up and repair activities.

(c) 2009 and 2008 amounts include a $0.7 million decrease in income and a $12.2 million increase in income, respectively, resulting from unrealized mark to market gains and losses due to the discontinuance of hedge accounting at Casper Douglas. 2009 amount also includes a $3.7 million increase in income from hurricane casualty gains. 2008 amount also includes a $4.4 million increase in expense related to hurricane clean-up and repair activities.

(d) 2009 amount includes a $5.4 million unrealized loss on derivative contracts used to hedge forecasted crude oil sales.

(e) 2009 amount includes an $11.2 million increase in income from hurricane and fire casualty gains. 2008 amount includes a $6.8 million decrease in income related to fire damage and repair activities, a $4.0 million decrease in income related to hurricane clean-up and repair activities, and a combined $1.5 million increase in expense associated with legal liability adjustments related to certain litigation matters involving our Elizabeth River bulk terminal and our Staten Island liquids terminal.

(f) Includes unallocated litigation and environmental expenses. 2009 and 2008 amounts include increases of $1.5 million and $1.4 million, respectively, in non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts related to these expenses). 2009 amount also includes a $0.5 million increase in expense for certain Natural Gas Pipeline asset acquisition costs, which under prior accounting standards would have been capitalized, and a $0.9 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season. 2008 amount also includes a $0.1 million increase in expense related to hurricane clean-up and repair activities, and a $1.5 million decrease in expense due to the adjustment of certain insurance related liabilities.

(g) 2009 and 2008 amounts include increases in imputed interest expense of $0.4 million and $0.5 million, respectively, related to our January 1, 2007 Cochin Pipeline acquisition. 2008 amount also includes a $0.2 million increase in interest expense related to the settlement of certain litigation matters related to our Pacific operations' East Line pipeline.

(h) 2009 and 2008 amounts include an increase of $0.1 million and a decrease of $0.2 million, respectively, in net income attributable to our noncontrolling interests, related to all of the three month 2009 and 2008 items previously disclosed in these footnotes.

(i) 2009 and 2008 amounts include a $1.5 million increase in income and a $1.4 million decrease in income, respectively, resulting from unrealized foreign currency gains and losses on long-term debt transactions. 2009 amount also includes a $0.1 million increase in income from hurricane casualty gains, and a $3.8 million increase in expense associated with environmental liability adjustments. 2008 amount also includes a $9.3 million decrease in income from the settlement of certain litigation matters related to our Pacific operations' East Line pipeline, a $0.2 million decrease in income related to hurricane clean-up and repair activities, and a $1.3 million gain from the 2007 sale of our North System.

(j) 2009 and 2008 amounts include decreases in income of $4.5 million and $0.9 million, respectively, resulting from unrealized mark to market gains and losses due to the discontinuance of hedge accounting at Casper Douglas. 2009 amount also includes a $3.7 million increase in income from hurricane casualty gains. 2008 amount also includes a $4.4 million increase in expense related to hurricane clean-up and repair activities, and a $13.0 million gain from the sale of our 25% equity ownership interest in Thunder Creek Gas Services, LLC.

(k) 2009 amount includes a $5.4 million unrealized loss on derivative contracts used to hedge forecasted crude oil sales.

(l) 2009 amount includes an $11.2 million increase in income from hurricane and fire casualty gains, a $0.5 million decrease in expense associated with legal liability adjustments related to a litigation matter involving our Staten Island liquids terminal, and a $0.1 million increase in expense associated with environmental liability adjustments. 2008 amount includes a $6.8 million decrease in income related to fire damage and repair activities, a $4.0 million decrease in income related to hurricane clean-up and repair activities, and a combined $1.5 million increase in expense associated with legal liability adjustments related to certain litigation matters involving our Elizabeth River bulk terminal and our Staten Island liquids terminal.

(m) 2009 amount includes a $3.7 million decrease in expense due to a certain non-cash accounting change related to book tax accruals and foreign exchange fluctuations, and a $14.9 million increase in expense primarily due to certain non-cash regulatory accounting adjustments to the carrying amount of the previously established deferred tax liability.

(n) Includes unallocated litigation and environmental expenses. 2009 and 2008 amounts include increases of $4.3 million and $4.2 million, respectively, in non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts related to these expenses). 2009 amount also includes a $0.5 million increase in expense for certain Natural Gas Pipeline asset acquisition costs, which under prior accounting standards would have been capitalized, a $0.1 million increase in expense for certain Express pipeline system acquisition costs, which under prior accounting standards would have been capitalized, and a $2.4 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season. 2008 amount also includes a $0.1 million increase in expense related to hurricane clean-up and repair activities, and a $1.5 million decrease in expense due to the adjustment of certain insurance related liabilities.

(o) 2009 and 2008 amounts include increases in imputed interest expense of $1.2 million and $1.5 million, respectively, related to our January 1, 2007 Cochin Pipeline acquisition. 2008 amount also includes a $0.2 million increase in interest expense related to the settlement of certain litigation matters related to our Pacific operations' East Line pipeline.

(p) 2009 and 2008 amounts include decreases of $0.1 million and $0.2 million, respectively, in net income attributable to our noncontrolling interests, related to all of the nine month 2009 and 2008 items previously disclosed in these footnotes.

For the quarterly period ended September 30, 2009, net income attributable to our partners, which includes all of our limited partner unitholders and our general partner, totaled $359.5 million. This compares to net income attributable to our partners of $329.8 million for the third quarter of 2008. Total revenues for the comparable third quarter periods were $1,660.7 million in 2009 and $3,232.8 million in 2008. For the nine months ended September 30, 2009 and 2008, net income attributable to our partners totaled $947.2 million and $1,038.7 million, respectively, on revenues of $5,092.5 million and $9,448.8 million, respectively.

Because our partnership agreement requires us to distribute 100% of our available cash to our partners on a quarterly basis (available cash as defined in our partnership agreement generally consists of all our cash receipts, less cash disbursements and changes in reserves), we consider each period's earnings before all non-cash depreciation, depletion and amortization expenses, including amortization of excess cost of equity investments, to be an important measure of our success in maximizing returns to our partners. We also use segment earnings before depreciation, depletion and amortization expenses (defined in the table above and sometimes referred to in this report as EBDA) internally as a measure of profit and loss used for evaluating segment performance and for deciding how to allocate resources to our five reportable business segments.

Total segment earnings before depreciation, depletion and amortization for the three months ended September 30, 2009 increased $83.4 million (12%) versus the same quarter last year. Combined, the certain items described in the footnotes to the tables accounted for $24.7 million of the increase in total segment EBDA (combining to increase total segment EBDA by $10.0 million in 2009 and to decrease total segment EBDA by $14.7 million in 2008). The remaining $58.7 million (8%) increase in total segment EBDA included higher earnings in 2009 from our Products Pipelines, Natural Gas Pipelines, Terminals and Kinder Morgan Canada business segments, slightly offset by lower earnings from our CO2 business segment.

For the comparable nine month periods, the certain items described in the footnotes to the tables accounted for an increase in total segment EBDA of $6.2 million (combining to decrease total segment EBDA by $8.0 million in 2009 and to decrease total segment EBDA by $14.2 million in 2008). The remaining $59.2 million increase in total segment EBDA was driven by better performance from our Products Pipelines, Terminals, Kinder Morgan Canada and Natural Gas Pipelines business segments, offset by lower year-over-year earnings from our CO2 business segment.

Products Pipelines

                                                 Three Months Ended              Nine Months Ended
                                                   September 30,                   September 30,
                                               2009               2008           2009          2008
                                                   (In millions, except operating statistics)
Revenues(a)                                $      216.7        $    205.6     $    611.6     $   602.5
Operating expenses(b)                             (56.8 )           (78.7 )       (165.8 )      (209.6 )
Other income (expense)(c)                           0.1              (0.1 )          0.1           0.9
Earnings from equity investments(d)                 6.5               5.0           19.9          21.2
Interest income and Other, net-income(e)            3.5               0.4            9.8           2.2
Income tax expense                                 (2.1 )            (1.8 )         (7.3 )        (8.5 )
Earnings before depreciation, depletion
and amortization expense and
amortization of excess cost of equity
investments                                $      167.9        $    130.4     $    468.3     $   408.7

Gasoline (MMBbl)(f)                               101.3             101.1          301.2         299.5
Diesel fuel (MMBbl)                                35.9              40.0          107.9         120.2
Jet fuel (MMBbl)                                   28.8              29.6           83.7          89.2
Total refined product volumes (MMBbl)             166.0             170.7          492.8         508.9
Natural gas liquids (MMBbl)                         6.2               5.8           18.4          18.7
Total delivery volumes (MMBbl)(g)                 172.2             176.5          511.2         527.6


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(b) Nine month 2009 amount includes an increase in expense of $3.8 million associated with environmental liability adjustments. 2008 amounts include a $4.2 million increase in expense from the settlement of certain litigation matters related to our Pacific operations' East Line pipeline, and a $0.1 million increase in expense related to hurricane clean-up and repair activities. Nine month 2008 amount also includes a $3.0 million decrease in expense related to our Pacific operations and a $3.0 million increase in expense related to our Calnev Pipeline associated with legal liability adjustments.

(c) 2009 amounts include a gain of $0.1 million from hurricane casualty indemnifications. Nine month 2008 amount includes a gain of $1.3 million from the 2007 sale of our North System. We accounted for the North System business as a discontinued operation; however, because the sale does not change the structure of our internal organization in a manner that causes a change to our reportable business segments, we included this 2008 gain adjustment within our Products Pipelines business segment disclosures. Except for this gain adjustment on disposal of the North System, we recorded no other financial results from the operations of the North System during the first nine months of 2008.

(d) 2008 amounts include an expense of $0.1 million reflecting our portion of Plantation Pipe Line Company's expenses related to hurricane clean-up and repair activities.

(e) Three and nine month 2009 amounts include increases in income of $1.1 million and $1.5 million, respectively, resulting from unrealized foreign currency gains on long-term debt transactions. Three and nine month 2008 amounts include decreases in income of $0.7 million and $1.4 million, respectively, resulting from unrealized foreign currency losses on long-term debt transactions.

(f) Includes ethanol volumes.

(g) Includes Pacific, Plantation, Calnev, Central Florida, Cochin and Cypress pipeline volumes.

The certain items related to our Products Pipelines business segment and described in the footnotes to the table above accounted for increases in earnings before depreciation, depletion and amortization expenses of $11.4 million and $7.4 million, respectively, when comparing to the same three and nine month periods a year ago. For each of the comparable three and nine month periods, the following is information related to the remaining increases and decreases in the segment's (i) earnings before depreciation, depletion and amortization expenses (EBDA); and (ii) operating revenues:

Three months ended September 30, 2009 versus Three months ended September 30,

                                      2008

                                         EBDA                           Revenues
                                 increase/(decrease)              increase/(decrease)
                                           (In millions, except percentages)
   Pacific operations         $     10.2              17 %     $      3.9               4 %
   Transmix operations               8.8             128 %            8.0              78 %
   West Coast Terminals              3.4              25 %            2.9              14 %
   Central Florida Pipeline          2.8              26 %            2.7              20 %
   Plantation Pipeline               1.3              15 %           (6.5 )           (59 ) %
   All others                       (0.4 )            (1 ) %         (5.0 )            (9 ) %
   Total Products Pipelines   $     26.1              19 %     $      6.0               3 %


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Nine months ended September 30, 2009 versus Nine months ended September 30, 2008

                                          EBDA                          Revenues
                                  increase/(decrease)             increase/(decrease)
                                           (In millions, except percentages)
    Pacific operations         $     13.9               7 %     $       0.4            -
    Transmix operations               7.3              32 %             5.9           19 %
    West Coast Terminals             12.6              34 %            11.5           20 %
    Central Florida Pipeline          7.9              25 %             8.8           23 %
    Plantation Pipeline              (0.8 )            (3 ) %         (18.7 )        (57 ) %
    All others                       11.3             (11 ) %          (3.9 )         (2 ) %
    Total Products Pipelines   $     52.2              12 %     $       4.0            1 %

Overall, our Products Pipelines business segment reported strong operating results in the third quarter of 2009 as earnings before depreciation, depletion and amortization expenses increased $26.1 million (19%), when compared to the third quarter of 2008. Although ongoing weak economic conditions continued to dampen demand for refined petroleum products at many of our assets in this segment, resulting in lower diesel and jet fuel volumes and flat gasoline volumes versus the third quarter of 2008, earnings were positively impacted by higher ethanol and terminal revenues from our Central Florida Pipeline and Pacific operations, improved warehousing margins at existing and expanded West Coast terminal facilities, and incremental product settlement gains from our transmix processing operations. In addition, the segment benefited from a $17.6 million (24%) reduction in combined operating expenses in the third quarter of 2009, primarily due to lower outside services and other discretionary operating expenses, lower fuel and power expenses, and to new service contracts and bidding work at lower prices compared to a year earlier.

The primary increases in segment earnings before depreciation, depletion and amortization expenses for both the three and nine months ended September 30, 2009, when compared to the same periods last year, were attributable to the third quarter 2009 earnings from our Pacific operations. For the comparable three month periods, the overall $10.2 million increase in our Pacific operations' earnings in 2009 consisted of a $3.9 million (4%) increase in revenues and a $6.3 million (18%) decrease in operating expenses, when compared to the third quarter a year ago. The overall increase in revenues was driven by both higher terminal revenues and higher year-over-year increases in tariff rates on refined products deliveries, which more than offset a 4% decline in delivery volumes. The quarterly decrease in expenses, relative to the third quarter 2008, was driven by a combination of aggressive cost management actions related to overall operating expenses (particularly outside services), lower legal expenses (due in part to incremental expenses associated with certain litigation settlements reached in the third quarter 2008), and higher product gains.

For the comparable nine month periods, the $13.9 million (7%) increase in our Pacific operations' earnings was driven by a $13.0 million decrease in combined operating expenses in the first nine months of 2009, when compared to the same prior year period. The decrease in expenses, relative to the first nine months of 2008, was primarily due to the following: (i) overall cost reductions and delays in certain non-critical spending; (ii) lower fuel and power and outside services expenses, due to lower mainline delivery volumes; (iii) higher product gains; (iv) lower right-of-way and environmental expenses; and (v) lower legal expenses (discussed above).

The higher period-to-period earnings before depreciation, depletion and amortization from our transmix processing operations in 2009 versus 2008 were mainly due to a combined $8.0 million increase to revenues recognized in August 2009. At that time, we recorded certain true-ups related to transmix settlement gains (including tank gains and incremental loss allowance gains).

The period-to-period earnings increases from our West Coast terminal operations were largely revenue related, driven by increased warehouse charges and new customers at our combined Carson/Los Angeles Harbor terminal system and by incremental returns from the completion of a number of capital expansion projects that modified and upgraded terminal infrastructure since the end of the third quarter of 2008. Revenues from our remaining West Coast facilities increased in the third quarter and first nine months of 2009 due mostly to additional throughput and storage services associated with renewable fuels (both ethanol and biodiesel), and partly to incremental revenues from the terminals' Portland, Oregon Airport pipeline, which was acquired on July 31, 2009.

The increases in earnings before depreciation, depletion and amortization from our Central Florida Pipeline were also driven by higher period-to-period revenues in 2009, when compared to 2008. For the comparable three month periods, the increases in revenues and earnings were due to a 4% increase in throughput, a mid-year tariff increase, and higher product gains in 2009 versus 2008. For the comparable nine month periods, the increases in revenues and earnings were mainly due to incremental ethanol revenues created by the completion of expansion projects, mid-year tariff increases, and higher products . . .