KINDER MORGAN, INC. (Form Type: 10-K, Filing Date: 03/02/2011)

Our total balance of short-term debt as of December 31, 2010 was $2,013.3 million, primarily consisting of (i) $750.0 million in principal amount of Kinder Morgan Kansas, Inc.’s 5.35% series senior notes that matured on January 5, 2011; (ii) $700.0 million in principal amount of KMP’s 6.75% senior notes that mature March 15, 2011 and (iii) $522.1 million of commercial paper under KMP’s bank credit facility. As of December 31, 2009, our total balance of short-term debt was $768.7 million. Kinder Morgan Kansas, Inc. and KMP intend to refinance current short-term debt and any additional short-term debt incurred during the remainder of the year through a combination of long-term debt, commercial paper and/or bank credit facility borrowings. KMP also can issue equity to refinance its current short-term debt.

We had working capital deficits (current assets minus current liabilities) of $1,857.2 million as of December 31, 2010 and $938.9 million as of December 31, 2009. The unfavorable change from 2009 was primarily due to (i) $750.0 million in principal amount of Kinder Morgan Kansas, Inc.’s 5.35% senior notes that matured on January 5, 2011 being reclassified from long-term to short-term debt and (ii) $700.0 million in principal amount of KMP’s 6.75% senior notes due March 15, 2011 being reclassified from long-term to short-term debt. Generally, our working capital balance varies due to factors such as the timing of scheduled debt payments, timing differences in the collection and payment of receivables and payables, the change in fair value of our derivative contracts and changes in cash and cash equivalent balances as a result of our or our subsidiaries’ debt or equity issuances. As a result, our working capital balance could return to a surplus in future periods. A working capital deficit is not unusual for us or for other companies similar in size and scope to us, and we believe that our working capital deficit does not indicate a lack of liquidity as we continue to maintain adequate current assets and committed lines of credit to satisfy current liabilities and maturing obligations when they come due.

Long-term Financing

From time to time, Kinder Morgan Kansas, Inc. or KMP issue long-term debt securities, often referred to as senior notes. All of the senior notes of Kinder Morgan Kansas, Inc. or KMP issued to date, other than those issued by KMP’s subsidiaries and its operating partnerships, generally have very similar terms, except for interest rates, maturity dates and prepayment premiums. All of these outstanding senior notes are unsecured obligations that rank equally with all of the other senior debt obligations; however, a modest amount of secured debt has been incurred by some of KMP’s operating partnerships and subsidiaries. Our and KMP’s fixed rate senior notes provide that we may redeem the notes at any time at a price equal to 100% of the principal amount of the notes plus accrued inter est to the redemption date plus a make-whole premium. For additional information on these debt securities and on the 2010 and 2009 debt related transactions, including issuances of senior notes, see Note 8 to our consolidated financial statements included elsewhere in this report.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

As of December 31, 2010 and 2009, our net carrying value of the various series of Kinder Morgan Kansas, Inc. and its subsidiaries’ (excluding KMP and its subsidiaries’) long-term debt, including the current portion and excluding the value of interest rate swaps was $3,623.8 million and $2,873.3 million, respectively. The amount outstanding at December 31, 2010 includes the $750.0 million of 5.35% senior notes paid on January 5, 2011 (see Note 8 to our consolidated financial statements included elsewhere in this report). As of December 31, 2010 and 2009, our net carrying value (including purchase accounting adjustments) of the various series of KMP and its subsidiaries’ various long-term borrowings, including the current po rtion and excluding the value of interest rate swaps, was $11,024.0 million and $10,304.0 million, respectively. To date, our debt balances have not adversely affected our operations, our ability to grow or our ability to repay or refinance our indebtedness. Based on our historical record, we believe that our capital structure will continue to allow us to achieve our business objectives.

We and our subsidiaries, including KMP, are subject, however, to conditions in the equity and debt markets and there can be no assurance we will be able or willing to access the public or private markets for equity and/or long-term senior notes in the future. If we were unable or unwilling to access the equity markets, we would be required to either restrict expansion capital expenditures and/or potential future acquisitions or pursue debt financing alternatives, some of which could involve higher costs or negatively affect our subsidiaries’ credit ratings. Furthermore, Our subsidiaries’ ability to access the public and private debt markets is affected by their respective credit ratings. See “—Credit Ratings and Capital Market Liquidity” above for a discussion of KMP&# 8217;s credit ratings.

Capital Expenditures

We define sustaining capital expenditures as capital expenditures which do not increase the capacity of an asset, and for the year ended December 31, 2010 our sustaining capital expenditures were $180.8 million (including $179.2 million associated with KMP). This amount included $0.2 million for KMP’s proportionate share of the sustaining capital expenditures of (i) Rockies Express Pipeline LLC; (ii) Midcontinent Express Pipeline LLC; (iii) KinderHawk Field Services LLC; (iv) Cypress Interstate Pipeline LLC and (v) Fayetteville Express Pipeline LLC. For the year ended December 31, 2009, our sustaining capital expenditures totaled $172.7 million (including $172.0 million associated with KMP and $0.2 million for KMP’s proportionate share of Rockies Express’ sustaining capital expenditures). 60; Our forecasted expenditures for 2011 for sustaining capital expenditures are approximately $225.5 million (including $6.9 million for KMP’s proportionate shares of Rockies Express, Midcontinent Express, KinderHawk, Cypress, and Fayetteville Express).

Generally, we fund our sustaining capital expenditures with existing cash or from cash flows from operations. In addition to utilizing cash generated from their own operations, both Rockies Express and Midcontinent Express can each fund their own cash requirements for expansion capital expenditures through borrowings under their own credit facilities, issuing their own long-term notes, or with proceeds from contributions received from their member owners. Similarly, KinderHawk Field Services can fund its cash requirements for expansion capital expenditures with cash generated from its own operations, through borrowings under its own credit facility, or with proceeds from contributions received from its two member owners. KMP has no contingent debt obligation with respect to either Rockies Express P ipeline LLC or KinderHawk Field Services LLC; however, KMP guarantees both 50% of Midcontinent Express Pipeline LLC’s bank credit facility borrowings and 50% of Fayetteville Express Pipeline LLC’s bank credit facility borrowings. For information on our contingent debt obligations, see Note 12 to our consolidated financial statements included elsewhere in this report.

All of our capital expenditures, with the exception of sustaining capital expenditures, are classified as discretionary. Our discretionary capital expenditures for each of the two years ended December 31, 2010 and 2009 were $821.9 million and $1,151.8 million, respectively, and were associated entirely with KMP. The year-to-year decrease in discretionary capital expenditures was largely due to the higher investment undertaken in 2009 to construct KMP’s Kinder Morgan Louisiana natural gas pipeline system and to expand and improve our Products Pipelines—KMP and Terminals—KMP business segments. Generally, KMP initially funds its discretionary capital expenditures through borrowings under its bank credit facility or its commercial paper program until the amount borrowed is of sufficie nt size to cost effectively offer either debt, equity, or both. KMP has forecasted $795.6 million for discretionary capital expenditures in its 2011 budget. This amount does not include forecasted capital contributions to its equity investees or forecasted expenditures for asset acquisitions.

Capital Contributions

In addition to its discretionary capital expenditures, KMP contributed a combined $299.3 million to its equity investees in 2010. In 2009, KMP made equity investment contributions of $2,051.8 million. The decrease in contributions in 2010 was driven by the incremental contributions KMP made in 2009 to Rockies Express Pipeline LLC,

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

Midcontinent Express Pipeline LLC, and Fayetteville Express Pipeline LLC (all three reported as investments on our balance sheet and accounted for under the equity method of accounting). Combined, KMP contributed $2,040.8 million in 2009 to partially fund (i) their respective Rockies Express, Midcontinent Express, and Fayetteville Express pipeline construction and/or pre-construction costs and (ii) the repayment of senior notes by Rockies Express in August 2009.

KMP’s 2010 contributions primarily consisted of a combined $216.5 million contributed to Rockies Express Pipeline LLC and Midcontinent Express Pipeline LLC. Fayetteville Express Pipeline LLC funded its 2010 pipeline construction costs with borrowings under its own $1.1 billion, unsecured revolving bank credit facility that is due in May 2012. Generally, KMP funds its equity investment contributions through borrowings under its bank credit facility or its commercial paper program. To the extent these sources of funding are not sufficient, KMP generally funds additional amounts through the issuance of long-term notes or common units for cash.

Capital Requirements for Recent Transactions

For each of the years ended December 31, 2010 and 2009, KMP’s net cash outlays for the acquisition of assets and investments totaled $1,213.2 million and $328.9 million, respectively. KMP’s 2010 cash outlays for strategic business acquisitions primarily consisted of (i) $921.4 million for a 50% equity ownership interest in Petrohawk Energy Corporation’s natural gas gathering and treating business (now KinderHawk Field Services LLC); (ii) $114.3 million for three unit train ethanol handling terminals acquired from US Development Group LLC and (iii) $97.0 million for terminal assets and investments acquired from Slay Industries. With the exception of the terminal assets acquired from US Development Group LLC, which was partially acqu ired by the issuance of additional common units, KMP utilized its commercial paper program to fund its 2010 acquisitions and then reduced its short-term borrowings with the proceeds from its 2010 equity issuances and its May 2010 issuance of long-term senior notes. Including both the value of common units KMP issued as consideration in the acquisition of assets and the cash related to acquisitions that it placed in escrow as of December 31, 2010, KMP’s outlays for the acquisition of assets and investments totaled $1,344.9 million in 2010.

KMP’s cash payments for acquired assets and investments in 2009 included $265.3 million for its acquisition of the natural gas treating business from Crosstex Energy L.P. and Crosstex Energy, Inc., and $36.0 million for its 40% membership interest in Endeavor Gathering LLC. KMP utilized its bank credit facility to fund its significant 2009 acquisitions and then reduced its short-term borrowings with the proceeds from its 2009 issuances of common units and senior notes. All of KMP’s significant 2010 and 2009 acquisitions are discussed further in Note 3 to our consolidated financial statements included elsewhere in this report.

Off Balance Sheet Arrangements

We have invested in entities that are not consolidated in our financial statements. For information on KMP’s obligations with respect to these investments, as well as KMP’s obligations with respect to related letters of credit, see Note 12 to our consolidated financial statements included elsewhere in this report. Additional information regarding the nature and business purpose of our investments is included in Note 6 to our consolidated financial statements included elsewhere in this report.

Contractual Obligations and Commercial Commitments

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In millions)
Contractual Obligations:
Debt borrowings-principal payments	$	15,230.8	$	2,012.4	$	2,814.9	$	1,050.8	$	9,352.7

Interest payments(a)		11,072.8		846.4		1,518.8		1,337.0		7,370.6
Lease obligations(b)		225.6		49.6		68.1		44.9		63.0
Pension and postretirement welfare plans(c)		355.3		29.0		60.9		66.0		199.4
Other obligations(d)		15.0		10.0		3.3		0.6		1.1
Total	$	26,899.5	$	2,947.4	$	4,466.0	$	2,499.3	$	16,986.8

Other commercial commitments:
Standby letters of credit(e)	$	357.3	$	357.3	$	-	$	-	$	-
Capital expenditures(f)	$	303.4	$	303.4	$	-	$	-	$	-

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Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

(a)	Interest payment obligations exclude adjustments for interest rate swap agreements.
(b)	Represents commitments pursuant to the terms of operating lease agreements.
(c)	Represents expected benefit payments from pension and postretirement welfare plans as of December 31, 2010.

(d)	For the Less than 1 year column, represents (i) $5.0 million due under casualty insurance deductibles; (ii) $3.7 million due under carbon dioxide take-or-pay contracts and (iii) $1.3 million due pursuant to KMP’s purchase and sale agreement with Gas-Chill, Inc. for the acquisition of certain natural gas treating assets effective September 1, 2010. For the 1-3 years column, represents (i) $2.0 million due pursuant to KMP’s purchase and sale agreement with Slay Industries for the acquisition of certain bulk and liquid terminal assets effective March 5, 2010 and (ii) $1.3 million due pursuant to KMP’s purchase and sale agreement with Gas-Chill, Inc. For the 3-5 years column, represents amounts due pursuant to KMP’s purchase and sale agreement with Slay Industries. For the More th an 5 years column, represents amounts due pursuant to KMP’s purchase and sale agreement with Slay Industries.
(e)	The $357.3 million in letters of credit outstanding as of December 31, 2010 consisted of the following: (i) a $100 million letter of credit that supports certain proceedings with the California Public Utilities Commission involving refined products tariff charges on the intrastate common carrier operations of KMP’s Pacific operations’ pipelines in the state of California; (ii) a $55.0 million letter of credit supporting KMP’s pipeline and terminal operations in Canada; (iii) a combined $40.1 million in three letters of credit required under provisions of our property and casualty, worker’s compensation and general liability insurance policies; (iv) KMP’s $30.3 million guarantee under letters of credit totaling $45.5 million supporting KMP’s International Marine Terminals Partnership Plaquemines, L ouisiana Port, Harbor, and Terminal Revenue Bonds; (v) a $25.4 million letter of credit supporting KMP’s Kinder Morgan Liquids Terminals LLC New Jersey Economic Development Revenue Bonds; (vi) a $24.1 million letter of credit supporting KMP’s Kinder Morgan Operating L.P. “B” tax-exempt bonds; (vii) an $18.3 million letter of credit supporting Nassau County, Florida Ocean Highway and Port Authority tax-exempt bonds; (viii) a $16.2 million letter of credit supporting debt securities issued by the Express pipeline system; (ix) a $16.1 million letter of credit supporting KMP’s indemnification obligations on the Series D note borrowings of Cortez Capital Corporation and (x) a combined $16.6 million in eight letters of credit supporting environmental and other obligations of KMP and its subsidiaries.
(f)	Represents commitments for the purchase of plant, property and equipment as of December 31, 2010.

Other Contingent Commitments:	Contingency	Amount of Contingent Liability at December 31, 2010
Guarantor of the Bushton Gas processing plant lease(a)	Default by ONEOK, Inc.	Total $30.6 million, ending in May 2011.

____________

(a)

In conjunction with our sale of the Bushton gas processing facility to ONEOK, Inc., at December 31, 1999, ONEOK, Inc. became primarily liable under the associated operating lease and we became secondarily liable. Should ONEOK, Inc. fail to make payments as required under the lease, we would be required to make such payments, with recourse only to ONEOK, Inc.

Cash Flows

The following table summarizes our net cash flows from operating, investing and financing activities for each period presented.

	Year Ended December 31,
	2010			2009			2008
	(In millions)
Net Cash Provided by (Used in)
Operating activities	$	1,911.0		$	1,587.5		$	1,396.8
Investing activities		(2,287.1	)		(3,477.5	)		3,210.0
Financing activities		710.6			1,931.0			(4,628.1	)

Effect of Exchange Rate Changes on Cash		2.3			6.0			(8.7	)

Net Increase (Decrease) in Cash and Cash Equivalents	$	336.8		$	47.0		$	(30.0	)

Operating Activities

Net cash provided by operating activities was $1,911.0 million in 2010, versus $1,587.5 million in 2009. The net increase of $323.5 million (20%) in cash provided by operating activities in the year ended December 31, 2010 compared to the respective 2009 period was primarily attributable to:

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

▪

a $454.7 million increase in cash inflows relative to net changes in working capital items, primarily driven by (i) a $254.2 million decrease in cash used for income tax payments, net of refunds; (ii) a $147.4 million increase in cash from the collection and payment of trade and related party receivables and payables (including collections and payments on natural gas transportation and exchange imbalance receivables and payables), due primarily to the timing of invoices received from customers and paid to vendors and suppliers and (iii) an $84.0 million increase in cash from higher payments in 2009 for natural gas storage on KMP’s Kinder Morgan Texas Pipeline system;

▪

a $76.5 million increase in cash from overall higher net income after adjusting for non-cash items, including (i) a $430.0 million impairment charge in 2010 on our investment in NGPL PipeCo LLC; (ii) a $154.0 million increase in expense from the combined effect of KMP’s rate case liability adjustments (which increased expenses by $172.0 million in 2010 and by $18.0 million in 2009, respectively); (iii) a $23.9 million decrease in expense due to lower ineffectiveness on crude oil price hedges, and to lower expenses from the discontinuance of hedge accounting on certain energy commodity derivative contracts and (iv) a $23.8 million decrease in expense associated with adjustments to long-term receivables for environmental cost recoveries that increased operating expenses in 2009. The year-to-year change in net income from our seven reportable business segments and change in general and administrative expe nses (including the $200 million 2010 settlement of litigation related to the Going Private Transaction) is discussed above in “—Results of Operations” (including all of the certain items disclosed in the associated table footnotes);

▪

a $47.8 million increase in cash attributable to higher net cash inflows from transportation and dock payments received from Trans Mountain pipeline system customers;

▪

a $190.8 million decrease in cash attributable to higher payments made in 2010 for transportation rate settlements, refunds and reparations made pursuant to certain legal settlements reached with various shippers on KMP’s Pacific operations’ refined products pipelines. In June 2010, KMP paid $206.3 million to eleven of twelve shippers regarding the settlement of various transportation rate challenges filed with the FERC dating back as early as 1992. In May 2009, KMP made refund and settlement payments totaling $15.5 million to various shippers in connection with certain East Line rate settlement agreements; and

▪

a $57.2 million decrease in cash primarily reflecting a reduction in the portion of distributions received from equity investments treated as distributions of equity earnings. Current accounting practice requires us to classify and report cumulative cash distributions in excess of cumulative equity earnings as a return of capital rather than as a distribution of cumulative equity earnings. None of the $34.7 million in distributions received from our equity investment in NGPL PipeCo LLC in 2010 were treated as a distribution of earnings from this equity investment; conversely, $42.5 million of distributions received from NGPL PipeCo LLC in 2009 were recognized as a distribution of earnings from this equity investment (see also the discussion of distributions from equity earnings following in “—Cash Flows—Investing Activities.”

Investing Activities

Net cash used in investing activities was $2,287.1 million in 2010, versus $3,477.5 million in 2009. The net increase in cash of $1,190.4 million in investing activities in the year ended December 31, 2010 compared to the respective 2009 period was primarily attributable to:

▪

a $1,752.5 million increase in cash due to lower contributions to equity investees, as described above in “—Capital Contributions;”

▪

a $321.8 million increase in cash due to lower capital expenditures, as described above in “—Capital Expenditures;”

▪

a $98.8 million increase in cash due to higher capital distributions (distributions in excess of cumulative earnings) received in 2010 from equity investees, primarily related to the (i) combined $179.2 million in capital distributions KMP received from its equity investments in Rockies Express Pipeline LLC, Midcontinent Express Pipeline LLC and KinderHawk Field Services LLC in 2010, versus the $112.0 million of capital distributions KMP received in 2009 from its equity investment in Fayetteville Express Pipeline LLC and (ii) $34.7 million in capital distributions we received in 2010 compared to the $13.7 million we received in 2009 from our equity investment in NGPL PipeCo LLC.

Return of capital distributions represent distributions paid out by our and KMP’s equity investees in excess of the income they generated. KMP’s 2009 return of capital from Fayetteville Express represents a reimbursement to KMP for prior contributions it made to fund Fayetteville Express’ pre-construction costs for the pipeline system. In November 2009, Fayetteville Express Pipeline LLC entered into and then made borrowings under a new $1.1 billion unsecured revolving credit facility due in May 2012. It then made distributions to its two member owners (Energy Transfer Partners, L.P. and KMP) to reimburse them for prior contributions;

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

▪

a $20.3 million increase in cash due to a decrease in investments in margin and restricted deposits;

▪

an $884.3 million decrease in cash due to higher acquisitions of assets and investments, as described above in “—Capital Requirements for Recent Transactions;”

▪

a $109.6 million decrease in cash due to the full repayment received in 2009 of a loan KMP made in December 2008 to a single customer of its Texas intrastate natural gas pipeline group; and

▪

a $17.5 million decrease in cash resulting from the deconsolidation of Triton Power Company LLC from our consolidated financial statements upon the adoption of Accounting Standards Update No. 2009-17 (see Note 18 to our consolidated financial statements included elsewhere in this report).

Financing Activities

Net cash provided by financing activities was $710.6 million in 2010, versus $1,931.0 million in 2009. The net decrease of $1,220.4 million in cash provided by financing activities in the year ended December 31, 2010 compared to the respective 2009 period was primarily attributable to:

▪

a $675.6 million decrease in cash from overall debt financing activities—which include issuances and payments of debt and debt issuance costs. The decrease was primarily due a $1,091.3 million decrease in cash from overall debt financing activities of KMP and primarily consists of (i) a $987.6 million decrease in cash due to lower net issuances and repayments of KMP’s senior notes; (ii) a $600.0 million decrease in cash from lower net borrowings under KMP’s bank credit facility and (iii) a $522.1 million increase in cash due to net commercial paper borrowings by KMP in 2010 (KMP had no commercial paper borrowings as of December 31, 2009). Partially offsetting KMP’s overall debt financing activities for the period was an increase of $415.7 million in cash from Kinder Morgan Kansas, Inc.’s overall debt financing activities consisting primarily of (i) $744.2 m illion in net proceeds received from the issuance of senior notes by Kinder Morgan Finance Company, LLC, a wholly owned subsidiary of Kinder Morgan Kansas, Inc. and (ii) a $333.2 million decrease in cash due to increased net borrowings under Kinder Morgan Kansas, Inc.’s credit facility;

The largely offsetting increases and decreases in cash from KMP’s commercial paper and credit facility borrowings, respectively, were related in part to its short-term credit rating upgrade discussed above in “—Credit Ratings and Capital Market Liquidity.” All of Kinder Morgan Kansas, Inc. and KMP’s 2010 and 2009 senior note offerings and repayments are discussed in Note 8 to our consolidated financial statements included elsewhere in this report;

▪

a $396.9 million decrease in cash provided by noncontrolling interest contributions primarily reflecting the $758.7 million KMP received, after commissions and underwriting expenses, from the sales of additional KMP common units in 2010, compared to the $1,155.6 million KMP received in 2009. All of KMP’s 2010 and 2009 equity issuances are discussed in Note 10 to our consolidated financial statements included elsewhere in this report;

▪

a $104.7 million increase in cash used for noncontrolling interests distributions, primarily due to an increase in KMP’s cash distributions to its common unit owners; and

▪

a $50.0 million increase in cash used to pay dividends.

Dividend Policy and Distributions

Our dividend policy set forth in our shareholders agreement provides, subject to applicable law, that we will pay quarterly cash dividends on all classes of our capital stock equal to the cash we receive from our subsidiaries and other sources less any cash disbursements and reserves established by a majority vote of our board of directors, including for general and administrative expenses, interest and cash taxes. The division of our dividends among our classes of capital stock will be in accordance with our charter. Our board of directors may declare dividends by a majority vote in accordance with our dividend policy pursuant to our bylaws. This policy reflects our judgment that our stockholders would be better served if we distributed to them a substantial portion of our cash. As a result, we may not retain a sufficient amount of cash to fund our operations or to finance unanticipated capital expenditures or growth opportunities, including acquisitions.

As presented in the table at the end of this section, in 2010 we had cash available to pay distributions of $654 million ($763 million adjusting for the interim capital transaction). In 2011, we expect to have cash available to pay dividends of $820 million and we expect to pay quarterly dividends of $0.29 per share on our common stock, or $205 million per quarter. We anticipate that the first quarterly dividend on the common stock offered after our February 2011 initial public offering will be paid in May 2011 and that such dividend will be prorated for the portion of the first quarter of 2011 that we are public. Prior to the initial public offering, we paid a dividend for the fourth quarter of 2010 and for the portion of

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

the first quarter of 2011 that we were not public. This dividend was paid only to our existing investors as further discussed below. Dividends on our investor retained stock generally will be paid at the same time as dividends on our common stock and will be based on the aggregate number of shares of common stock into which our investor retained stock is convertible on the record date for the applicable dividend.

The portion of our dividends payable on the three classes of our investor retained stock may vary among those classes, but the variations will not affect the dividends we pay on our common stock since the total number of shares of common stock into which our outstanding investor retained stock can convert in the aggregate was fixed on the closing of our initial public offering on February 16, 2011. As of that date, investor retained stock was convertible into a fixed aggregate of 597,213,410 shares of our common stock, which represent 84.5% of our common stock on a fully-converted basis. Subsequent to our initial public offering, any conversion of our investor retained stock into our common stock will reduce on a one for one basis the number of common shares into which our investor retained stock can convert such that the number of shares on a fully converted basis is the same before and after the conversion of our investor r etained stock.

Our board of directors may amend, revoke or suspend our dividend policy at any time and for any reason, which would require a supermajority board approval while the Sponsor Investors, consisting of investment funds advised by, or affiliated with, Goldman, Sachs & Co., Highstar Capital LP, The Carlyle Group and Riverstone Holdings LLC, maintain prescribed ownership thresholds. During that time, supermajority approval would also be required to declare and pay any dividends that are not in accordance with our dividend policy. There is nothing in our dividend policy or our governing documents that prohibits us from borrowing to pay dividends. The actual amount of dividends to be paid on our capital stock will depend on many factors, including our financial condition and results of operations, liquidity requirements, market opportu nities, our capital requirements, legal, regulatory and contractual constraints, tax laws and other factors. Distributions we receive from KMP are our most significant source of our cash available to pay dividends (including the value of additional KMR shares we receive on the approximately 13 million shares we own). We intend periodically to sell the KMR shares we receive as distributions to generate cash.

On February 11, 2011, Kinder Morgan, Inc’s Board of Directors declared and paid a dividend to our existing investors of $245.8 million with respect to the period for which we were not public. This consisted of $205.0 million for the fourth quarter of 2010 and $104.8 million for the first 46 days of 2011, representing the portion of the first quarter of 2011 that we were not public, less a one time adjustment of $64.0 million in available earnings and profits reserved for the after tax cost of one-time cash bonuses (and premium pay) in an aggregate amount of approximately $100 million to certain of our non-executive management employees. We expect to pay such bonuses pursuant to the shareholders’ agreement in the second quarter of 2011 . The payment of any bonuses to holders of our Class B shares or Class C shares is subject to supermajority approval of our board of directors in accordance with our bylaws.

Cash Available to Pay Dividends

	Year Ended December 31, 2010
	(In millions)
KMP distributions to us:
From ownership of general partner interest(a)(b)	$	883.9
On KMP units owned by us(c)		93.7
On KMR shares owned by us(d)		54.2
Total KMP distributions to us		1,031.8
NGPL distributions to us		34.7

Total distributions received		1,066.5
General and administrative expenses and sustaining capital expenditures(e)		2.6
Interest expense(f)		(158.0	)

Cash available to pay dividends before cash taxes		911.1
Cash taxes(g)		(257.0	)

Cash available to pay dividends(a)	$	654.1

____________

(a)	Includes $170 million pre-tax (approximately $109 million after-tax) negative impact in the third quarter of 2010 of a KMP distribution of cash from interim capital transactions. As a result of the distribution of cash from interim capital transactions, the

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

	amount actually distributed to the general partner in 2010 was $170 million lower than it otherwise would have been had all distributions been cash from operations. Excluding the effect of the distribution of cash from interim capital transactions, 2010 cash available to pay dividends would have been approximately $763 million.
(b)	KMP’s distributions payable to us are based on our general partner interest and related incentive distributions based on (i) KMP distributions of $4.32 per common unit paid in 2010 ($4.40 per common unit declared for 2010), (ii) $307.1 million average aggregate common units, Class B units and i-units outstanding in 2010 and, (iii) with respect to the 7.9 million common units issued during 2010 that were deemed by us to be issued in connection with financing a portion of the acquisition of KMP’s interests in the KinderHawk joint venture, we as general partner have waived receipt of its related incentive distributions from the second quarter 2010 through 2011.
(c)	Based on 21.7 million KMP units owned by us multiplied by the KMP per unit distribution paid, as outlined in footnote (b) above.
(d)	Assumes that we sold approximately 0.9 million KMR shares that we received as distributions in 2010, at the price used to calculate the number of KMR shares to be received in quarterly distributions. We did not sell any KMR shares in 2010. Beginning in 2011, we intend periodically to sell the KMR shares we receive as distributions to generate cash.
(e)	Amount does not reflect the December 2010 payment of $200.0 million ($128.0 million net of tax) to fund the proposed settlement of the litigation related to the Going Private Transaction. This payment was financed using our credit facility and is included in our outstanding debt referred to in (f) below. Interest on this additional debt is included in our interest expense.
(f)	Consists of cash interest on our outstanding debt, excluding KMP, and dividends on $100 million of outstanding Kinder Morgan G.P., Inc. preferred stock.
(g)	Cash taxes do not include non-recurring tax benefits of approximately $36.6 million. Our taxable income is generally less than our cash available to pay dividends before cash taxes due to (i) the deferral of income with respect to the KMP common units that we own, primarily due to allocated depreciation, (ii) our basis in the KMR shares that we own and (iii) an 80% dividends received deduction on the distributions we receive from NGPL. Approximately 100% of the distributions we received on the KMP units that we own are tax deferred.

Reconciliation of Cash Available to Pay Dividends

to Income from Continuing Operations

	Year Ended December 31, 2010
	(In millions)
Income from continuing operations(a)	$	300.3
Depreciation, depletion and amortization(a)		1,078.8
Amortization of excess cost of investments(a)		5.8
Loss from equity investments(a)		186.2
Distributions from equity investments(a)		219.8
Distributions from equity investments in excess of cumulative earnings(a)		224.5
KMP certain items(b)		189.2
Kinder Morgan Kansas, Inc. purchase accounting(c)		(33.8	)
Going Private Transaction settlement reserve(d)		200.0
Interim capital transaction(e)		(166.6	)
Difference between cash and book taxes(f)		(99.0	)
Difference between cash and book interest expense for Kinder Morgan Kansas, Inc.		(0.7	)
Sustaining capital expenditures(g)		(180.8	)
KMP declared distribution on its limited partner units owned by the public(h)		(1,210.8	)
Other(i)		(58.8	)

Cash available for distribution	$	654.1

____________

(a)	Consists of the corresponding line items in our consolidated statement of income or consolidated statement of cash flows for the year ended December 31, 2010 included elsewhere in this report.
(b)	Consists of items such as legal and environmental reserves, gain/loss on sale, insurance proceeds from casualty losses, and asset disposition expenses. KMP adds back these certain items in its calculation of distributable cash flow used to determine its distribution. For more information, see the table detailing certain items under “General—Results of Operations—Consolidated.”
(c)	Consists of non-cash purchase accounting adjustments related to the Going Private Transaction primarily associated with non-cash income recognized from the revaluation of KMP’s crude hedges.
(d)	For more information, see the footnotes to the table under “General—Results of Operations—Consolidated.”

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

(e)	For more information, see the footnotes to the table under “General—Results of Operations—Consolidated.” The difference between the $167 million pre-tax ($107 million after-tax) in this table and the $170 million pre-tax ($109 million after-tax) disclosed elsewhere in this report is due to differences between the earnings impact and the cash impact of the distribution of cash from interim transactions. The difference is reflected in this table in “Other.”
(f)	The difference between cash and book taxes is reflected in multiple line items including “Deferred income taxes” and “Changes in components of working capital—Accrued taxes” on our consolidated statement of cash flow for the year ended December 31, 2010, included elsewhere in this report.
(g)	See ‘‘Liquidity and Capital Resources—Capital Expenditures.’’
(h)	Declared distribution multiplied by limited partner units outstanding on the applicable record date less units owned by us. Includes distributions on KMR shares. KMP must generate the cash to cover the distributions on the KMR shares, but those distributions are paid in additional shares and KMP retains the cash. We do not have access to that cash.
(i)	Consists of timing differences between earnings and cash (for example, a lag between when earnings are recognized and distributions are paid, including distributions to us by KMP), the elimination of any earnings from our Power segment, and cash flow in excess of our distributions.

Recent Accounting Pronouncements

Please refer to Note 18 to our consolidated financial statements included elsewhere in this report for information concerning recent accounting pronouncements.

Information Regarding Forward-Looking Statements

This report 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 service debt or to pay dividends are forward-looking statements. Forward-Looking statements are no t guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors which 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, steel 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 our or those of KMP’s pipeline subsidiaries implemented by the Federal Energy Regulatory Commission, California Public Utilities Commission, Canada’s National Energy Board or another regulatory agency;

▪

our ability to acquire new businesses and assets and integrate those operations into our existing operations, as well as the ability to expand our facilities;

▪

difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to or from KMP’s terminals or pipelines;

▪

our 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 our services or provide services or products to us;

▪

changes incrude oil and natural gas production from exploration and production areas that we or KMP serve, such as the Permian Basin area of West Texas, the U.S. Rocky Mountains, areas of shale gas formation 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 our business or ability to compete;

▪

changes in accounting pronouncements that impact the measurement of our results of operations, the timing of when such measurements are to be made and recorded, and the disclosures surrounding these activities;

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Kinder Morgan, Inc. Form 10-K

▪

our ability to offer and sell equity securities, and KMP’s 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 our or KMP’s business plans that contemplates growth through acquisitions of operating businesses and assets and expansions of facilities;

▪

our indebtedness, which could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds, and/or place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;

▪

interruptions of electric power supply to our facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes;

▪

our ability to obtain insurance coverage without significant levels of self-retention of risk;

▪

acts of nature, accidents, sabotage, terrorism or other similar acts causing damage greater than our insurance coverage limits;

▪

capital and credit markets conditions, 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;

▪

foreign exchange fluctuations;

▪

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

▪

the extent of KMP’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 KMP 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 KMP may experience;

▪

the ability to complete expansion projects on time and on budget;

▪

the timing and success of KMP’s and our business development efforts; and

▪

unfavorable results of litigation and the fruition of contingencies referred to in Note 16 to our consolidated financial statements included elsewhere in this report.

The foregoing list should not be construed to be exhaustive. We believe the forward-looking statements in this report are reasonable. However, there is no assurance that any of the actions, events or results of the forward-looking statements will occur, or if any of them do, what impact they will have on our results of operations or financial condition. Because of these uncertainties, you should not put undue reliance on any forward-looking statements.

See Item 1A “Risk Factors” for a more detailed description of these and other factors that may affect the forward-looking statements. When considering forward-looking statements, one should keep in mind the risk factors described in Item 1A “Risk Factors.” The risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. Other than as required by applicable law, we disclaim any obligation to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

Kinder Morgan, Inc. Form 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Generally, our market risk sensitive instruments and positions have been determined to be “other than trading.” Our exposure to market risk as discussed below includes forward-looking statements and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in energy commodity prices or interest rates. Our views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated based on actual fluctuations in energy commodity prices or interest rates and the timing of transactions.

Energy Commodity Market Risk

Primarily through our subsidiary, KMP, we are exposed to energy commodity market risk and other external risks, such as weather-related risk, in the ordinary course of business. However, we take steps to hedge, or limit our exposure to, these risks in order to maintain a more stable and predictable earnings stream. Stated another way, we execute a hedging strategy that seeks to protect us financially against adverse price movements and serves to minimize potential losses. Our strategy involves the use of certain energy commodity derivative contracts to reduce and minimize the risks associated with unfavorable changes in the market price of natural gas, natural gas liquids and crude oil. The derivative contracts KMP uses include energy products traded on the New York Mercantile Exchange and over-the-counter markets, including, but not limited to, futures and options contracts, fixed price swaps and basis swaps.

Fundamentally, our hedging strategy involves taking a simultaneous position in the futures market that is equal and opposite to our position, or anticipated position, in the cash market (or physical product) in order to minimize the risk of financial loss from an adverse price change. For example, as sellers of crude oil and natural gas, KMP often enters into fixed price swaps and/or futures contracts to guarantee or lock-in the sale price of our crude oil or the margin from the sale and purchase of our natural gas at the time of market delivery, thereby directly offsetting any change in prices, either positive or negative. A hedge is successful when gains or losses in the cash market are neutralized by losses or gains in the futures transaction.

Our policies require that derivative contracts are only entered into with carefully selected major financial institutions or similar counterparties based upon their credit ratings and other factors, and we maintain strict dollar and term limits that correspond to our counterparties’ credit ratings. While it is our policy to enter into derivative transactions only with investment grade counterparties and actively monitor their credit ratings, it is nevertheless possible that losses will result from counterparty credit risk in the future. The credit ratings of the primary parties from whom we transact in energy commodity derivative contracts (based on contract market values) are as follows (credit ratings per Standard & Poor’s Ratings Services):

	Credit Rating
J. Aron & Company / Goldman Sachs	A
Morgan Stanley	A
Deutsche Bank	A+

As discussed above, the principal use of energy commodity derivative contracts is to mitigate the market price risk associated with anticipated transactions for the purchase and sale of natural gas, natural gas liquids and crude oil. Using derivative contracts for this purpose helps provide KMP increased certainty with regard to its operating cash flows and helps it undertake further capital improvement projects, attain budget results and meet distribution targets to its partners. We categorize such use of energy commodity derivative contracts as cash flow hedges because the derivative contract is used to hedge the anticipated future cash flow of a transaction that is expected to occur but whose value is uncertain. Cash flow hedges are defined as hedges made with the intention of decreasing the variability in cash flows related to future transactions, as opposed to the value of an asset, liability or firm commitment, and we are allowed special hedge accounting treatment for such derivative contracts.

In accounting for cash flow hedges, gains and losses on the derivative contracts are reported in other comprehensive income, outside “Net Income” reported in our consolidated statements of income, but only to the extent that the gains and losses from the change in value of the derivative contracts can later offset the loss or gain from the change in value of the hedged future cash flows during the period in which the hedged cash flows affect net income. That is, for cash flow hedges, all effective components of the derivative contracts’ gains and losses are recorded in other comprehensive income (loss), pending occurrence of the expected transaction. Other comprehensive income (loss) consists of those financial items that are included within “Accumulated other comprehensive loss” in our accompanying c onsolidated balance sheets but not included in our net income (portions attributable to our noncontrolling interests are included within

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. (continued)

Kinder Morgan, Inc. Form 10-K

“Noncontrolling interests” and are not included in our net income). Thus, in highly effective cash flow hedges, where there is no ineffectiveness, other comprehensive income changes by exactly as much as the derivative contracts and there is no impact on earnings until the expected transaction occurs.

All remaining gains and losses on the derivative contracts (the ineffective portion) are included in current net income. The ineffective portion of the gain or loss on the derivative contracts is the difference between the gain or loss from the change in value of the derivative contract and the effective portion of that gain or loss. In addition, when the hedged forecasted transaction does take place and affects earnings, the effective part of the hedge is also recognized in the income statement, and the earlier recognized effective amounts are removed from “Accumulated other comprehensive loss” (and “Noncontrolling interests”) and are transferred to the income statement as well, effectively offsetting the changes in cash flows stemming from the hedged risk. If the forecasted transaction results in an asset or liability, amounts should be reclassified into earnings when the asset or liability affects earnings through cost of sales, depreciation, interest expense, etc. For more information on our other comprehensive income (loss) and our “Accumulated other comprehensive loss” see Notes 2 and 13 to our consolidated financial statements included elsewhere in this report.

We measure the risk of price changes in the natural gas, natural gas liquids and crude oil markets utilizing a value-at-risk model. Value-at-risk is a statistical measure estimating the probability of portfolio losses over a given holding period, within a certain level of statistical confidence. We utilize a closed form model to evaluate risk on a quarterly basis. Our value-at-risk computations utilize a confidence level of 97.7% for the resultant price movement, and we choose a holding period of one day for the calculation. The confidence level used means that there is a 97.7% probability that the mark-to-market losses for a single day will not exceed the value-at-risk number presented. For each of the years ended December 31, 2010 and 2009, our value-at-risk reached a high of $6.9 million and $10.4 million, respective ly, and a low of $2.5 million and $2.6 million, respectively. Value-at-risk as of December 31, 2010 was $2.5 million, and averaged $4.6 million for 2010. Value-at-risk as of December 31, 2009 was $10.1 million, and averaged $7.6 million for 2009.

Our calculated value-at-risk exposure represents an estimate of the reasonably possible net losses that would be recognized on the combined portfolio of derivative contracts (including commodity futures and options contracts, fixed price swaps, basis swaps and over-the-counter options) and corresponding physical commodities assuming hypothetical movements in future market rates and is not necessarily indicative of actual results that may occur. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ from estimates due to actual fluctuations in market rates, operating exposures and the timing thereof, as well as changes in our portfolio of derivatives during the year.

In addition, as discussed above, KMP enters into its derivative contracts largely for the purpose of mitigating the risks that accompany certain of its business activities and, therefore both in the value-at-risk calculation and in reality, the change in the market value of the derivative contracts portfolio is offset largely by changes in the value of the underlying physical transactions. For more information on our energy commodity risk management activities, see Note 13 to our consolidated financial statements included elsewhere in this report.

Interest Rate Risk

In order to maintain a cost effective capital structure, it is our policy to borrow funds using a mix of fixed rate debt and variable rate debt. The market risk inherent in our debt instruments and positions is the potential change arising from increases or decreases in interest rates as discussed below.

For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. Generally, there is not an obligation to prepay fixed rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on the fixed rate debt included in the accompanying balance sheets until such debt is required to be refinanced.

As of December 31, 2010 and 2009, the carrying values of the fixed rate debt included in our accompanying consolidated balance sheets were $14,559.1 million and $13,083.4 million, respectively. These amounts compare to, as of December 31, 2010 and 2009, fair values of $15,518.3 million and $13,676.2 million, respectively. Fair values were determined using quoted market prices where applicable, or future cash flow discounted at market rates for similar types of borrowing arrangements. A hypothetical 10% change in the average interest rates applicable to such debt for 2010 and 2009, would result in changes of approximately $530.3 million and $503.5 million, respectively, in the fair values of these instruments. The carrying value and fair value of the variable rate debt, including associated accrued interest and excluding the value of interest rate swap agreements (discussed following), was $596.1 million and $558.9 million as of December 31, 2010 and 2009, respectively.

100

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. (continued)

Kinder Morgan, Inc. Form 10-K

As of December 31, 2010, Kinder Morgan Kansas, Inc. and KMP were party to interest rate swap agreements with a notional principal amount of $725.0 million and $4.8 billion, respectively. As of December 31, 2009, Kinder Morgan Kansas, Inc. and KMP were party to interest rate swap agreements with a notional principal amount of $725.0 million and $5.2 billion, respectively. An interest rate swap agreement is a contractual agreement entered into between two counterparties under which each agrees to make periodic interest payments to the other for an agreed period of time based upon a predetermined amount of principal, which is called the notional principal amount. Normally at each payment or settlement date, the party who owes more pays the net amount; so at any given settlement date only one party actually makes a payment. The principal amount is notional because there is no need to exchange actual amounts of principal. A hypothetical 10% change of the weighted average interest rate on all of our borrowings (approximately 45 basis points in 2010) when applied to our outstanding balance of variable rate debt as of December 31, 2010 and 2009, including adjustments for the notional swap amounts described above, would result in changes of approximately $27.4 million and $30.2 million, respectively, in our 2010 and 2009 annual pre-tax earnings.

Interest rate swap agreements are entered into for the purpose of transforming a portion of the underlying cash flows related to long-term fixed rate debt securities into variable rate debt in order to achieve our desired mix of fixed and variable rate debt. Since the fair value of fixed rate debt varies with changes in the market rate of interest, swap agreements are entered into to receive a fixed and pay a variable rate of interest. Such swap agreements result in future cash flows that vary with the market rate of interest, and therefore hedge against changes in the fair value of the fixed rate debt included our the accompanying balance sheets due to market rate changes.

As of both December 31, 2010 and 2009, all of Kinder Morgan Kansas, Inc.’s and KMP’s interest rate swap agreements represented fixed-for-variable rate swaps, where each agreed to pay its counterparties a variable rate of interest on a notional principal amount, comprised of principal amounts from various series of its long-term fixed rate senior notes. In exchange, the counterparties agreed to pay a fixed rate of interest, thereby allowing fixed rate liabilities to transform into variable rate obligations without the incurrence of additional loan origination or conversion costs.

We monitor the mix of fixed rate and variable rate debt obligations in light of changing market conditions and from time to time through our subsidiaries, may alter that mix by, for example, refinancing outstanding balances of variable rate debt with fixed rate debt (or vice versa) or by entering into interest rate swap agreements or other interest rate hedging agreements. In general, KMP attempts to maintain an overall target mix of approximately 50% fixed rate debt and 50% of variable rate debt, and typically Kinder Morgan Kansas, Inc., excluding KMP, targets well below that level for variable rate debt. As of December 31, 2010, approximately 20% of Kinder Morgan Kansas, Inc.’s debt, excluding that of KMP, is variable rate debt.

As of December 31, 2010 and 2009, our cash and investment portfolio included $8.2 million and $13.2 million, respectively, in fixed-income debt securities. These amounts are included in “Investments” in our accompanying consolidated balance sheets at each reporting date and are not material to our consolidated balance sheets.

See Note 8 to our consolidated financial statements included elsewhere in this report for additional information related to our debt instruments; for more information on our interest rate risk management and on our interest rate swap agreements, see Note 13 to our consolidated financial statements included elsewhere in this report.

Item 8. Financial Statements and Supplementary Data

The information required in this Item 8 is included in this report as set forth in the “Index to Financial Statements” on page 129.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

101

Kinder Morgan, Inc. Form 10-K

Item 9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As of December 31, 2010, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of our disclosure con trols and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2010.

The effectiveness of our internal control over financial reporting as of December 31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their attestation report, which appears herein.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the fourth quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

102

Kinder Morgan, Inc. Form 10-K

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

Set forth below is information concerning our directors and executive officers. Our directors are elected by the vote of a plurality of our various classes of capital stock, voting as a single class, to serve until his or her successor is duly elected or appointed and qualified or until his or her earlier death, retirement, disqualification, resignation or removal. All of our officers serve at the discretion of our board of directors. The ages set forth below are as of December 31, 2010.

Name	Age	Position
Richard D. Kinder	66	Director, Chairman and Chief Executive Officer
C. Park Shaper	42	Director and President
Steven J. Kean	49	Director and Chief Operating Officer
Henry Cornell	54	Director
Michael Miller	52	Director
Michael C. Morgan	42	Director
Kenneth A. Pontarelli	40	Director
Fayez Sarofim	82	Director
John Stokes	59	Director
R. Baran Tekkora	37	Director
Glenn A. Youngkin	44	Director
Kimberly A. Dang	41	Vice President and Chief Financial Officer
David D. Kinder	36	Vice President, Corporate Development and Treasurer
Joseph Listengart	42	Vice President, General Counsel and Secretary
James E. Street	54	Vice President, Human Resources and Administration

Richard D. Kinder served as Chief Manager and Chief Executive Officer of KMI from May 2007 until completion of the Conversion Transactions at which time he assumed the positions of Director, Chairman and Chief Executive Officer. He is also Director, Chairman and Chief Executive Officer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. Mr. Kinder has served as Director, Chairman and Chief Executive Officer of KMR since its formation in February 2001. He was elected Director, Chairman and Chief Executive Officer of Kinder Morgan Kansas, Inc. in October 1999. He was elected Director, Chairman and Chief Executive Officer of Kinder Morgan G.P., Inc. in February 1997. Mr. Kinder was elected President of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in July 2004 and served as President until May 2005. Mr. Kinder is the uncle of David D. Kinder, Vice President, Corporate Development and Treasurer of KMI, KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. Mr. Kinder’s experience as Chief Executive Officer of Kinder Morgan Kansas, Inc. and of KMR, combined with his service as our Chief Manager and Chief Executive Officer provide him with a familiarity with our strategy, operations and finances that can be matched by no one else. In addition, Mr. Kinder’s significant equity ownership in us aligns his economic interests with those of our other stockholders.

C. Park Shaper served as Manager and President of KMI from May 2007 until completion of the Conversion Transactions at which time he assumed the positions of Director and President. He is also Director and President of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. Mr. Shaper was elected President of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in May 2005. He served as Executive Vice President of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. from July 2004 until May 2005. Mr. Shaper was elected Director of KMR and Kinder Morgan G.P., Inc. in January 2003 and of Kinder Morgan Kansas, Inc. in May 2007. He was elected Vice President, Treasurer and Chief Financial Officer of KMR upon its formation in February 2001, and served as its Treasurer until January 2004, and its Chief Financial Officer until May 2005. He was elected Vice President, Treasurer and Chief Financial Officer of Kinder Morgan Kansas, Inc. in January 2000, and served as its Treasurer until January 2004, and its Chief Financial Officer until May 2005. Mr. Shaper was elected Vice President, Treasurer and Chief Financial Officer of Kinder Morgan G.P., Inc. in January 2000, and served as its Treasurer until January 2004 and its Chief Financial Officer until May 2005. He received a Masters of Business Administration degree from the J.L. Kellogg Graduate School of Management at Northwestern University. Mr. Shaper also has a Bachelor of Science degree in Industrial Engineering and

103

Item 10.

Directors, Executive Officers and Corporate Governance. (continued)

Kinder Morgan, Inc. Form 10-K

a Bachelor of Arts degree in Quantitative Economics from Stanford University. Mr. Shaper is also a trust manager of Weingarten Realty Investors. Mr. Shaper’s experience as our President, together with his experience as an executive officer of various Kinder Morgan entities, provide him valuable management and operational expertise and intimate knowledge of our business operations, finances and strategy.

Steven J. Kean served as Manager and Chief Operating Officer of KMI from May 2007 until completion of the Conversion Transactions at which time he assumed the positions of Director, Executive Vice President and Chief Operating Officer. He is also Executive Vice President and Chief Operating Officer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. Mr. Kean was elected Executive Vice President and Chief Operating Officer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in January 2006. He served as Executive Vice President, Operations of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. from May 2005 to January 2006. He served as President, Natural Gas Pipelines of KMR and Kinder Morgan G.P., Inc. from July 2008 to November 2009. He ser ved as President, Texas Intrastate Pipeline Group from June 2002 until May 2005. He served as Vice President of Strategic Planning for the Kinder Morgan Gas Pipeline Group from January 2002 until June 2002. Mr. Kean received his Juris Doctor from the University of Iowa in May 1985 and received a Bachelor of Arts degree from Iowa State University in May 1982. Mr. Kean’s experience as one of our executives since 2002 provides him valuable management and operational expertise and a thorough understanding of our business operations and strategy.

Henry Cornell served as a Manager of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as a Director He is a managing director of Goldman, Sachs & Co. and the Chief Operating Officer of its Merchant Banking Division, which includes all of the firm’s corporate, real estate and infrastructure investment committees. He is a member of all of its global Merchant Banking Investment Committees. See ‘‘Certain Relationships and Related Party Transactions’’ for details regarding Goldman, Sachs & Co.’s relationship with Kinder Morgan Kansas, Inc. and us. Mr. Cornell serves on the boards of directors of Cobalt International Energy, Inc., First Marblehead Corporation, Hony Capital III, L.P., Hony Capit al 2008, Kenan Advantage Group, McJunkin Red Man Corporation and USI Holdings Corporation. Mr. Cornell is Chairman of The Citizens Committee of New York City, Treasurer and Trustee of the Whitney Museum of American Art, Trustee of Grinnell College, a member of The Council on Foreign Relations, Trustee Emeritus of the Asia Society, Trustee Emeritus of the Japan Society and a member of Sotheby’s International Advisory Board. Mr. Cornell joined Goldman, Sachs & Co. in 1984 and became a partner in 1994. Prior to joining Goldman, Sachs & Co., Mr. Cornell practiced law with Davis Polk & Wardwell from 1981 to 1984 in New York and London. Mr. Cornell holds a B.A. from Grinnell College and a J.D. from New York Law School. Mr. Cornell has significant experience with energy companies and investments and familiarity with our industry and capital markets activity, which enhance his contributions to the board of directors.

Michael Miller served as a Manager of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as a Director. Mr. Miller is a Partner at Highstar Capital LP and has been with the firm since 2001. He serves on Highstar’s Investment Committee and Executive Committee. Mr. Miller has over 20 years of experience in direct investments, principally in the energy, waste-to-energy, conventional and renewable power sectors and utilities. Mr. Miller currently serves on the boards of directors of Star Atlantic Waste Holdings, L.P. and Utilities, Inc. Mr. Miller received a B.S. from Rensselaer Polytechnic Institute, an M.B.A. from the University of Chicago and is a CFA charter holder. Mr. Miller has significant experience with public companies an d investments and familiarity with our industry and capital markets activity, which enhance his contributions to the board of directors.

Michael C. Morgan served as a Manager of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as a Director. From 2003 until the Going Private Transaction, Mr. Morgan served as a director of Kinder Morgan Kansas, Inc. He has been Chairman and Chief Executive Officer of Triangle Peak Partners, LP, a registered investment adviser and fund manager, since April 2008. He also has been President of Portcullis Partners, L.P., a private investment partnership, since October 2004. Mr. Morgan has been a director of DriveCam, Inc. since July 2009, and was a director of Kayne Anderson MLP Investment Company and Kayne Anderson Energy Total Return Fund, Inc. from May 2007 until March 2008. Mr. Morgan was President of Kinder Morgan Kansas, Inc., KMR and Kinder Morgan G.P., Inc. from July 2001 to July 2004. Mr. Morgan served as Vice President—Strategy and Investor Relations of KMR from February 2001 to July 2001. He served as Vice President-Strategy and Investor Relations of Kinder Morgan Kansas, Inc. and Kinder Morgan G.P., Inc. from January 2000 to July 2001. He served as Vice President, Corporate Development of Kinder Morgan G.P., Inc. from February 1997 to January 2000. Mr. Morgan was Vice President, Corporate Development of Kinder Morgan Kansas, Inc. from October 1999 to January 2000. Mr. Morgan received an M.B.A. from Harvard Business School and a Bachelor of Arts and a Masters of Arts from Stanford University. As a result of Mr. Morgan’s prior service as a director of Kinder Morgan Kansas, Inc., he possesses a familiarity with our business operations, financial strategy and organizational structure which enhance his contributions to the board of directors.

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Item 10.

Directors, Executive Officers and Corporate Governance. (continued)

Kinder Morgan, Inc. Form 10-K

Kenneth A. Pontarelli served as a Manager of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as a Director. He is also a Director of Kinder Morgan Kansas, Inc. Mr. Pontarelli is a managing director of Goldman, Sachs & Co. See ‘‘Certain Relationships and Related Party Transactions’’ for details regarding Goldman, Sachs & Co.’s relationship with Kinder Morgan Kansas, Inc. and us. Mr. Pontarelli was elected Director of Kinder Morgan Kansas, Inc. upon the consummation of the Going Private Transaction in May 2007. He joined Goldman, Sachs & Co. in 1997, became a managing director in 2004 and became a partner in 2006. Mr. Pontarelli serves on the boards of directors of CCS Corporation, Cobalt In ternational Energy, Inc., Energy Future Holdings Corp. and Expro International Group Ltd. He received a B.S. from Syracuse University and an M.B.A. from the Harvard Business School. Mr. Pontarelli’s over 10 years of experience as an investment banker and experience as a director of both public and private companies provide him with an understanding of strategic planning, management and financial matters which enhance his contributions to the board of directors.

Fayez Sarofim served as a Manager of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as a Director. He has been Chairman of the Board and President of Fayez Sarofim & Co., a registered investment advisor, for more than five years. Over the past five years, Mr. Sarofim has served as a director of Unitrin, Inc. and Argo Group International Holdings, Ltd. and was a director of Kinder Morgan Kansas, Inc. prior to the Going Private Transaction. As a result of Mr. Sarofim’s prior service as a director of Kinder Morgan Kansas, Inc., he possesses a familiarity with our business operations, financial strategy and organizational structure which enhance his contributions to the board of directors.

John Stokes served as a Manager of KMI from September 2008 until completion of the Conversion Transactions at which time he continued as a Director. Mr. Stokes joined Highstar Capital LP in 2002 as a full-time consultant and became a partner in 2005. Mr. Stokes currently serves on the board of directors of Utilities, Inc. Mr. Stokes received a BS in Mechanical Engineering from Clemson University and an MBA from the University of Miami. Mr. Stokes has over 35 years of experience in various sectors of the infrastructure industry, including conventional and renewable electric power generation, fuel procurement, energy trading, and project development and finance, which enhance his contributions to the board of directors.

R. Baran Tekkora served as a Manager of KMI from November 2010 until completion of the Conversion Transactions at which time he continued as a Director upon completion of the Conversion Transactions. Mr. Tekkora is a Managing Director of Riverstone Holdings LLC and has been with the firm since 2005. He is primarily engaged in generating and managing the firm’s investments in the midstream and oil field services segments of the energy industry. Prior to joining Riverstone, Mr. Tekkora was a Vice President at Goldman, Sachs & Co. in the Natural Resources Group. Mr. Tekkora joined Goldman, Sachs & Co. in 1996 and focused on all segments of the energy and power industry. Mr. Tekkora serves on the boards of directors of Hudson Products Corp. and Permian Tank & M anufacturing, Inc. Previously, he served on the boards of directors of Petroplus Holdings AG and FDR Holdings Ltd. Mr. Tekkora graduated summa cum laude with a Bachelor degree in Economics and Mathematics from Hamilton College in 1996. Mr. Tekkora has a wide variety of mergers and acquisitions, strategic advisory and capital markets experience in many sectors of the energy industry, which enhance his contributions to the board of directors.

Glenn A. Youngkin served as a Manager of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as a Director. He is the chairman of The Carlyle Group’s Operating Committee and serves on Carlyle’s Executive Committee and is currently the interim Chief Financial Officer. Mr. Youngkin is also the sector chair for Carlyle’s new and emerging funds, where he chairs the investment committees for Carlyle South America Buyout Fund, while also serving on the investment committees for Carlyle MENA Partners, Carlyle Infrastructure Partners, Carlyle Investment Grade Opportunity Group and Carlyle Global Financial Services Partners. From 2005 to early 2008, Mr. Youngkin was the Global Head of the Industrial investment team. From 2000 to 2005, Mr. Youngkin led Carlyle’s buyout activities in the United Kingdom, and from 1995 to 2000 he was part of the U.S. buyout team. Prior to joining Carlyle, Mr. Youngkin was a management consultant with McKinsey & Company. Mr. Youngkin also previously worked in the investment banking group at CS First Boston. Mr. Youngkin received a B.S. in mechanical engineering and a B.A. in managerial studies from Rice University and his M.B.A. from the Harvard Business School, where he was a Baker Scholar. Mr. Youngkin currently serves on the Boards of Directors of PQ Corporation, CVC Brasil Operadora e Agencia de Viagens S.A. and Sealina S.A., all Carlyle portfolio companies. Mr. Youngkin also serves on the Board of Trustees of the Langley School and AlphaUSA, and the Board of Directors of the Rice Management Company. Mr. Youngkin has significant experience with public companies and investments and familiarity with our industry and capital markets activity, which enhance his contributions to the board of directors.

Kimberly A. Dang served as Chief Financial Officer of KMI from May 2007 until completion of the Conversion Transactions at which time she continued as Vice President and Chief Financial. She is also Vice President and Chief Financial Officer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. Mrs. Dang was elected Chief

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Item 10.

Directors, Executive Officers and Corporate Governance. (continued)

Kinder Morgan, Inc. Form 10-K

Financial Officer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in May 2005. She served as Treasurer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. from January 2004 to May 2005. She was elected Vice President, Investor Relations of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in July 2002 and served in that role until January 2009. From November 2001 to July 2002, she served as Director, Investor Relations of KMR, Kinder Morgan G.P., and Kinder Morgan Kansas, Inc. Mrs. Dang has received a Masters in Business Administration degree from the J.L. Kellogg Graduate School of Management at Northwestern University and a Bachelor of Business Administration degree in accounting from Texas A&M University.

David D. Kinder served as Treasurer of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as Vice President, Corporate Development and Treasurer. He is also Vice President, Corporate Development and Treasurer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. Mr. Kinder was elected Treasurer of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in May 2005. He was elected Vice President, Corporate Development of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in October 2002. He served as manager of corporate development for Kinder Morgan Kansas, Inc. and Kinder Morgan G.P., Inc. from January 2000 to October 2002. Mr. Kinder graduated cum laude with a Bachelors degree in Finance from Texas Christia n University in 1996. Mr. Kinder is the nephew of Richard D. Kinder.

Joseph Listengart served as General Counsel and Secretary of KMI from May 2007 until completion of the Conversion Transactions at which time he continued as Vice President, General Counsel and Secretary. He is also Vice President, General Counsel and Secretary of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. Mr. Listengart was elected Vice President, General Counsel and Secretary of KMR upon its formation in February 2001. He was elected Vice President and General Counsel of Kinder Morgan G.P., Inc. and Vice President, General Counsel and Secretary of Kinder Morgan Kansas, Inc. in October 1999. Mr. Listengart was elected Secretary of Kinder Morgan G.P., Inc. in November 1998 and has been an employee of Kinder Morgan G.P., Inc. since March 1998. Mr. Liste ngart received his Masters in Business Administration from Boston University in January 1995, his Juris Doctor, magna cum laude, from Boston University in May 1994, and his Bachelor of Arts degree in Economics from Stanford University in June 1990.

James E. Street is Vice President, Human Resources and Administration of KMR, Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. and assumed the position of Vice President, Human Resources and Administration of Kinder Morgan, Inc. upon completion of the Conversion Transactions. Mr. Street was elected Vice President, Human Resources and Administration of KMR upon its formation in February 2001. He was elected Vice President, Human Resources and Administration of Kinder Morgan G.P., Inc. and Kinder Morgan Kansas, Inc. in August 1999. Mr. Street received a Masters of Business Administration degree from the University of Nebraska at Omaha and a Bachelor of Science degree from the University of Nebraska at Kearney.

Director Independence; Structure of the Board of Directors

Our board of directors currently consists of eleven members. Our directors are elected annually to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. The initial directors as nominated pursuant to our shareholders agreement are:

•

Messrs. Kinder, Shaper, Kean, Morgan and Sarofim, who were nominated by Richard D. Kinder;

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Messrs. Cornell and Pontarelli, who were nominated by affiliates of Goldman Sachs;

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Messrs. Miller and Stokes, who were nominated by affiliates of Highstar Capital LP;

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Mr. Youngkin, who was nominated by affiliates of The Carlyle Group; and

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Mr. Tekkora, who was nominated by affiliates of Riverstone Holdings LLC;

In accordance with our shareholders agreement we will also be adding two new independent directors to our board of directors. Based upon the listing standards of the New York Stock Exchange, our board of directors has determined that Messrs. Cornell, Miller, Pontarelli, Sarofim, Stokes, Tekkora and Youngkin are ‘‘independent’’ directors.

Director Compensation

Prior to our initial public offering, we have not paid any compensation to any of our directors in their capacity as members of our board of directors. In conjunction with and following our initial public offering, we will be adding two new independent directors to our board of directors. Only those two new independent directors will receive fees for serving as directors. They will receive an annual retainer of $180,000.

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Item 10.

Directors, Executive Officers and Corporate Governance. (continued)

Kinder Morgan, Inc. Form 10-K

Stock Compensation Plan for Non-Employee Directors

In connection with our initial public offering, we have adopted the Stock Compensation Plan for Non-Employee Directors, in which our newly-appointed independent directors will participate. None of the 11 directors nominated by Richard D. Kinder or the Sponsor Investors will participate in the plan. The following is a summary of the plan. The plan is administered by our compensation committee, and our board has sole discretion to terminate the plan at any time. The primary purpose of this plan is to promote our interests and the interests of our stockholders by aligning the compensation of the non-employee members of our board of directors with stockholders’ interests.

The plan recognizes that the compensation to be paid to each non-employee director is fixed by our board, generally annually, and that the compensation is payable in cash. Pursuant to the plan, in lieu of receiving some or all of the cash compensation, each non-employee director who was not nominated by Richard D. Kinder or one of the Sponsor Investors, referred to as ‘‘eligible directors,’’ may elect to receive shares of common stock. Each election will be generally at or around the first board meeting in January of each calendar year and will be effective for the entire calendar year. An eligible director may make a new election each calendar year. The total number of shares of common stock authorized under the plan is 250,000.

Each annual election to receive shares of common stock will be evidenced by an agreement between us and each eligible director that will contain the terms and conditions of each award. Shares issued under the plan pursuant to an election may be subject to forfeiture restrictions that lapse on the earlier of the director’s death or the date set forth in the agreement, which will be no later than the end of the calendar year to which the cash compensation relates. Until the forfeiture restrictions lapse, shares issued under the plan may not be sold, assigned, transferred, exchanged or pledged by an eligible director. In the event a director’s service as a director is terminated prior to the lapse of the forfeiture restrictions for any reason other than death or the director’s failure to be elected as a director at a shareholders meeting at which the director is considered for election, the director will, for no consideration, forfeit to us all shares to the extent then subject to the forfeiture restrictions. If, prior to the lapse of the forfeiture restrictions, the director is not elected as a director at a shareholders meeting at which the director is considered for election, the forfeiture restrictions will lapse with respect to fifty percent (50%) of the director’s shares then subject to such restrictions, and the director will, for no consideration, forfeit to us the remaining shares. Shares with respect to which forfeiture restrictions have lapsed will cease to be subject to any forfeiture restrictions, and we will provide the eligible director a certificate representing the shares as to which the forfeiture restrictions have lapsed. In addition, each eligible director will have the right to receive dividends with respect to the shares awarded to him under the plan to be paid as described below, to vote su ch shares and to enjoy all other common stockholder rights, including during the period prior to the lapse of the forfeiture restrictions.

The number of shares to be issued to an eligible director electing to receive any portion of the cash compensation in the form of shares will equal the amount of such cash compensation elected to be paid in the form of shares, divided by the closing price of the common stock on the New York Stock Exchange on the day the cash compensation is awarded (such price, the fair market value), rounded up to the nearest ten shares. An eligible director electing to receive any portion of the cash compensation in the form of shares will receive cash equal to the difference between (1) the total cash compensation awarded to such director and (2) the number of shares to be issued to such director multiplied by the fair market value of a share. This cash payment will be payable in four equal installments generally around March 31, June 30, Septe mber 30 and December 31 of the calendar year in which such cash compensation is awarded; provided that the installment payments will be adjusted to include dividends with respect to the shares during a period in which the shares are subject to forfeiture restrictions.

Item 11. Executive Compensation

Our executive officers have not received long-term compensation for serving in such capacities for KMI other than the receipt of Class A-1 units and Class B units in the Going Private Transaction, which converted into the Class C shares and Class B shares, respectively, upon our initial public offering. In addition to information regarding such compensation, the following sets forth information regarding compensation earned by, awarded to or paid to KMI’s executive officers in their capacities as executive officers of KMI’s subsidiaries or its affiliates, including KMP (collectively referred to as the ‘‘Kinder Morgan affiliated entities’’), for the periods presented. KMI’s executive officers also serve in the same capacities as executive officers of Kinder Morgan Kansas, Inc., K inder Morgan G.P., Inc. and KMR. In this section, ‘‘we,’’ ‘‘our’’ or ‘‘us’’ refers to KMI and, where appropriate, Kinder Morgan Kansas, Inc., Kinder Morgan G.P., Inc., KMP and KMR.

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Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

Prior to the Going Private Transaction, Kinder Morgan Kansas, Inc.’s board of directors had a compensation committee that complied with the requirements of the New York Stock Exchange. Following the Going Private Transaction and prior to the completion of our initial public offering, neither KMI’s board nor Kinder Morgan Kansas, Inc.’s board had a separately designated compensation committee. Richard D. Kinder, as our Chief Manager, made compensation decisions with respect to Kinder Morgan Kansas, Inc.’s executive officers. References in this section to ‘‘our compensation committee’’ mean for the periods prior to the Going Private Transaction, Kinder Morgan Kansas, Inc.’s then-existing compensation committee, and for the period from June 1, 2007 through February 11, 2011, Mr. Kinder as our chief Manager, and after February 11, 2011, Mssrs. Fayez Sarofim, R. Baran Tekkora and Glenn A Youngkin. The compensation committee of the board of directors of KMR, which committee is composed of three independent directors, determines the compensation to be paid by KMP to KMR’s and Kinder Morgan G.P., Inc.’s executive officers. As described below, KMR’s compensation committee is aware of the compensation paid to such officers by entities such as Kinder Morgan Kansas, Inc., but makes its compensation determinations at its sole discretion.

As long as the Sponsor Investors can nominate at least five directors to our board of directors, under our bylaws, many compensation decisions also will be subject to supermajority board approval. Therefore, our compensation committee will not have sole discretion with respect to these decisions.

Compensation Discussion and Analysis

Program Objectives

We seek to attract and retain executives who will help us achieve our primary business strategy objective of growing the value of our portfolio of businesses for the benefit of our shareholders. To help accomplish this goal, we have designed an executive compensation program that rewards individuals with competitive compensation that consists of a mix of cash, benefit plans and long-term compensation, with a majority of executive compensation tied to the “at risk” portions of the annual cash bonus.

The key objectives of our executive compensation program are to attract, motivate and retain executives who will advance our overall business strategies and objectives to create and return value to our shareholders. We believe that an effective executive compensation program should link total compensation to financial performance and to the attainment of short- and long-term strategic, operational, and financial objectives. We also believe it should provide competitive total compensation opportunities at a reasonable cost. In designing our executive compensation program, we have recognized that our executives have a much greater portion of their overall compensation at-risk than do our other employees. Consequently, we have tried to establish the at-risk portions of our executive total c ompensation at levels that recognize their much increased level of responsibility and their ability to influence business results.

Our executive compensation program is principally composed of the following two elements: (i) base cash salary and (ii) possible annual cash bonus (reflected in the Summary Compensation Table below as Non-Equity Incentive Plan Compensation). We pay our executive officers a base salary not to exceed $300,000, which we believe is below annual base salaries for comparable positions in the marketplace. In addition, we believe that the compensation of our Chief Executive Officer, Chief Financial Officer and the executives named in the Summary Compensation Table below (collectively referred to in this Item 11 as our named executive officers), should be directly and materially tied to the financial performance of us and KMP, and should be aligned with the interests of our shareholders. Therefore, the majo rity of our named executive officers’ compensation is allocated to the “at risk” portion of our compensation program—the annual cash bonus. Accordingly, for 2010, our executive compensation was weighted toward the cash bonus, payable on the basis of the achievement of (i) a free cash flow target (described more fully below) by us and (ii) a cash distribution per common unit target by KMP.

Our compensation is determined independently without the use of any compensation surveys. Nevertheless, we annually compare our executive compensation components with market information, consisting of third-party surveys in which we participate. The surveys we use in reviewing our executive compensation consist of the Towers Executive Survey, in which approximately 300 to 400 companies participate, the Hewitt Executive Survey, in which approximately 400 companies participate, and the Natural Gas Transmission Industries Survey, in which companies in the natural gas industry participate. The purpose of this comparison is to ensure that our total compensation package operates effectively, remains both reasonable and competitive with the energy industry, and is generally comparable to the compensation offered by companies of similar size and scope as us. We also keep abreast of current trends, developments, and emerging issues in executive compensation, and if appropriate, will obtain advice and assistance from outside legal, compensation or other advisors.

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Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

We have endeavored to design our executive compensation program and practices with appropriate consideration of all tax, accounting, legal and regulatory requirements. Section 162(m) of the Internal Revenue Code limits the deductibility of certain compensation for executive officers to $1.0 million of compensation per year; however, if specified conditions are met, certain compensation may be excluded from consideration of the $1.0 million limit. Since the bonuses paid to our executive officers were paid under our Annual Incentive Plan as a result of reaching designated financial targets established by Richard D. Kinder and KMR’s compensation committee, we expect that all compensation paid to our executives would qualify for deductibility under federal income tax rules. Though we are adv ised that limited partnerships, such as KMP and private companies such as us prior to our initial public offering, are not subject to section 162(m), we and KMP have chosen to generally operate as if this code section does apply to us and KMP as a measure of appropriate governance.

Behaviors Designed to Reward

Our executive compensation program is designed to reward individuals for advancing our business strategies and the interests of our stakeholders, and we prohibit engaging in any detrimental activities, such as performing services for a competitor, disclosing confidential information or violating appropriate business conduct standards. Each executive is held accountable to uphold and comply with company guidelines, which require the individual to maintain a discrimination-free workplace, to comply with orders of regulatory bodies, and to maintain high standards of operating safety and environmental protection.

Unlike many companies, we have no executive perquisites, supplemental executive retirement, non-qualified supplemental defined benefit/contribution, deferred compensation or split dollar life insurance programs for our executive officers. We have no executive company cars or executive car allowances nor do we pay for financial planning services. Additionally, we do not own any corporate aircraft, and we do not pay for executives to fly first class. We believe that this area of our existing executive compensation package is below competitive levels for comparable companies; however, we have no current plans to change our policy of not offering such executive benefits or perquisite programs.

We do not have employment agreements (other than with Richard D. Kinder) or change of control agreements with our executive officers, although our Class B shares held by our executive officers will fully vest upon a change of control. In connection with our initial public offering, one of our affiliated companies entered into severance agreements with eleven of our and our subsidiaries’ executive officers. See “—Other Compensation—Other Potential Post-Employment Benefits.”

At his request, Richard D. Kinder receives $1 of base salary per year from us. Additionally, Mr. Kinder has requested that he receive no annual bonus or other compensation from us or any of our affiliates (other than our Class B unit awards that he received in 2007 in connection with the going-private transaction). Mr. Kinder does not have any deferred compensation, supplemental retirement or any other special benefit, compensation or perquisite arrangement with us, and each year, Mr. Kinder reimburses us for his portion of health care premiums and parking expenses.

Elements of Compensation

As outlined above, our executive compensation program is principally composed of the following two elements: (i) a base cash salary and (ii) a possible annual cash bonus. With respect to our named executive officers other than our Chief Executive Officer, KMR’s compensation committee and Richard D. Kinder review and approve annually the financial goals and objectives of both KMP and us that are relevant to the compensation of our named executive officers.

KMR’s compensation committee solicits information from Richard D. Kinder and James E. Street (Vice President, Human Resources and Administration), with respect to the performance of C. Park Shaper (President) and Steven J. Kean (Executive Vice President and Chief Operating Officer). Similarly, the compensation committee solicits information from Messrs. Kinder, Shaper, Kean and Street with respect to the performance of the other named executive officers. The compensation committee also obtains information from Mr. Street with respect to compensation of comparable positions of responsibility at comparable companies. All of this information is taken into account by the compensation committee, which makes final determinations regarding compensation of the named executive officers. No named executive officer reviews his or her own performance or approves his or her own compensation.

Additionally, if any of our and Kinder Morgan Kansas, Inc.’s executive officers is also an executive officer of Kinder Morgan G.P., Inc. or KMR, the compensation determination or recommendation (i) may be with respect to the aggregate compensation to be received by such officer from us, Kinder Morgan Kansas, Inc., KMR, and Kinder Morgan G.P., Inc. that is to be allocated among them; or alternatively (ii) may be with respect to the compensation to be received by such executive officers from us, Kinder Morgan Kansas, Inc., KMR or Kinder Morgan G.P., Inc., as the case may be, in which

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Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

case such compensation will be allocated among us and Kinder Morgan Kansas, Inc., on the one hand, and KMR and Kinder Morgan G.P., Inc., on the other.

Base Salary

Base salary is paid in cash. The base salary cap for our executive officers, with the exception of our Chairman and Chief Executive Officer who receives $1 of base salary per year as described above, is an annual amount not to exceed $300,000. Prior to October 2008, the salary cap was $200,000 per year. Generally, we believe that our executive officers’ base salaries are below base salaries for executives in similar positions and with similar responsibilities at companies of comparable size and scope, based upon independent salary surveys in which we participate.

Possible Annual Cash Bonus (Non-Equity Cash Incentive)

For the 2009 and 2008 bonus years, our possible annual cash bonuses were provided for under our Annual Incentive Plan, which became effective January 18, 2005. For the 2010 bonus year, Kinder Morgan Kansas, Inc.’s Board of Directors approved a new Annual Incentive Plan (referred to in this Item 11 as the plan) mirroring the previous plan.

The overall purpose of the plan is to increase our executive officers’ and our employees’ personal stake in the continued success of us and KMP, by providing to them additional incentives through the possible payment of annual cash bonuses. Under the plan, a budget amount is established for annual cash bonuses at the beginning of each year that may be paid to our executive officers and other employees depending on whether we and our subsidiaries (including KMP) meet certain financial performance objectives (as discussed below). The amount included in our budget for bonuses is not allocated between our executive officers and non-executive officers. Assuming the financial performance objectives are met, the budgeted pool of bonus dollars is further assessed and potentially increased if we exceed the financial performance objectives. The budget for bonuses also may be adjusted upward or downward based on our overall performance in other areas, including but not limited to safety and environmental goals and regulatory compliance.

All of our employees and the employees of our subsidiaries, including KMGP Services Company, Inc., are eligible to participate in the plan, except employees who are included in a unit of employees covered by a collective bargaining agreement unless such agreement expressly provides for eligibility under the plan. However, only eligible employees who are selected by KMR’s compensation committee will actually participate in the plan and receive bonuses.

The plan consists of two components: the executive plan component and the non-executive plan component. Our Chairman and Chief Executive Officer, and all employees who report directly to the Chairman, including all of the named executive officers, are eligible for the executive plan component; however, as stated elsewhere in this “Compensation Discussion and Analysis,” Richard D. Kinder has elected to not participate under the plan. As of December 31, 2010, excluding Mr. Kinder, eleven of our executive officers were eligible to participate in the executive plan component. All other U.S. and Canadian eligible employees were eligible for the non-executive plan component.

At or before the start of the calendar year (or later, to the extent allowed under Internal Revenue Code regulations), financial performance objectives based on one or more of the criteria set forth in the plan are established by KMR’s compensation committee. Two financial performance objectives were set for 2010 under both the executive plan component and the non-executive plan component. The two financial performance objectives were:

▪

$4.40 in cash distributions per common unit by KMP (the same as its previously disclosed 2010 budget expectations); and

▪

$757 million of free cash flow for us, which consists of distributions received from KMP (including value received in the form of KMR shares) and NGPL less cash taxes, cash interest, general and administrative expenses and capital expenditures.

A third objective which could potentially decrease or increase the budgeted pool of bonus dollars for 2010 was a goal to improve our environmental, health, and safety performance by (i) beating industry average incident rates and (ii) improving our incident rates compared to our previous three year averages. At the end of 2010, the extent to which the financial performance objectives had been attained and the extent to which the bonus opportunity had been earned under the formula previously established by KMR’s compensation committee was determined. For 2010:

▪

KMP distributed $4.40 in cash per common unit—generating enough cash from operations in 2010 to fully cover its cash distributions; however, KMP fell short (approximately $23 million) of meeting its budgeted excess cash coverage above that distribution target; and

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Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

▪

we generated $795.7 million in free cash flow— not including a $170.0 million reduction in cash ($109.0 million reduction after tax) due to a portion of KMP’s partnership distributions for the second quarter of 2010 being a distribution of cash from interim capital transactions, rather than a distribution of cash from operations (KMP’s partnership distributions are discussed further in Notes 10 and 11 to the consolidated financial statements included elsewhere in this report

Based on the above, our compensation committee recommended that 93.65% of the 2010 budgeted cash bonus opportunity be earned and funded under the plan. The approved funding level includes any premium pay calculations for bonus awards paid to non-exempt employees. Notwithstanding, the named executive officers were awarded less than 93.65% of what they otherwise would have been awarded for 2010 had 100% of the budgeted cash bonus opportunity been earned and funded.

In addition to determining the financial performance objectives under the plan, at or before the start of each calendar year, our compensation committee sets the bonus opportunities available to each executive officer. The table below sets forth the maximum bonus opportunities that could have been payable by us and KMP collectively to the named executive officers for achievement of the threshold, target and maximum 2010 financial performance objectives established under the plan. If neither of the financial performance objectives was met, no bonus opportunity would be available to the named executive officers. The maximum payout to any individual under the plan for any year is $3.0 million. Our compensation committee may reduce the amount of the bonus actually paid to any executive offic er from the amount of any bonus opportunity open to such executive officer. Because payments under the plan for our executive officers are determined by comparing actual performance to the performance objectives established each year for eligible executive officers chosen to participate for that year, it is not possible to accurately predict any amounts that will actually be paid under the executive portion of the plan over the life of the plan. Our compensation committee set maximum bonus opportunities under the plan for 2010 for the executive officers at dollar amounts in excess of that which were expected to actually be paid under the plan. In fact, while achievement of the financial performance objectives sets the maximum bonus opportunity for each executive officer, our compensation committee has never awarded the maximum bonus opportunity to a current named executive officer. The actual payout amounts under the Non-Equity Incentive Plan Awards made for 2010 ( paid in 2011) are set forth in the Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation.”

Kinder Morgan, Inc. Annual Incentive Plan Bonus Opportunities for 2010

Name	Threshold (a)			Target (b)			Maximum (c)
Richard D. Kinder(d)		$	-		$	-		$	–
Kimberly A. Dang			500,000			1,000,000			1,500,000
Steven J. Kean			750,000			1,500,000			3,000,000
Joseph Listengart			500,000			1,000,000			1,500,000
C. Park Shaper			750,000			1,500,000			3,000,000

__________

(a)	Represents the maximum bonus opportunity available to the executive officer if one of the financial performance objectives was met.
(b)	Represents the maximum bonus opportunity available to the executive officer if both of the financial performance objectives were met.
(c)	Represents the maximum bonus opportunity available to the executive officer if both of the financial performance objectives were exceeded by 10% or more.
(d)	Declined to participate.

The 2010 bonuses for our executive officers were overwhelmingly based on whether the established financial performance objectives were met. The compensation committee also considered, in a purely subjective manner, how well the executive officer performed his or her duties during the year. Information was solicited from relevant members of senior management regarding the performance of our named executive officers (described following), and determinations and recommendations were made at the regularly scheduled first quarter board and compensation committee meetings held in January 2011. Other factors considered by the compensation committee primarily consisted of the amount of the bonus paid to the executive officer in the prior year and market data about compensation of comparable positions of re sponsibility at comparable companies, consisting of the compensation surveys referred to above. With respect to using these other factors in assessing performance, our compensation committee did not find it practicable to, and did not, use a “score card,” or quantify or assign relative weight to the specific criteria considered. The amount of a downward adjustment, subject to the maximum bonus opportunity that was established at the beginning of the year, was not subject

111

Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

to a formula. Specific aspects of an individual’s performance were not identified in advance. Rather, adjustments were based on our compensation committee’s judgment, giving consideration to the totality of the record presented, including the individual’s performance and the magnitude of any other positive or negative factors.

Compensation Related to the Going Private Transaction

In connection with Kinder Morgan Kansas, Inc.’s Going Private Transaction, members of our management were awarded Kinder Morgan Holdco LLC Class A-1 and Class B units. In accordance with generally accepted accounting principles, we are required to recognize compensation expense in connection with the Class A-1 and Class B units over the expected life of such units. The Class A-1 and Class B units awarded to members of our management may be viewed as a replacement of restricted stock awards made by Kinder Morgan Kansas, Inc. prior to the going private transaction as a component of long-term executive compensation. We recognized compensation expense with respect to such units, however, we have no obligation, nor do we expect to pay any amounts in respect of such units or shares into which they were conver ted as described below.

Comparison of Class B Units to Class B Shares. The Class B units were converted into Class B shares in connection with our initial public offering. The Class B Shares are intended to substantially preserve the economic rights of the Class B units in Kinder Morgan Holdco LLC but differ from the Class B units in certain respects, including the following:

▪

Class B units were subject to time vesting, with one-third vesting on the third, fourth and fifth anniversaries of the date of their issuance. All distributions with respect to the non-vested portion of such Class B units were held in escrow pending the vesting or forfeiture of such Class B units. Class B shares are not subject to time vesting. As a result, holders of Class B shares will be entitled to receive and retain any distributions on, and shares of our common stock issued upon conversion of, such Class B shares;

▪

the amount of Class B units forfeited upon termination of a holder’s employment depended on the reason for such termination and other factors such as time vesting and the level of cumulative distributions made by us as of a relevant date. Prior to a change of control, all non-time-vested Class B units were forfeited upon termination of a holder’s employment for any reason. With respect to time-vested Class B units, all such Class B units were forfeited upon termination of a holder’s employment for cause, no Class B units were forfeited upon termination of a holder’s employment for death or disability and all or a portion of Class B units were forfeited upon termination of a holder’s employment for other reasons based on the level of cumulative distributions made by us as of the date of termination. The amount of Class B shares forfeited will be b ased solely on the reason for the termination of employment. No Class B shares will be forfeited upon termination of a holder’s employment for death or disability. Half of a holder’s Class B shares will be forfeited upon termination of a holder’s employment by such holder for good reason or termination of a holder’s employment by us without cause. All Class B shares will be forfeited upon termination of a holder’s employment for any other reason, including termination for cause;

▪

amounts in respect of forfeited Class B units were transferred to an incentive pool and could be paid to other members of management (excluding Mr. Kinder) in the discretion of the chief manager and subject to certain unitholder approvals. Forfeited Class B shares will automatically become treasury shares, and we will transfer the forfeited Class B shares into a trust. Any property in the trust, including dividends, proceeds or earnings received with respect to such Class B shares, may be distributed to new or existing members of management (excluding Mr. Kinder) in any proportion at the election of our chief executive officer and subject to approval by certain of our directors;

▪

holders of forfeited Class B units that were time-vested could receive certain levels of distributions even after such holder’s termination of employment depending on the level of cumulative distributions made by us as of the date of termination. Under specified circumstances, a holder of Class B shares who otherwise would forfeit such Class B shares upon such holder’s termination of employment will retain his or her Class B shares until such holder has received a specified amount of total value, even if distributed after such holder’s termination;

▪

if a holder of Class B units was terminated for any reason, we could repurchase his or her Class B units generally at fair market value. We do not have a right of repurchase with respect to the Class B shares; and

▪

Class B units would fully vest upon a change of control. Class B shares are not subject to forfeiture after a change of control.

112

Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

Comparison of Class A-1 Units to Class C Shares. The Class A-1 units converted into the Class C shares in connection with our initial public offering. The Class C shares are intended to substantially preserve the economic rights of the Class A-1 units in Kinder Morgan Holdco LLC but differ from the Class A-1 units in certain respects, including the following:

▪

Class A-1 units were subject to forfeiture if a holder was terminated for cause. Class C shares are not subject to forfeiture; and

▪

if the employment of a holder of Class A-1 units was terminated for any reason, we could repurchase his or her Class A-1 units generally at fair market value. We do not have a right of repurchase with respect to the Class C shares.

Class B Share Plan and Class B Share Trust. The Class B shares may be forfeited by our management under the circumstances described above. All forfeited Class B shares will automatically become treasury shares, and we will transfer the forfeited Class B shares to a trust established solely to hold these Class B shares, together with any dividends, proceeds received in respect of these Class B shares, shares of our common stock issued in connection with the conversion of these Class B shares or earnings with respect to such property. We have established the Class B share plan, which is a long-term compensation plan, to govern the terms of awards in respect of forfeited Class B shares and related property in the Class B share trust. Pursua nt to the Class B share plan and our shareholders agreement, each item of property in the trust may be distributed separately from the underlying Class B shares to members of new or existing management (other than Richard D. Kinder), as designated by our chief executive officer and approved by certain members of our board of directors. All property held in the trust on May 31, 2015 will be distributed proportionally to the holders of Class B shares as of May 31, 2015. We have agreed to pay the costs of the Class B share trust, including the fees of the independent trustee. We do not expect these costs to be material.

Other Compensation

Kinder Morgan, Inc. Savings Plan. The Kinder Morgan, Inc. Savings Plan is a defined contribution 401(k) plan. The savings plan permits all full-time employees of Kinder Morgan, Inc. and those of KMGP Services Company, Inc., including the named executive officers, to contribute between 1% and 50% of base compensation, on a pre-tax basis, into participant accounts. For more information on this savings plan, see Note 9 “Share-based Compensation and Employee Benefits—Kinder Morgan, Inc.—Retirement Plans” to our consolidated financial statements included elsewhere in this report. As a result of a cost savings effort in 2009, all officers with the position of vice president or higher, including our named executive officers, were suspended from receiving any company contributions commencing February 15, 2009. Company contributions for these employees were reinstated effective February 1, 2010.

Kinder Morgan, Inc. Cash Balance Retirement Plan. Employees of Kinder Morgan, Inc. and KMGP Services Company, Inc., including the named executive officers, are also eligible to participate in the Kinder Morgan, Inc. Retirement Plan, referred to as the Cash Balance Retirement Plan, a cash balance plan. Employees accrue benefits through a Personal Retirement Account, referred to as the PRA, in the Cash Balance Retirement Plan. We allocate contribution credits equivalent to 3% of eligible compensation every pay period to participants’ PRA. For plan years prior to 2011, interest was credited to the PRA at the 30-year U.S. Treasury bond rate published in the Internal Revenue Bulletin for the November of the prior year. Beginning January 1, 2011, interest is credited to the PRA at the 5-year U.S. Treasury bond rate published in the Internal Revenue Bulletin for the November of the prior year, plus 0.25%. Employees become 100 % vested in the plan after three years and may take a lump sum distribution upon termination of employment or retirement. As a result of a cost savings effort in 2009, all company contributions to the plan were suspended from April 12, 2009 through December 31, 2009. Company contributions were reinstated effective January 1, 2010.

The following table sets forth the estimated actuarial present value of each named executive officer’s accumulated pension benefit as of December 31, 2010, under the provisions of the Cash Balance Retirement Plan. With respect to our named executive officers, the benefits were computed using the same assumptions used for financial statement purposes, assuming current remuneration levels without any salary projection, and assuming participation until normal retirement at age 65. These benefits are subject to federal and state income taxes, where applicable, but are not subject to deduction for social security or other offset amounts.

113

Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

Pension Benefits
Name	Plan Name	Current Credited Yrs of Service	Present Value of Accumulated Benefit (a)			Contributions During 2010
Richard D. Kinder	Cash Balance	10		$	-		$	-
Kimberly A. Dang	Cash Balance	9			53,480			7,350
Steven J. Kean	Cash Balance	9			65,220			7,350
Joseph Listengart	Cash Balance	10			75,873			7,350
C. Park Shaper	Cash Balance	10			75,873			7,350

__________

(a)

The present values in the Pension Benefits table are based on certain assumptions, including a 5.0% discount rate, 5.0% cash balance interest crediting rate, and a lump sum calculated using the IRS 2010 Mortality Tables. We assumed benefits would commence at normal retirement age, which is 65. No death or turnover was assumed prior to retirement date.

Potential Payments Upon Termination or Change-in-Control. Our named executive officers (excluding Richard D. Kinder) are entitled to certain benefits in the event their employment is terminated by us without cause or by them with good reason, whether or not related to a change in control. See “—Other Potential Post-Employment Benefits—Severance Agreements” below for a description of the terms. Mr. Kinder is also entitled to certain benefits under his employment agreement upon his termination by us without cause or by him with good reason, whether or not related to a change in control. See “Other Potential Post-Employment Benefits—Employment Agreement” below for a description of the terms. Upon termina tion of employment of a named executive officer due to death or disability (as determined in accordance with our long-term disability plan covering such employee), all of his or her KMI Class B shares will no longer be subject to forfeiture. In the event of a termination of employment of a named executive officer by us without “cause” or by a named executive officer with “good reason” (as each such term is defined in our shareholders agreement and described under “—Severance Agreements”), 50% of his or her KMI Class B shares will no longer be subject to forfeiture. In addition, all unvested KMI Class B shares will no longer be subject to forfeiture upon a change of control (as defined in our shareholders agreement).

The following tables list separately the potential payments and benefits upon a change in control of us and the potential payments and benefits upon a termination of employment for our named executive officers. The tables assume the triggering event for the payments or provision of benefits occurred on December 31, 2010. Actual amounts payable to each executive listed below upon termination can only be determined definitively at the time of each executive’s actual departure. Amounts in the tables for the acceleration of the vesting of our Class B shares are calculated based on the estimated value of our Class B units as of December 31, 2010. In addition to the amounts shown in the tables below, each executive would receive payments for amounts of base salary and vacation time accru ed through the date of termination and payment for any reimbursable business expenses incurred prior to the date of termination.

Potential Payments Upon Termination of Employment or Change in Control for Richard D. Kinder

	Termination Payment		Benefit Continuation		Acceleration of Vesting of KMI Class B Shares
Termination without “cause” or “good reason” or due to “change in duties”(a)(c)	$	2,250,000	$	34,896	$	-
Termination due to death or “disability”(a)(b)		750,000		-		-
Upon a change in control		N/A		N/A		-

__________

(a)	As such terms are defined in Mr. Kinder’s employment agreement and described under “—Other Potential Post-Employment Benefits—Employment Agreement.”
(b)	If Mr. Kinder becomes disabled, he is eligible for the same medical benefits as most other employees.
(c)	With respect to KMI Class B shares, as the terms “cause” and “good reason” are defined in our shareholders agreement and described under “—Other Potential Post-Employment Benefits—Severance Agreements.”

114

Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

Potential Payments Upon Termination of Employment or Change in Control for Other Named Executive Officers

	Termination Without Cause or Good Reason				Acceleration of Vesting of KMI Class B Shares
Name	Salary Continuation		Benefit Continuation		Upon Change in Control or Termination due to Death or Disability		Upon Termination Without Cause or for Good Reason
Kimberly A. Dang	$	300,000	$	14,818	$	-	$	-
Steven J. Kean		300,000		18,190		-		-
Joseph Listengart		300,000		18,410		-		-
C. Park Shaper		600,000		18,410		-		-

Other Potential Post-Employment Benefits

Employment Agreement. On October 7, 1999, Richard D. Kinder entered into an employment agreement with us pursuant to which he agreed to serve as our Chairman and Chief Executive Officer. His employment agreement provides for a term of three years and one year extensions on each anniversary of October 7th. Mr. Kinder, at his initiative, accepted an annual salary of $1 to demonstrate his belief in KMP’s and our long-term viability. Mr. Kinder continues to accept an annual salary of $1, and he receives no other compensation from us.

We believe that Mr. Kinder’s employment agreement contains provisions that are beneficial to us and our subsidiaries and accordingly, Mr. Kinder’s employment agreement is extended annually at the request of our and KMR’s Boards of Directors. For example, with limited exceptions, Mr. Kinder is prevented from competing in any manner with us or any of our subsidiaries, while he is employed by us and for 12 months following the termination of his employment with us. The employment agreement provides that he will receive a severance payment equal to $2.25 million in the event his employment is terminated without “cause”(as defined in the employment agreements) or in the event he is subject to a “change in duties”(as defined in the employment agreements) without his co nsent. His employment agreement also provides that in the event of his death or termination due to his total and permanent disability, he or his estate will receive an amount equal to the greater of his annual salary ($1) or $750,000, and in the case of his total and permanent disability, such amount will be an annual amount until the effective date of termination of employment. In addition, under the terms of our shareholders agreement, Mr. Kinder also has agreed not to compete with us or any of our subsidiaries for an additional period of one year and not to solicit our or any of our subsidiaries’ employees or interfere with certain of our business relationships during the term of his employment and for two years thereafter.

Upon a change in control and a termination of Mr. Kinder’s employment by us or by Mr. Kinder, certain payments made to him could be subject to the excise tax imposed on “excess parachute payments” by the Internal Revenue Code. Pursuant to his employment agreement, Mr. Kinder is entitled to have his compensation “grossed up” for all such excise taxes and any federal, state and local taxes applicable to such gross-up payment (including any penalties and interest). We estimate the amount of such gross up payment for Mr. Kinder’s termination payment and benefits to be approximately $1.05 million. The estimate of “excess parachute payments” for purposes of these calculations does not take into account any mitigation for payments which could be shown (under the facts and circumstances) not to be contingent on a change in control or for any payments being made in consideration of non-competition agreements or as reasonable compensation. The gross-up calculations assume an excise tax rate of 20%, a statutory federal income tax rate of 35%, and a Medicare tax rate of 1.45%. If upon a change in control Mr. Kinder’s employment does not terminate, he would only be entitled to the immediate vesting of any of our Class B shares.

Severance Agreements. In connection with our initial public offering, we entered into severance agreements with respect to eleven of our and our subsidiaries’ executive officers (including our named executive officers other than Richard D. Kinder) that provide severance in the amount of the executive’s salary plus benefits during the executive’s non-compete period, ranging from one to two years following the executive’s termination of employment, if the executive voluntarily terminates his or her employment for “good reason” (as defined in the severance agreements) or the executive’s employment with us and our subsidiaries is terminated “without cause” (as defined in the severance agreements). The ot her employees who did not enter into severance agreements with us are eligible for the same severance policy as all regular full time U.S.-based employees not covered by a bargaining agreement, which caps severance payments at an amount equal to six months of salary.

115

Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

Summary Compensation Table

The following table shows compensation paid or otherwise awarded to (i) our principal executive officer; (ii) our principal financial officer and (iii) our three most highly compensated executive officers (other than our principal executive officer and principal financial officer) serving at fiscal year end 2010 (collectively referred to as the “named executive officers”) for services rendered to us, our subsidiaries or our affiliates, including KMP and Kinder Morgan Kansas, Inc. (collectively referred to as the KMI affiliated entities), during fiscal years 2010, 2009 and 2008. The amounts in the columns below represent the total compensation paid or awarded to the named executive officers by all the KMI affiliated entities, and as a result, the amounts are in excess of the compensation expense allocated to, recognized and paid by us for services rendered to us.

						(a)		(b)		(c)
Name and Principal Position	Year	Salary		Bonus		Non-Equity Incentive Plan Compensation		Change in Pension Value		All Other Compensation		Total
Richard D. Kinder	2010	$	1	$	-	$	-	$	-	$	-	$	1
Director, Chairman and	2009		1		-		-		-		-		1
Chief Executive Officer	2008		1		-		-		-		-		1

Kimberly A. Dang	2010		294,444		-		500,000		9,544		11,704		815,692
Vice President and	2009		257,692		-		550,000		4,243		3,115		815,050
Chief Financial Officer	2008		223,077		-		440,000		8,285		11,863		683,225

Steven J. Kean	2010		294,444		-		1,000,000		10,058		13,247		1,317,749
Director, Executive Vice	2009		257,692		-		1,250,000		4,683		4,251		1,516,626
President and Chief	2008		223,077		-		1,150,000		8,755		13,007		1,394,839
Operating Officer

Joseph Listengart	2010		294,444		-		740,000		10,524		11,665		1,056,633
Vice President, General	2009		257,692		-		925,000		5,082		2,866		1,190,640
Counsel and Secretary	2008		223,077		-		900,000		9,188		11,629		1,143,894

C. Park Shaper	2010		294,444		-		1,040,000		10,524		12,925		1,357,893
Director and President	2009		257,692		-		1,300,000		5,082		3,971		1,566,745
	2008		223,077		-		1,200,000		9,188		12,769		1,445,034

__________

(a)	Represents amounts paid according to the provisions of the KMI Annual Incentive Plan. Amounts were earned in the fiscal year indicated but were paid in the next fiscal year.
(b)	Represents the 2010, 2009 and 2008, as applicable, change in the actuarial present value of accumulated defined pension benefit (including unvested benefits) according to the provisions of KMI’s Cash Balance Retirement Plan.
(c)	Amounts include value of contributions to the KMI Savings Plan (a 401(k) plan), value of group-term life insurance exceeding $50,000, and taxable parking subsidy. For 2010 and 2009, Mrs. Dang also had imputed income from a company provided cell phone. Amounts in 2010, 2009 and 2008 representing the value of contributions to the KMI Savings Plan are $11,022, $2,308 and $11,154, respectively.

Grants of Plan-Based Awards

The following supplemental compensation table shows compensation details on the value of all non-guaranteed and non-discretionary incentive awards granted during 2010 to our named executive officers. The table includes awards made during or for 2010. The information in the table under the caption “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” represents the threshold, target and maximum amounts payable under our Annual Incentive Plan for performance in 2010. Amounts actually paid under that plan for 2010 are set forth in the Summary Compensation Table (above) under the caption “Non-Equity Incentive Plan Compensation.” There will not be any additional payouts under the Annual Incentive Plan for 2010.

116

Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

	Estimated Future Payouts Under Non-Equity Incentive Plan Awards(a)
Name	Threshold		Target		Maximum
Richard D. Kinder	$	-	$	-	$	-
Kimberly A. Dang		500,000		1,000,000		1,500,000
Steven J. Kean		750,000		1,500,000		3,000,000
Joseph Listengart		500,000		1,000,000		1,500,000
C. Park Shaper		750,000		1,500,000		3,000,000

__________

(a)	See “Elements of Compensation—Possible Annual Cash Bonus (Non-Equity Cash Incentive)” above for further discussion of these awards.

Outstanding Equity Awards at Fiscal Year-End

The only unvested equity awards outstanding at the end of fiscal 2010 were the Class B units of KMI, which we refer to as the “KMI Class B units.” The KMI Class B units were awarded in 2007, in connection with Kinder Morgan Kansas, Inc’s Going Private Transaction, by KMI to members of Kinder Morgan Kansas, Inc.’s management in consideration of their services to or for the benefit of KMI. We recognize compensation expense with respect to such units, however, we have no obligation, nor do we expect, to pay any amounts in respect of such units or the shares into which they were converted as described in footnote (a) to the table below.

Stock Awards

Name

Type of Units

Number of units

vested during 2010(a)

Number of units

that have not vested

Market value of

units of stock that

have not vested(b)

Richard D. Kinder

Class B units

263,801,817

527,603,635

N/A

Kimberly A. Dang

Class B units

16,487,614

32,975,227

N/A

Steven J. Kean

Class B units

52,760,363

105,520,727

N/A

Joseph Listengart

Class B units

26,380,182

52,760,363

N/A

C. Park Shaper

Class B units

72,545,500

145,090,999

N/A

__________

(a)

As reflected in “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” pursuant to the plan of conversion, effective February 10, 2011, our Class B units reflected in this table were converted to Class B shares. Our Class B units were subject to time based vesting only (not performance based), and with respect to any holder thereof, vested 33 1/3% on each of the third, fourth and fifth year anniversary of the issuance of such Class B units to such holder.

(b)

Because as of December 31, 2010, the Class B units were equity interests of Kinder Morgan Holdco LLC, a private limited liability company, the market value of such interests was not readily determinable. None of our named executive officers has received any payments in connection with such units, and none of us or our subsidiaries are obligated, nor do we expect, to pay any amounts in respect of such units.

Risks Associated with Compensation Practices

KMGP Services Company, Inc., Kinder Morgan Kansas, Inc. and Kinder Morgan Canada Inc. employ all persons necessary for the operation of our business, and in our opinion, our compensation policies and practices for all persons necessary for the operation of our business do not create risks that are reasonably likely to have a material adverse effect on our business, financial position, results of operations or cash flows. Our belief is based on the fact that our employee compensation—primarily consisting of annual salaries and cash bonuses—is based on performance that does not reward risky behavior and is not tied to entering into transactions that pose undue risks to us.

Compensation Committee Report

The compensation committee of our board of directors is comprised of Mr. Fayez Sarofim, Mr. R. Baran Tekkora, and Mr. Glenn A. Youngkin, each of whom the board of directors has determined meets the criteria for independence under our governance guidelines and the New York Stock Exchange rules.

The compensation committee has discussed and reviewed the above Compensation Discussion and Analysis for fiscal year 2010 with management. Based on this review and discussion, the compensation committee recommended to our board of directors, that this Compensation Discussion and Analysis be included in this annual report on Form 10-K for the fiscal year 2010.

117

Item 11.

Executive Compensation. (continued)

Kinder Morgan, Inc. Form 10-K

Compensation Committee:

Fayez Sarofim

R. Baran Tekkora

Glenn A. Youngkin

118

Kinder Morgan, Inc. Form 10-K

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following tables set forth information known to us regarding:

▪

the beneficial ownership of each class of our capital stock after giving effect to the Conversion Transactions, both immediately prior to and after giving effect to our initial public offering by:

▪

each of our directors, each of our named executive officers and all of our directors and executive officers as a group, and

▪

each person known by us to own beneficially more than 5% of any class of our capital stock; and

▪

the beneficial ownership of KMP’s common units and KMR’s shares by:

▪

each of our directors, each of our named executive officers and all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC. Based on information provided to us, except as indicated in the footnotes to this table or as provided by applicable community property laws, the persons named in the tables have sole voting and investment power with respect to the shares or units indicated. Except as otherwise indicated, the address for each of the following is c/o Kinder Morgan, Inc., 500 Dallas Street, Suite 1000, Houston, Texas 77002.

Amount and Nature of Beneficial Ownership of Our Common Stock

None of the following individuals or entities owned any shares of our common stock immediately before or after the completion of our initial public offering on February 16, 2011. However, they do own our Class A shares, which initially are convertible on a one-for-one basis into shares of common stock. Therefore, the following table sets forth the number of shares of common stock of which the individuals and entities have beneficial ownership, assuming the outstanding Class A shares are fully converted into all the shares of common stock underlying the investor retained stock and that the Class B and Class C shares are converted into zero shares of common stock. Since our Class A shares, Class B shares and Class C shares are convertible into a fixed aggregate number of shares of our common stock, the conve rsion of our Class B shares and Class C shares into shares of common stock will result in a corresponding decrease in the number of shares of common stock into which our Class A shares will be able to convert.

Amount and Nature of Beneficial Ownership(a)

Name	Number	% of Class(a)
Name and Address of Beneficial Owner
Richard D. Kinder(b)	216,538,834	30.6
C. Park Shaper	1,214,796	*
Steven J. Kean	597,103	*
Henry Cornell(c)	134,826,138	19.1
Michael Miller(d)	85,270,750	12.1
Michael C. Morgan(e)	5,761,863	*
Kenneth A. Pontarelli(c)	134,826,138	19.1
Fayez Sarofim(f)	31,178,252	4.4
John Stokes(d)	85,270,750	12.1
R. Baran Tekkora(g)	-	-
Glenn A. Youngkin(h)	-	-
Kimberly A. Dang	67,001	*
Joseph Listengart	541,298	*
Directors and executive officers as a group (15 persons)(i)	476,432,774	67.4
The Goldman Sachs Group, Inc.(c)	134,826,138	19.1
TCG Holdings, L.L.C.(j)	59,547,572	8.4
Investment funds associated with Carlyle/Riverstone Global Energy and Power Fund III, L.P.(k)	59,547,572	8.4
Highstar Capital LP(d)	85,270,750	12.1

____________

*Less than 1%.

119

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.. (continued)

Kinder Morgan, Inc. Form 10-K

(a)	Information is as of February 16, 2011 immediately following the closing of our initial public offering, based on 707,000,000 shares of common stock on a fully-converted basis.
(b)	Includes 46,664 Class A shares owned by Mr. Kinder’s wife. Mr. Kinder disclaims any and all beneficial or pecuniary interest in the Class A shares owned by his wife.
(c)	Consists of 16,227,644 Class A shares owned by GS Capital Partners V Fund, L.P.; 8,382,523 Class A shares owned by GSCP V Offshore Knight Holdings, L.P., which is controlled by GS Capital Partners V Offshore Fund, L.P.; 5,564,682 Class A shares owned by GS Capital Partners V Institutional, L.P.; 643,371 Class A shares owned by GSCP V Germany Knight Holdings, L.P., which is controlled by GS Capital Partners V GmbH & Co. KG; 15,764,853 Class A shares owned by GS Capital Partners VI Fund, L.P; 13,112,651 Class A shares owned by GSCP VI Offshore Knight Holdings, L.P., which is controlled by GS Capital Partners VI Offshore Fund, L.P.; 4,335,066 Class A shares owned by GS Capital Partners VI Parallel, L.P.; 560,283 Class A shares owned by GSCP VI Germany Knight Holdings, L.P., which is controlled by GS Capital Partners VI GmbH & C o. KG; 6,784,786 Class A Shares owned by GS Global Infrastructure Partners I, L.P.; 724,828 Class A shares owned by GS Institutional Infrastructure Partners I, L.P.; 19,227,228 Class A Shares owned by GS Infrastructure Knight Holdings, L.P., which is controlled by GS International Infrastructure Partners I, L.P.; 16,886,427 Class A Shares owned by Goldman Sachs KMI Investors, L.P.; 23,245,979 Class A Shares owned by GSCP KMI Investors, L.P.; 3,365,816 Class A Shares owned by GSCP KMI Investors Offshore, L.P. (collectively the “GS Entities”). The Goldman Sachs Group, Inc. and certain affiliates, including Goldman, Sachs & Co., may be deemed to directly or indirectly own the 134,826,139 Class A shares which are owned directly or indirectly by the GS Entities, of which affiliates of The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. are the general partner, limited partner or the managing partner. Goldman, Sachs & Co. is the investment manager for certain of the GS Entities. Goldman, Sachs & Co. is a direct and indirect wholly owned subsidiary of The Goldman Sachs Group, Inc. The Goldman Sachs Group, Inc., Goldman, Sachs & Co. and the GS Entities share voting power and investment power with certain of their respective affiliates. Henry Cornell and Kenneth Pontarelli are managing directors of Goldman, Sachs & Co. Each of Mr. Cornell, Mr. Pontarelli, The Goldman Sachs Group, Inc., Goldman, Sachs & Co. and the GS Entities disclaims beneficial ownership of the shares owned directly or indirectly by the GS Entities except to the extent of their pecuniary interest therein, if any. The address of the GS Entities, The Goldman Sachs Group, Inc., Goldman, Sachs & Co., Mr. Cornell and Mr. Pontarelli is 200 West Street, 28th Floor, New York, New York 10282.
(d)	Consists of 3,156,297 Class A shares owned by Highstar II Knight Acquisition Sub, L.P.; 20,743,460 Class A shares owned by Highstar III Knight Acquisition Sub, L.P.; 41,131,509 Class A shares owned by Highstar KMI Blocker LLC; and 20,239,484 Class A shares owned by Highstar Knight Partners, L.P. (collectively the “Highstar Entities”). Affiliates of PineBridge Investments LLC (PineBridge) serve as the general partner of Highstar II Knight Acquisition Sub, L.P., Highstar III Knight Acquisition Sub, L.P. and Highstar Knight Partners, L.P., and the managing member of Highstar KMI Blocker LLC, and accordingly may be deemed to beneficially own the Class A shares owned of record by the Highstar Entities. Pinebridge has delegated management authority for such general partners and managing member to Highstar Capital LP, which als o serves as the investment manager for the Highstar Entities. Highstar Capital LP is controlled by Christopher Lee, Mr. Miller, Mr. Stokes, Christopher Beall and Scott Litman and, in such capacities, these individuals may be deemed to share beneficial ownership of the Class A shares beneficially owned by the Highstar Entities. Such individuals expressly disclaim any such beneficial ownership, except to the extent of their pecuniary interest therein, if any. The address of Highstar Capital LP and the Highstar Entities is 277 Park Avenue, 45th floor, New York, New York 10172.
(e)	Consists of 5,761,863 Class A shares owned by Portcullis Partners, LP, a private investment partnership. Mr. Morgan is President of Portcullis Partners, LP and therefore may be deemed to have beneficial ownership of the shares owned by Portcullis Partners, LP.
(f)	Includes 7,345,435 shares over which Mr. Sarofim has shared voting and dispositive power which are held by entities indirectly controlled by him. Also includes 15,365 shares held by trusts of which Mr. Sarofim is the sole trustee, but in which he has no pecuniary interest.
(g)	Does not include shares of common stock held by the Carlyle/Riverstone Funds (as defined in footnote (k) below) or Riverstone Coinvestment (as defined in footnote (k) below), each of which is an affiliate of Riverstone, or shares of common stock held by Carlyle Coinvestment (as defined in footnote (k) below). Mr. Tekkora is a director of Kinder Morgan, Inc. and a Managing Director of Riverstone. Mr. Tekkora disclaims beneficial ownership of the shares held by Carlyle/Riverstone Funds, Riverstone Coinvestment or Carlyle Coinvestment.
(h)	Does not include shares of common stock held by Carlyle Partners IV Knight, L.P. and CP IV Coinvestment, L.P., each of which is an affiliate of Carlyle. Mr. Youngkin is a director of Kinder Morgan, Inc. and a Managing Director of Carlyle. Mr. Youngkin disclaims beneficial ownership of the shares held by Carlyle Partners IV Knight, L.P. and CP IV Coinvestment, L.P.
(i)	Includes 46,664 Class A shares owned by Mr. Kinder’s wife, in which Mr. Kinder disclaims any and all beneficial or pecuniary interest, and immediately before the offering, includes 178,465,436 Class A shares in which Mr. Cornell and Mr. Pontarelli disclaim beneficial ownership except to the extent of their pecuniary interest therein, if any.
(j)	Consists of 54,536,188 Class A shares owned by Carlyle Partners IV Knight, L.P. and 5,011,383 Class A shares owned by CP IV Coinvestment, L.P. TC Group IV, L.P. is the sole general partner of Carlyle Partners IV Knight, L.P. and CP IV Coinvestment, L.P. TC Group IV Managing GP, L.L.C. is the sole general partner of TC Group IV, L.P. TC Group, L.L.C. is the sole managing member of TC Group IV Managing GP, L.L.C. TCG Holdings, L.L.C. is the sole managing member of TC Group, L.L.C.

120

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.. (continued)

Kinder Morgan, Inc. Form 10-K

Accordingly, TC Group IV, L.P., TC Group IV Managing GP, L.L.C., TC Group, L.L.C. and TCG Holdings, L.L.C. each may be deemed to share beneficial ownership of our Class A shares owned of record by each of Carlyle Partners IV Knight, L.P. and CP IV Coinvestment, L.P. William E. Conway, Jr., Daniel A. D’Aniello and David M. Rubenstein are managing members of TCG Holdings, L.L.C. and, in such capacity, may be deemed to share beneficial ownership of the Class A shares beneficially owned by TCG Holdings, L.L.C. Such individuals expressly disclaim any such beneficial ownership. The principal address and principal offices of TCG Holdings, L.L.C. and certain affiliates is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Suite 220 South, Washington, D.C. 20004-2505.

(k)

Consists of 8,647,642 Class A shares owned by C/R Energy III Knight Non-U.S. Partnership, L.P. (Knight Partnership), 29,773,786 Class A shares owned by C/R Knight Partners, L.P. (Knight Partners), 20,123,489 Class A shares owned by Carlyle/Riverstone Knight Investment Partnership, L.P. (Knight Investment Partnership) and together with Knight Partnership and Knight Partners (Carlyle/Riverstone Funds), 826,614 Class A shares owned by Riverstone Energy Coinvestment III, L.P. (Riverstone Coinvestment) and 176,040 Class A shares owned by Carlyle Energy Coinvestment III, L.P. (Carlyle Coinvestment). C/R Energy GP III, LLC exercises investment discretion and control over the shares held by each of Knight Partnership, Knight Partners and Knight Investment Partnership through their mutual general partner, Carlyle/Riverstone Energy Partners I II, L.P., of which C/R Energy GP III, LLC is the sole general partner. Riverstone Coinvestment GP LLC, a subsidiary of Riverstone Holdings, LLC, exercises investment discretion and control over the shares held by Riverstone Coinvestment, subject to contractual commitments that Riverstone Coinvestment invest and divest side-by-side with the Carlyle/Riverstone Funds. Carlyle Energy Coinvestment III GP, L.L.C., a subsidiary of TCG Holdings, L.L.C., exercises investment discretion and control over the shares held by Carlyle Coinvestment, subject to contractual commitments that Carlyle Coinvestment invest and divest side-by-side with the Carlyle/Riverstone Funds. C/R Energy GP III, LLC is managed by a managing committee comprising Daniel A. D’Aniello, William E. Conway, Jr., David M. Rubenstein and Edward J. Mathias, as Carlyle designees, and Pierre F. Lapeyre, Jr., David M. Leuschen and Michael B. Hoffman, as Riverstone designees. Actions of the managing committee require consent of at least five members o f the managing committee, including at least one Carlyle designee and one Riverstone designee. The members of the managing committee of C/R Energy GP III, LLC may be deemed to share beneficial ownership of the shares beneficially owned by C/R Energy GP III, LLC. Such individuals expressly disclaim any such beneficial ownership. The principal address and principal offices of the Carlyle/Riverstone Funds and Riverstone Coinvestment and certain affiliates is 712 Fifth Avenue, 51st Floor, New York, NY 10019. The principal address and principal offices of Carlyle Coinvestment, TCG Holdings, L.L.C. and certain affiliates is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Suite 220 South, Washington, D.C. 20004-2505.

Amount and Nature of Beneficial Ownership of Our Class B and Class C Shares(a)

The Class B shares and Class C shares are convertible into shares of common stock under certain circumstances.

	Class B Shares		Class C Shares
Name	Number	% of Class(a)	Number	% of Class(a)
Name and Address of Beneficial Owner
Richard D. Kinder(b)	40,000,000	40.0	-	-
C. Park Shaper(c)	11,000,000	11.0	696,763	28.3
Steven J. Kean	8,000,000	8.0	342,477	13.9
Henry Cornell	-	-	-	-
Michael Miller	-	-	-	-
Michael C. Morgan	-	-	-	-
Kenneth A. Pontarelli	-	-	-	-
Fayez Sarofim	-	-	-	-
John Stokes	-	-	-	-
R. Baran Tekkora	-	-	-	-
Glenn A. Youngkin	-	-	-	-
Kimberly A. Dang(d)	2,500,000	2.5	38,429	1.6
Joseph Listengart	4,000,000	4.0	310,469	12.6
Directors and executive officers as a group (15 persons)(e)	70,800,000	70.8	1,638,636	66.5
The Goldman Sachs Group, Inc.	-	-	-	-
TCG Holdings, L.L.C.	-	-	-	-
Investment funds associated with Carlyle/Riverstone Global Energy and Power Fund III, L.P.	-	-	-	-
Highstar Capital LP	-	-	-	-

____________

(a)	Information is as of February 16, 2011, immediately following the closing of our initial public offering. We have 100,000,000

121

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.. (continued)

Kinder Morgan, Inc. Form 10-K

	Class B shares and 2,462,927 Class C shares issued and outstanding.
(b)	Includes 13,333,333 Class B shares that Mr. Kinder transferred to a limited partnership. Mr. Kinder may be deemed to be the beneficial owner of these transferred Class B shares, because Mr. Kinder controls the voting and disposition power of these Class B shares, but he disclaims 99% of any beneficial and pecuniary interest in them.
(c)	Includes 11,000,000 Class B shares that Mr. Shaper transferred to a limited partnership. Mr. Shaper may be deemed to be the beneficial owner of these transferred Class B shares because he controls the voting and disposition power of these Class B shares, but he disclaims 21% of any beneficial and pecuniary interest in them.
(d)	Includes 2,500,000 Class B shares that Mrs. Dang transferred to a limited partnership. Mrs. Dang may be deemed to be the beneficial owner of these transferred Class B shares because Mrs. Dang has voting and disposition power of these Class B shares, but she disclaims 10% of any beneficial and pecuniary interest in them.
(e)	Includes 13,333,333 Class B shares that Mr. Kinder transferred to a limited partnership, 11,000,000 Class B shares that Mr. Shaper transferred to a limited partnership and 2,500,000 Class B shares that Mrs. Dang transferred to a limited partnership. These executive officers disclaim 99%, 21% and 10%, respectively, of any beneficial and pecuniary interest in such Class B shares.

Amount and Nature of Beneficial Ownership of

KMP Common Units and KMR Shares(a)

	KMP Common Units		KMR Shares
Name and Address of Beneficial Owner	Number(b)	% of Class	Number(c)	% of Class
Richard D. Kinder(d)	315,979	*	217,324	*
C. Park Shaper	4,000	*	33,632	*
Steven J. Kean	1,780	*	2,274	*
Henry Cornell	-	-	-	-
Michael Miller	-	-	-	-
Michael C. Morgan	-	-	-	-
Kenneth A. Pontarelli	1,000	*	-	-
Fayez Sarofim(e)	8,076,915	3.7	16,583	*
John Stokes	-	-	-	-
R. Baran Tekkora	-	-	-	-
Glenn A. Youngkin	-	-	-	-
Kimberly A. Dang	121	*	558	*
Joseph Listengart	5,498	*	2,546	*
Directors and executive officers as a group (15 persons)(f)	8,417,479	3.8	283,502	*

____________

* Represents ownership of less than 1%.

(a)	Information is as of February 11, 2011. Except as noted otherwise, each beneficial owner has sole voting power and sole investment power over the units and shares listed.
(b)	As of February 11, 2011, KMP had 218,993,455 common units issued and outstanding.
(c)	Represents the limited liability company shares of KMR. As of February 11, 2011, there were 91,907,987 issued and outstanding KMR shares, including two voting shares owned by Kinder Morgan G.P., Inc. In all cases, the i-units will be voted in proportion to the affirmative and negative votes, abstentions and non-votes of owners of KMR shares. Through the provisions in the partnership agreement and KMR’s limited liability company agreement, the number of outstanding KMR shares, including voting shares owned by Kinder Morgan G.P., Inc., and the number of the i-units will at all times be equal.
(d)	Includes 7,879 KMP common units and 1,072 KMR shares owned by Mr. Kinder’s spouse. Mr. Kinder disclaims any and all beneficial or pecuniary interest in these common units and shares.
(e)	Includes 5,726,915 KMP common units over which Mr. Sarofim has shared voting and dispositive power which are held by entities indirectly controlled by him, and 16,583 KMR shares over which Mr. Sarofim has dispositive power, but in which he has no pecuniary interest.
(f)	Includes 2,450 restricted KMP common units. Also includes 7,879 KMP common units and 1,072 KMR shares owned by an executive’s spouse and 842 KMR shares held by one of our executives for his children. The respective executives disclaim any beneficial ownership in 7,879 KMP common units and 1,914 KMR shares.

122

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.. (continued)

Kinder Morgan, Inc. Form 10-K

Equity Compensation Plan Information

The following table sets forth information regarding our equity compensation plans as of December 31, 2010. Specifically, the table provides information regarding KMP’s Common Unit Compensation Plan for Non-employee Directors, described in Note 9 to our consolidated financial statements included elsewhere in this report.

Plan category	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders		-

Equity compensation plans not approved by security holders		72,232

Total		72,232

Item 13. Certain Relationships and Related Transactions, and Director Independence

Related Transactions

Our policy is that (i) employees must obtain authorization from the appropriate business unit president of the relevant company or head of corporate function and (ii) directors, business unit presidents, executive officers and heads of corporate functions must obtain authorization from the non-interested members of the audit committee of the applicable board of directors, for any business relationship or proposed business transaction in which they or an immediate family member has a direct or indirect interest, or from which they or an immediate family member may derive a personal benefit (a “related party transaction). The maximum dollar amount of related party transactions that may be approved as described above in this paragraph in any calendar year is $1.0 million. Any related party transactions that would bring the total value of such transactions to greater than $1.0 million must be referred to the audit committee of the appropriate board of directors for approval or to determine the procedure for approval. When deciding whether to authorize a related party transaction, our business unit presidents and the non-interested members of the audit committee of the applicable board of directors, consider, among other things, the nature of the transaction and the relationship, the dollar amount involved, and the availability of reasonable alternatives.

For information regarding our related party transactions, see Note 11 to our consolidated financial statements included elsewhere in this report.

123

Kinder Morgan, Inc. Form 10-K

Item 14. Principal Accounting Fees and Services

The following sets forth fees billed for the audit and other services provided by PricewaterhouseCoopers LLP (in dollars):

	Year Ended December 31,
	2010			2009
Audit fees(a)		$	3,981,638		$	4,556,218
Tax fees(b)			2,725,960			2,421,694
Total		$	6,707,598		$	6,977,912

____________

(a)

Includes fees for integrated audit of annual financial statements and internal control over financial reporting, reviews of the related quarterly financial statements, and reviews of documents filed with the Securities and Exchange Commission.

(b)

For 2010 and 2009, amounts include fees of $1,863,233 and $2,231,537, respectively, billed for professional services rendered for tax processing and preparation of Forms K-1 for KMP’s unitholders; and fees of $45,405 and $71,890, respectively, billed for professional services rendered for Internal Revenue Service assistance, tax function effectiveness, and for general state, local and foreign tax compliance and consulting services. For 2010 only, amounts also include fees of $516,549 billed for accounting methods/inventory accounting solutions and fees of $22,883 billed for self-charged items of interest income and deduction.

All services rendered by PricewaterhouseCoopers LLP are permissible under applicable laws and regulations, and were pre-approved by our audit committee. Pursuant to the charter of our audit committee, the committee’s primary purposes include the following: (i) to select, appoint, engage, oversee, retain, evaluate and terminate our external auditors; (ii) to pre-approve all audit and non-audit services, including tax services, to be provided, consistent with all applicable laws, to us by our external auditors and (iii) to establish the fees and other compensation to be paid to our external auditors. The audit committee has reviewed the external auditors’ fees for audit and non audit services for fiscal year 2010. The audit committee has also considered whether such non audit services are compatible with maintaining the external auditors’ independence and has concluded that they are compatible at this time.

Furthermore, the audit committee will review the external auditors’ proposed audit scope and approach as well as the performance of the external auditors. It also has direct responsibility for and sole authority to resolve any disagreements between our management and our external auditors regarding financial reporting, will regularly review with the external auditors any problems or difficulties the auditors encountered in the course of their audit work, and will, at least annually, use its reasonable efforts to obtain and review a report from the external auditors addressing the following (among other items): (i) the auditors’ internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the external auditors; (iii) the independence of the e xternal auditors and (iv) the aggregate fees billed by our external auditors for each of the previous two fiscal years.

124

Kinder Morgan, Inc. Form 10-K

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)

(1)

Financial Statements

See “Index to Financial Statements” set forth on Page 129.

(2)

Financial Statement Schedules

The financial statements, including the notes thereto, of KMP, a consolidated subsidiary of Kinder Morgan, Inc., are incorporated herein by reference to pages 114 through 193 of Kinder Morgan Energy Partners, L.P. Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2010.

(3)

Exhibits

Any references made to K N Energy, Inc. in the exhibit listing that follows is a reference to the former name of Kinder Morgan, Inc. and is made because the exhibit being listed and incorporated by reference was originally filed before October 7, 1999, the date of change in the Registrant’s name.

Exhibit Number			Description
	2.1*	—	Agreement and Plan of Merger dated August 28, 2006, among Kinder Morgan, Inc., Kinder Morgan Holdco LLC and Kinder Morgan Acquisition Co. (filed as Exhibit 2.1 to Kinder Morgan, Inc.’s Current Report on Form 8-K filed on August 28, 2006 and incorporated herein by reference)
	3.1*	—	Amended and Restated Articles of Incorporation of Kinder Morgan, Inc. and amendments thereto (filed as Exhibit 3.1 to Kinder Morgan, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference)
	3.2*	—	Bylaws of Kinder Morgan, Inc. (filed as Exhibit 3.2 to Kinder Morgan, Inc.’s Current Report on Form 8-K filed on June 5, 2007 and incorporated herein by reference)
	4.1*	—	Indenture dated as of September 1, 1988, between K N Energy, Inc. and Continental Illinois National Bank and Trust Company of Chicago (filed as Exhibit 4(a) to Kinder Morgan, Inc.’s Annual Report on Form 10-K/A, Amendment No. 1 (File No. 1-06446) filed on May 23, 2000 and incorporated herein by reference)
	4.2*	—	First supplemental indenture dated as of January 15, 1992, between K N Energy, Inc. and Continental Illinois National Bank and Trust Company of Chicago (filed as Exhibit 4.2 to the Registration Statement on Form S-3 (File No. 33-45091) of K N Energy, Inc. filed on January 17, 1992 and incorporated herein by reference)
	4.3*	—	Second supplemental indenture dated as of December 15, 1992, between K N Energy, Inc. and Continental Bank, National Association (filed as Exhibit 4(c) to Kinder Morgan, Inc.’s Annual Report on Form 10-K/A, Amendment No. 1 (File No. 1-06446) filed on May 23, 2000 and incorporated herein by reference)
	4.4*	—	Indenture dated as of November 20, 1993, between K N Energy, Inc. and Continental Bank, National Association (filed as Exhibit 4.1 to the Registration Statement on Form S-3 (File No. 33-51115) of K N Energy, Inc. filed on November 19, 1993 and incorporated herein by reference)
	4.5*	—	Registration Rights Agreement among Kinder Morgan Management, LLC, Kinder Morgan Energy Partners, L.P. and Kinder Morgan, Inc. dated May 18, 2001 (filed as Exhibit 4.7 to Kinder Morgan, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 1-06446) and incorporated herein by reference)
	4.6*	—	Form of Indenture dated as of August 27, 2002 between Kinder Morgan, Inc. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.1 to Kinder Morgan, Inc.’s Registration Statement on Form S-4 (File No. 333-100338) filed on October 4, 2002 and incorporated herein by reference)

125

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

4.7*	—	Form of First Supplemental Indenture dated as of December 6, 2002 between Kinder Morgan, Inc. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.2 to Kinder Morgan, Inc.’s Registration Statement on Form S-4 (File No. 333-102873) filed on January 31, 2003 and incorporated herein by reference)
4.9*	—	Form of Senior Indenture between Kinder Morgan, Inc. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.2 to Kinder Morgan, Inc.’s Registration Statement on Form S-3 (File No. 333-102963) filed on February 4, 2003 and incorporated herein by reference)
4.10*	—	Form of Senior Note of Kinder Morgan, Inc. (included in the Form of Senior Indenture filed as Exhibit 4.9 hereto and incorporated herein by reference)
4.11*	—	Form of Subordinated Indenture between Kinder Morgan, Inc. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.4 to Kinder Morgan, Inc.’s Registration Statement on Form S-3 (File No. 333-102963) filed on February 4, 2003 and incorporated herein by reference)
4.12*	—	Form of Subordinated Note of Kinder Morgan, Inc. (included in the Form of Subordinated Indenture filed as Exhibit 4.11 hereto and incorporated herein by reference)
4.13*	—	Indenture dated as of December 9, 2005, among Kinder Morgan Finance Company, LLC, Kinder Morgan, Inc. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.1 to Kinder Morgan, Inc.’s Current Report on Form 8-K filed on December 15, 2005 and incorporated herein by reference)
4.14*	—	Forms of Kinder Morgan Finance Company, LLC notes (included in the Indenture filed as Exhibit 4.13 hereto and incorporated herein by reference)
4.15*	—	Certificate of the President and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 6.00% senior notes due 2017 and 6.50% senior notes due 2037 (filed as Exhibit 1.01 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 and incorporated herein by reference)
4.16*	—	Certificate of the Vice President and Treasurer and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 5.85% senior notes due 2012 (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference)
4.17*	—	Certificate of the Vice President and Treasurer and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 6.95% Senior Notes due 2038 (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference)
4.18*	—	Certificate of the Vice President and Treasurer and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 5.95% Senior Notes due 2018 (filed as Exhibit 4.28 to Kinder Morgan Energy Partners, L.P.’s Annual Report on Form 10-K for 2007 and incorporated herein by reference)
4.19*	—	Indenture dated as of December 21, 2007, between NGPL PipeCo LLC and U.S. Bank National Association, as Trustee (filed as Exhibit 4.1 to Kinder Morgan, Inc.’s Current Report on Form 8-K filed on December 21, 2007 and incorporated herein by reference)
4.20*	—	Forms of notes of NGPL PipeCo LLC (included in the Indenture filed as Exhibit 4.19 hereto and incorporated herein by reference)
4.21*	—	Certificate of the Vice President and Treasurer and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 9.00% Senior Notes due 2019 (filed as Exhibit 4.29 to Kinder Morgan Energy Partners, L.P.’s Annual Report on Form 10-K for 2008 and incorporated herein by reference)

126

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

4.22*	—	Certain instruments with respect to the long-term debt of Kinder Morgan, Inc. and its consolidated subsidiaries that relate to debt that does not exceed 10% of the total assets of Kinder Morgan, Inc. and its consolidated subsidiaries are omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, 17 C.F.R. sec.229.601. Kinder Morgan, Inc. hereby agrees to furnish supplementally to the Securities and Exchange Commission a copy of each such instrument upon request.
10.1	—	2010 Annual Incentive Plan of Kinder Morgan, Inc.
10.2*	—	2011 Annual Incentive Plan of Kinder Morgan, Inc. (incorporated by reference to Exhibit 10.6 of the Form S-1 for Kinder Morgan, Inc., formerly known as Kinder Morgan Holdco LLC, filed on February 3, 2011).
10.3*	—	Employment Agreement dated October 7, 1999, between Kinder Morgan, Inc. and Richard D. Kinder (filed as Exhibit 99.D of the Schedule 13D filed by Mr. Kinder on November 16, 1999 and incorporated herein by reference)
10.4*	—	Form of Purchase Provisions between Kinder Morgan Management, LLC and Kinder Morgan, Inc. (included as Annex B to the Second Amended and Restated Limited Liability Company Agreement of Kinder Morgan Management, LLC filed as Exhibit 3.1 to Kinder Morgan Management, LLC’s Current Report on Form 8-K filed on May 30, 2007 and incorporated herein by reference)
10.5*	—	Credit Agreement, dated as of May 30, 2007, among Kinder Morgan, Inc. and Kinder Morgan Acquisition Co., as the borrower, the several lenders from time to time parties thereto, and Citibank, N.A., as administrative agent and collateral agent (filed as Exhibit 4.1 to Kinder Morgan, Inc.’s Current Report on Form 8-K, filed on June 5, 2007 and incorporated herein by reference)
10.6*	—	Form of Indemnification Agreement between Kinder Morgan, Inc. and each member of the Special Committee of the Board of Directors (filed as Exhibit 10.1 to Kinder Morgan, Inc.’s Current Report on Form 8-K filed on June 16, 2006 and incorporated herein by reference)
10.7*	—	Acquisition Agreement dated as of February 26, 2007, by and among Kinder Morgan, Inc., 3211953 Nova Scotia Company and Fortis Inc. (filed as Exhibit 1.01 to Kinder Morgan, Inc.’s Current Report on Form 8-K filed on March 1, 2007 and incorporated herein by reference)
10.8*	—	Purchase Agreement, dated as of December 10, 2007, between Kinder Morgan, Inc. and Myria Acquisition Inc. (filed as Exhibit 10.1 to Kinder Morgan, Inc.’s Current Report on Form 8-K filed on December 11, 2007 and incorporated herein by reference)
10.9*	—	Form of Severance Agreement with C. Park Shaper (filed as Exhibit 10.61 to Amendment No. 3 to Kinder Morgan Holdco LLC Registration Statement on Form S-1 filed January 26, 2011 (File No. 333-170773)).
10.10*	—	Form of Severance Agreement with Steven J. Kean (filed as Exhibit 10.62 to Amendment No. 3 to Kinder Morgan Holdco LLC Registration Statement on Form S-1 filed January 26, 2011 (File No. 333-170773)).
10.11*	—	Form of Severance Agreement with Kimberly A. Dang (filed as Exhibit 10.63 to Amendment No. 3 to Kinder Morgan Holdco LLC Registration Statement on Form S-1 filed January 26, 2011 (File No. 333-170773)).
10.12*	—	Form of Severance Agreement with Joseph Listengart (filed as Exhibit 10.64 to Amendment No. 3 to Kinder Morgan Holdco LLC Registration Statement on Form S-1 filed January 26, 2011 (File No. 333-170773)).
12.1	—	Statement re: computation of ratio of earnings to fixed charges.
21.1	—	List of Subsidiaries.
23.1	—	Consent of PricewaterhouseCoopers LLP.
23.2	—	Consent of Netherland, Sewell and Associates, Inc.
23.3	—	Consent of PricewaterhouseCoopers LLP.
31.1	—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

127

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

31.2	—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	—	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	—	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*	—	The financial statements of Kinder Morgan Energy Partners, L.P. and subsidiaries (incorporated by reference to pages 114 through 193 of the Annual Report on Form 10-K and Form 10-K/A of Kinder Morgan Energy Partners, L.P. for the year ended December 31, 2010)
99.2	—	Estimates of the net reserves and future net revenues as of December 31, 2010 to Kinder Morgan CO2 Company, L.P.’s interests in certain oil and gas properties located in the state of Texas.
99.3	—	The consolidated financial statements of NGPL PipeCo LLC and subsidiaries for the years ended June 30, 2010 and 2009.
99.4	—	The consolidated financial statements of NGPL PipeCo LLC and subsidiaries for the years ended June 30, 2009 and 2008.

__________

*Asterisk indicates exhibits incorporated by reference as indicated; all other exhibits are filed herewith, except as noted otherwise.

128

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

INDEX TO FINANCIAL STATEMENTS

KINDER MORGAN, INC. AND SUBSIDIARIES	Page Number


Report of Independent Registered Public Accounting Firm	130

Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008	131

Consolidated Statements of Comprehensive Income for the years ended December 31, 2010, 2009 and 2008	132

Consolidated Balance Sheets as of December 31, 2010 and 2009	133

Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008	134

Consolidated Statements of Members’ Equity for the years ended December 31, 2010, 2009 and 2008	136

Notes to Consolidated Financial Statements	137

129

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Report of Independent Registered Public Accounting Firm

To the Board of Directors

and Shareholders of Kinder Morgan, Inc. (formerly known as Kinder Morgan Holdco LLC)

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows, of members' equity and of comprehensive income present fairly, in all material respects, the financial position of Kinder Morgan, Inc. (formerly known as Kinder Morgan Holdco LLC) and its subsidiaries (the "Company") at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Commit tee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A of the Company's Annual Report on Form 10-K. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting w as maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accord ance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 1, 2011

130

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KINDER MORGAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2010			2009			2008
	(In millions)
Revenues
Natural gas sales	$	3,614.4		$	3,137.2		$	7,705.8
Services		3,024.7			2,739.1			2,904.0
Product sales and other		1,551.5			1,308.9			1,485.0
Total Revenues		8,190.6			7,185.2			12,094.8

Operating Costs, Expenses and Other
Gas purchases and other costs of sales		3,612.9			3,068.5			7,744.0
Operations and maintenance		1,422.3			1,159.9			1,318.0
Depreciation, depletion and amortization		1,078.8			1,070.2			918.4
General and administrative		631.1			373.0			352.5
Taxes, other than income taxes		171.4			137.0			191.4
Goodwill impairment expense		-			-			4,033.3
Other expense (income)		(6.6	)		(30.6	)		9.3
Total Operating Costs, Expenses and Other		6,909.9			5,778.0			14,566.9

Operating Income (loss)		1,280.7			1,407.2			(2,472.1	)

Other Income (Expense)
Earnings (loss) from equity investments		(186.2	)		221.9			201.1
Amortization of excess cost of equity investments		(5.8	)		(5.8	)		(5.7	)
Interest expense		(668.3	)		(599.1	)		(675.8	)
Interest income		23.4			25.7			47.5
Other, net		24.1			49.5			7.0
Total Other Income (Expense)		(812.8	)		(307.8	)		(425.9	)

Income (Loss) from Continuing Operations Before Income Taxes		467.9			1,099.4			(2,898.0	)

Income Taxes		(167.6	)		(326.6	)		(304.3	)

Income (Loss) from Continuing Operations		300.3			772.8			(3,202.3	)

Income (Loss) from Discontinued Operations, net of tax		(0.7	)		0.3			(0.9	)

Net Income (Loss)		299.6			773.1			(3,203.2	)

Net Income Attributable to Noncontrolling Interests		(340.9	)		(278.1	)		(396.1	)

Net Income (Loss) Attributable to Kinder Morgan, Inc.	$	(41.3	)		495.0		$	(3,599.3	)

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

131

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KINDER MORGAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
	2010			2009			2008
	(In millions)
Kinder Morgan, Inc.
Net income (loss)	$	(41.3	)	$	495.0		$	(3,599.3	)
Other comprehensive income (loss), net of tax (see Note 10)
Change in fair value of derivatives utilized for hedging purposes		(18.8	)		(138.7	)		212.0
Reclassification of change in fair value of derivatives to net income		21.2			(39.4	)		117.1
Foreign currency translation adjustments		38.7			53.9			(68.7	)
Benefit plan adjustments		(16.3	)		2.8			(66.5	)
Benefit plan amortization		6.6			6.9			0.4
Total other comprehensive income (loss)		31.4			(114.5	)		194.3
Total comprehensive income (loss)		(9.9	)		380.5			(3,405.0	)

Noncontrolling Interests
Net income		340.9			278.1			396.1
Other comprehensive income (loss), net of tax (see Note 10)
Change in fair value of derivatives utilized for hedging purposes		(34.6	)		(208.8	)		295.4
Reclassification of change in fair value of derivatives to net income		85.7			45.7			301.1
Foreign currency translation adjustments		45.7			114.9			(149.6	)
Benefit plan adjustments		(1.3	)		(1.2	)		1.9
Benefit plan amortization		0.2			0.1			(0.3	)
Total other comprehensive income (loss)		95.7			(49.3	)		448.5
Total comprehensive income		436.6			228.8			844.6

Total
Net income (loss)		299.6			773.1			(3,203.2	)
Other comprehensive income (loss), net of tax (see Note 10)
Change in fair value of derivatives utilized for hedging purposes		(53.4	)		(347.5	)		507.4
Reclassification of change in fair value of derivatives to net income		106.9			6.3			418.2
Foreign currency translation adjustments		84.4			168.8			(218.3	)
Benefit plan adjustments		(17.6	)		1.6			(64.6	)
Benefit plan amortization		6.8			7.0			0.1
Total other comprehensive income (loss)		127.1			(163.8	)		642.8
Total comprehensive income (loss)	$	426.7		$	609.3		$	(2,560.4	)

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

132

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KINDER MORGAN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2010			2009
	(In millions)
ASSETS
Current assets
Cash and cash equivalents	$	502.4		$	165.6
Restricted deposits		90.5			52.5
Accounts, notes and interest receivable, net		971.4			916.3
Inventories		92.0			71.9
Gas in underground storage		2.2			43.5
Fair value of derivative contracts		24.0			20.8
Other current assets		104.4			109.7
Total current assets		1,786.9			1,380.3

Property, plant and equipment, net		17,070.7			16,803.5
Investments		4,291.1			3,695.6
Notes receivable		115.0			190.6
Goodwill		4,830.9			4,744.3
Other intangibles, net		339.2			259.8
Fair value of derivative contracts		301.7			293.3
Deferred charges and other assets		172.6			213.6
Total Assets	$	28,908.1		$	27,581.0

LIABILITIES AND MEMBERS’ EQUITY
Current liabilities
Current portion of debt – Kinder Morgan Kansas, Inc.	$	750.0		$	172.1
Current portion of debt – KMP		1,263.3			596.6
Cash book overdrafts		34.3			36.6
Accounts payable		647.5			620.8
Accrued interest		310.4			292.1
Accrued taxes		44.7			58.3
Deferred revenues		96.7			76.1
Fair value of derivative contracts		281.5			272.0
Accrued other current liabilities		215.7			194.6
Total current liabilities		3,644.1			2,319.2

Long-term liabilities and deferred credits
Long-term debt
Outstanding – Kinder Morgan Kansas, Inc.		2,773.8			2,772.2
Outstanding – KMP		10,282.8			10,007.5
Preferred interest in general partner of KMP		100.0			100.0
Value of interest rate swaps		656.3			361.0
Total long-term debt		13,812.9			13,240.7
Deferred income taxes		2,092.7			2,035.9
Fair value of derivative contracts		172.2			469.6
Other long-term liabilities and deferred credits		647.2			670.5
Total long-term liabilities and deferred credits		16,725.0			16,416.7

Total Liabilities		20,369.1			18,735.9

Commitments and contingencies (Notes 8, 12 and 16)
Members’ Equity
Members’ capital		3,575.6			4,338.4
Accumulated other comprehensive loss		(136.5	)		(167.9	)
Total Kinder Morgan, Inc.’s members’ equity		3,439.1			4,170.5
Noncontrolling interests		5,099.9			4,674.6
Total Members’ Equity		8,539.0			8,845.1
Total Liabilities and Members’ Equity	$	28,908.1		$	27,581.0

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

133

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KINDER MORGAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2010			2009			2008
	(In millions)
Cash Flows From Operating Activities
Net income (loss)	$	299.6		$	773.1		$	(3,203.2	)
Adjustments to reconcile net income to net cash provided by operating activities
Loss (income) from discontinued operations, net of tax		0.7			(0.3	)		0.9
Loss on early extinguishment of debt		-			-			23.6
Depreciation, depletion and amortization		1,078.8			1,070.2			918.4
Impairment of goodwill		-			-			4,033.3
Deferred income taxes		1.9			60.6			(496.4	)
Amortization of excess cost of equity investments		5.8			5.8			5.7
Income from the allowance for equity funds used during construction		(0.7	)		(22.7	)		(10.9	)
(Income) loss from the sale or casualty of property, plant and equipment and other net assets		(15.4	)		(30.4	)		9.2
Loss (earnings) from equity investments		186.2			(221.9	)		(201.1	)
Mark-to-market interest rate swap gain		-			-			(19.8	)
Distributions from equity investments		219.8			277.0			241.6
Proceeds from termination of interest rate swap agreements		157.6			146.0			192.0
Pension contributions in excess of expense		(14.6	)		(7.7	)		-
Changes in components of working capital
Accounts receivable		18.2			47.6			60.6
Inventories		(20.8	)		(20.0	)		(7.9	)
Other current assets		40.3			(93.6	)		(16.9	)
Accounts payable		(4.2	)		(180.5	)		(99.3	)
Accrued interest		18.4			50.2			0.7
Accrued taxes		(4.8	)		(131.6	)		109.0
Accrued liabilities		(45.3	)		(125.0	)		(119.1	)
Rate reparations, refunds and other litigation reserve adjustments		(34.3	)		2.5			(13.7	)
Other, net		24.8			(11.3	)		(9.1	)
Cash Flows Provided by Continuing Operations		1,912.0			1,588.0			1,397.6
Net Cash Flows Used in Discontinued Operations		(1.0	)		(0.5	)		(0.8	)
Net Cash Provided by Operating Activities		1,911.0			1,587.5			1,396.8

Cash Flows From Investing Activities
Proceeds from sale of 80% interest in NGPL PipeCo LLC net of $1.1 cash sold		-			-			2,899.3
Proceeds from NGPL PipeCo LLC restricted cash		-			-			3,106.4
Acquisitions of equity investments		(925.7	)		(36.0	)		-
Acquisitions of assets		(287.5	)		(292.9	)		(47.6	)
Repayments (loans) from customers		-			109.6			(109.6	)
Capital expenditures		(1,002.5	)		(1,324.3	)		(2,545.3	)
Deconsolidation of variable interest entity due to the implementation of ASU 2009-17 (Note 18)		(17.5	)		-			-
Sale or casualty of property, plant and equipment, investments and other net assets, net of removal costs		49.3			47.9			111.1
(Investments in) net proceeds from margin and restricted deposits		(35.4	)		(55.7	)		71.0
Contributions to investments		(299.3	)		(2,051.8	)		(366.2	)
Distributions from equity investments in excess of cumulative earnings		224.5			125.7			98.1
Other, net		7.0			-			(7.2	)
Net Cash (Used in) Provided by Investing Activities	$	(2,287.1	)	$	(3,477.5	)	$	3,210.0

134

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KINDER MORGAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Year Ended December 31,
	2010			2009			2008
	(In millions)
Cash Flows From Financing Activities
Issuance of debt – Kinder Morgan Kansas, Inc.	$	2,233.1		$	1,028.9		$	1,467.2
Payment of debt – Kinder Morgan Kansas, Inc.		(1,655.3	)		(871.7	)		(7,611.5	)
Issuance of debt – KMP.		7,140.1			6,891.9			9,028.6
Payment of debt – KMP.		(6,186.4	)		(4,857.1	)		(7,525.0	)
Repayments from related party		2.7			3.7			2.7
Discount on early extinguishment of debt		-			-			69.2
Debt issue costs		(31.0	)		(16.9	)		(15.9	)
(Decrease) increase in cash book overdrafts		(2.2	)		(8.5	)		14.5
Cash dividends		(700.0	)		(650.0	)		-
Contributions from noncontrolling interests		758.7			1,155.6			561.5
Distributions to noncontrolling interests		(848.7	)		(744.0	)		(630.3	)
Other, net		(0.4	)		(0.9	)		10.9
Net Cash Provided by (Used in) Financing Activities		710.6			1,931.0			(4,628.1	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		2.3			6.0			(8.7	)

Net Increase (Decrease) in Cash and Cash Equivalents		336.8			47.0			(30.0	)
Cash and Cash Equivalents, beginning of period		165.6			118.6			148.6
Cash and Cash Equivalents, end of period	$	502.4		$	165.6		$	118.6

Noncash Investing and Financing Activities
Assets acquired by the assumption or incurrence of liabilities	$	13.8		$	7.7		$	4.8
Assets acquired by contributions from noncontrolling interests	$	81.7		$	5.0		$	-
Interest expense recognized from early extinguishment of debt	$	-		$	-		$	87.5
Subordinated notes acquired by exchange of preferred equity interest	$	-		$	-		$	111.4
Contribution of net assets to investments	$	20.0		$	-		$	-

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for interest (net of capitalized interest)	$	627.9		$	572.8		$	649.9
Cash paid during the period for income taxes (net of refunds)	$	146.9		$	401.1		$	657.3

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

135

Item 15.

Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KINDER MORGAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

	Year Ended December 31,
	2010					2009					2008
	Units		Amount			Units		Amount			Units		Amount
	(In millions)
Members’ Capital
Beginning balance		7,914.4	$	4,338.4			7,914.4	$	4,457.7			7,914.4	$	8,069.2
Impact of KMP’s equity transactions (Note 10)				(27.5	)				28.1					(19.8	)
A-1 and B unit amortization				6.1					7.6					7.6
Net income (loss)				(41.3	)				495.0					(3,599.3	)
Cash dividends				(700.0	)				(650.0	)				-
Other				(0.1	)				-					-
Ending balance		7,914.4		3,575.6			7,914.4		4,338.4			7,914.4		4,457.7

Accumulated Other Comprehensive Income (Loss)
Beginning balance				(167.9	)				(53.4	)				(247.7	)
Change in fair value of derivatives utilized for hedging purposes				(18.8	)				(138.7	)				212.0
Reclassification of change in fair value of derivatives to net income				21.2					(39.4	)				117.1
Foreign currency translation adjustments				38.7					53.9					(68.7	)
Benefit plan adjustments				(16.3	)				2.8					(66.5	)
Benefit plan amortization				6.6					6.9					0.4
Ending balance				(136.5	)				(167.9	)				(53.4	)

Total Kinder Morgan, Inc.’s Members’ Equity		7,914.4		3,439.1			7,914.4		4,170.5			7,914.4		4,404.3

Noncontrolling interests
Beginning balance				4,674.6					4,072.6					3,314.0
Impact from equity transactions of KMP				43.0					(43.8	)				(21.4	)
Distributions to noncontrolling interests				(848.7	)				(745.5	)				(630.7	)
Contributions from noncontrolling interests				840.1					1,160.6					561.5
Implementation of ASU 2009-17 (Notes 10 and 18)				(45.9	)				-					-
Other				0.2					1.9					4.6
Comprehensive income
Net income				340.9					278.1					396.1
Change in fair value of derivatives used for hedging purposes				(34.6	)				(208.8	)				295.4
Reclassification of change in fair value of derivatives to net income				85.7					45.7					301.1
Foreign currency translation adjustments				45.7					114.9					(149.6	)
Benefit plan adjustments				(1.3	)				(1.2	)				1.9
Benefit plan amortization				0.2					0.1					(0.3	)
Total comprehensive income				436.6					228.8					844.6
Ending balance				5,099.9					4,674.6					4,072.6

Total Members’ Equity		7,914.4	$	8,539.0			7,914.4	$	8,845.1			7,914.4	$	8,476.9

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

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Kinder Morgan, Inc. Form 10-K

KINDER MORGAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

On February 10, 2011, we converted from a Delaware limited liability company to a Delaware corporation and we changed our name from Kinder Morgan Holdco LLC to Kinder Morgan, Inc. Our subsidiary formerly known as Kinder Morgan, Inc. was renamed Kinder Morgan Kansas, Inc., and is referred to in these financial statements as Kinder Morgan, Kansas, Inc. On February 16, 2011, we completed the initial public offering of our common stock (the offering). All of the common stock that was sold in the offering was sold by our existing investors consisting of funds advised by or affiliated with Goldman Sachs & Co., Highstar Capital LP, The Carlyle Group and Riverstone Holdings LLC. No members of management sold shares in the offering and we did not receive any proceeds from the offering. Other than t he company name changes, these conversion transactions have not been reflected in our consolidated financial statements and the notes thereto. For additional information on the offering, see Note 10 “Members’ Equity—Subsequent Events—Initial Public Offering.”

Kinder Morgan, Inc. was formed August 23, 2006 principally for the purpose of acquiring (through a wholly owned subsidiary) all of the common stock of Kinder Morgan Kansas, Inc. The merger closed on May 30, 2007 with Kinder Morgan Kansas, Inc. continuing as a surviving legal entity. This transaction is referred to herein as the “Going Private Transaction. Unless the context requires otherwise, references to “we,” “us,” “our,” or the “Company” are intended to mean Kinder Morgan, Inc. and its consolidated subsidiaries including Kinder Morgan Kansas, Inc.

We own the general partner and approximately 11% of the limited partner interests of Kinder Morgan Energy Partners, L.P., referred to in this report as KMP. KMP is a publicly traded pipeline limited partnership whose limited partner units are traded on the New York Stock Exchange under the ticker symbol “KMP.” Primarily through KMP, we operate or own an interest in approximately 37,000 miles of pipelines and approximately 180 terminals. These pipelines transport natural gas, gasoline, crude oil, carbon dioxide and other products, and these terminals store petroleum products, chemicals and handle bulk materials like coal and petroleum coke.

Kinder Morgan Management, LLC, referred to in this report as “KMR,” is a publicly traded Delaware limited liability company. Kinder Morgan G.P., Inc., the general partner of KMP and a wholly owned subsidiary of ours, owns all of Kinder Morgan Management’s voting shares. KMR, pursuant to a delegation of control agreement, has been delegated, to the fullest extent permitted under Delaware law, all of Kinder Morgan G.P., Inc.’s power and authority to manage and control the business and affairs of KMP, subject to Kinder Morgan G.P., Inc.’s right to approve certain transactions.

2. Summary of Significant Accounting Policies

Basis of Presentation

Our accounting records are maintained in United States dollars, and all references to dollars are United States dollars, except where stated otherwise. Canadian dollars are designated as C$.

Our accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and certain amounts from prior years have been reclassified to conform to the current presentation. Effective September 30, 2009, the Financial Accounting Standards Boards’ Accounting Standards Codification became the single source of generally accepted accounting principles, and in this report, we refer to the Financial Accounting Standards Board as the FASB and the FASB Accounting Standards Codification as the Codification.

Our consolidated financial statements include the accounts of Kinder Morgan, Inc. and our majority-owned subsidiaries, as well as those of (i) KMP; (ii) KMR and (iii) and prior to January 1, 2010, Triton Power Company LLC, in which Kinder Morgan Kansas, Inc. had a preferred investment. Except for KMP, KMR and Triton Power Company LLC, investments in 50% or less owned operations are accounted for under the equity method. All material intercompany transactions and balances have been eliminated.

Notwithstanding the consolidation of KMP and its subsidiaries into our financial statements and into Kinder Morgan Kansas, Inc.’s financial statements, we and Kinder Morgan Kansas, Inc. are not liable for, and our assets are not available to satisfy, the obligations of KMP and/or its subsidiaries and vice versa, except as discussed in the following paragraph. Responsibility for payments of obligations reflected in our, Kinder Morgan Kansas, Inc.’s or KMP’s financial statements is a legal determination based on the entity that incurs the liability.

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Kinder Morgan, Inc. Form 10-K

In conjunction with KMP’s acquisition of certain natural gas pipelines from Kinder Morgan Kansas, Inc., Kinder Morgan Kansas, Inc. agreed to indemnify KMP with respect to approximately $733.5 million of its debt. Kinder Morgan Kansas, Inc. would be obligated to perform under this indemnity only if KMP’s assets were unable to satisfy its obligations.

Going Private Transaction

The Going Private Transaction was accounted for under the purchase method of accounting with the assets acquired and liabilities assumed recorded at their fair market values as of the acquisition date based on an allocation of the aggregate purchase price paid in the Going Private Transaction, resulting in a new basis of accounting effective with the closing of the Going Private Transaction. To the extent that we consolidated less than wholly owned subsidiaries (such as KMP and KMR), the reported assets and liabilities for these entities were given a new accounting basis only to the extent of our economic ownership interest in those entities. Therefore, the assets and liabilities of these entities are included in our financial statements, in part, at a new accounting basis reflecting our purchase of our economic int erest in these entities (approximately 50% in the case of KMP and 14% in the case of KMR). The remaining percentage of these assets and liabilities, reflecting the continuing noncontrolling ownership interest, is included at its historical accounting basis.

Use of Estimates

Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions which cannot be known with certainty at the time our financial statements are prepared. These estimates and assumptions affect the amounts we report for 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 evaluate these estimates on an ongoing basis, 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. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

In addition, we believe that certain accounting policies are of more significance in our financial statement preparation process than others, and set out below are the principal accounting policies we apply in the preparation of our consolidated financial statements.

Cash Equivalents

We define cash equivalents as all highly liquid short-term investments with original maturities of three months or less.

Restricted Deposits

As of December 31, 2010, our restricted deposits totaled $90.5 million and consisted of restricted deposits associated with KM Insurance, Ltd., a Bermuda insurance company and wholly-owned subsidiary of KMI, and $50.0 million in a third-party escrow account at KMP to comply with contractual stipulations related to its equity investment in Watco Companies, LLC. In January 2011, the funds were released from escrow and KMP used the cash for its investment. For additional information on this investment, see Note 3 “Acquisitions and Divestitures—Acquisitions Subsequent to December 31, 2010.” As of December 31, 2009, our restricted deposits totaled $52.5 million and consisted of restricted deposits associated with KM Insurance, Ltd. and cash margin deposits associated wit h KMP’s energy commodity contract positions and over-the-counter swap partners.

Accounts Receivable

The amounts reported as “Accounts, notes and interest receivable, net” on our accompanying consolidated balance sheets as of December 31, 2010 and 2009 primarily consist of amounts due from third party payors (unrelated entities). For information on receivables due to us from related parties, see Note 11.

Our policy for determining an appropriate allowance for doubtful accounts varies according to the type of business being conducted and the customers being served. Generally, we make periodic reviews and evaluations of the appropriateness of the allowance for doubtful accounts based on a historical analysis of uncollected amounts, and we record adjustments as necessary for changed circumstances and customer-specific information. When specific receivables are determined to be uncollectible, the reserve and receivable are relieved. The following table shows our balance of the allowance for doubtful accounts and activity for the years ended December 31, 2010, 2009 and 2008 (in millions):

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Kinder Morgan, Inc. Form 10-K

Valuation and Qualifying Accounts

Allowance for doubtful accounts	Balance at beginning of period		Additions charged to costs and expenses		Additions charged to other accounts		Deductions(a)			Balance at end of period

Year ended December 31, 2010	$	5.4	$	2.3	$	-	$	(0.9	)	$	6.8

Year ended December 31, 2009	$	6.2	$	0.5	$	-	$	(1.3	)	$	5.4

Year ended December 31, 2008	$	7.0	$	0.7	$	-	$	(1.5	)	$	6.2

____________

(a)	Deductions represent the write-off of receivables and currency translation adjustments.

In addition, the balances of “Accrued other current liabilities” in our accompanying consolidated balance sheets include amounts related to customer prepayments of approximately $7.1 million and $10.9 million as of December 31, 2010 and 2009, respectively.

Inventories

Our inventories of products consist of natural gas liquids, refined petroleum products, natural gas, carbon dioxide and coal. We report these assets at the lower of weighted-average cost or market, and in December 2008, we recognized a lower of cost or market adjustment of $12.9 million in the CO2—KMP business segment. We report materials and supplies inventories at cost, and periodically review for physical deterioration and obsolescence.

As of December 31, 2010 and 2009, the value of natural gas in our underground storage facilities under the weighted-average cost method was $2.2 million and $43.5 million, respectively, and we reported these amounts separately as “Gas in underground storage” in our accompanying consolidated balance sheets.

Gas Imbalances

We value gas imbalances due to or due from interconnecting pipelines at the lower of cost or market, per our quarterly imbalance valuation procedures. Gas imbalances represent the difference between customer nominations and actual gas receipts from, and gas deliveries to, our interconnecting pipelines and shippers under various operational balancing and shipper imbalance agreements. Natural gas imbalances are either settled in cash or made up in-kind subject to the pipelines’ various tariff provisions. As of December 31, 2010 and 2009, our gas imbalance receivables—including both trade and related party receivables—totaled $18.8 million and $14.0 million, respectively, and we included these amounts within “Other current assets” on our accompanying consol idated balance sheets. As of December 31, 2010 and 2009, our gas imbalance payables—including both trade and related party payables— totaled $7.7 million and $7.4 million, respectively, and we included these amounts within “Accrued other current liabilities” on our accompanying consolidated balance sheets.

Property, Plant and Equipment

Capitalization, Depreciation and Depletion and Disposals

We report property, plant and equipment at its acquisition cost. We expense costs for maintenance and repairs in the period incurred. As discussed below, for assets used in our oil and gas producing activities or in our unregulated bulk and liquids terminal activities, the cost of property, plant and equipment sold or retired and the related depreciation are removed from our balance sheet in the period of sale or disposition, and we record any related gains and losses from sales or retirements to income or expense accounts. For our pipeline system assets, we generally charge the original cost of property sold or retired to accumulated depreciation and amortization, net of salvage and cost of removal. We do not include retirement gain or loss in income except in the case of significant retirements or sales. Gains and losses on minor system sales, excluding land, are recorded to the appropriate accumulated depreciation reserve. Gains and losses for operating systems sales and land sales are booked to income or expense accounts in accordance with regulatory accounting guidelines.

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Kinder Morgan, Inc. Form 10-K

We generally compute depreciation using the straight-line method based on estimated economic lives, however, for certain depreciable assets, we employ the composite depreciation method, applying a single depreciation rate for a group of assets. Generally, we apply composite depreciation rates to functional groups of property having similar economic characteristics. The rates range from 1.6% to 12.5%, excluding certain short-lived assets such as vehicles. Depreciation estimates are based on various factors, including age (in the case of acquired assets), manufacturing specifications, technological advances and historical data concerning useful lives of similar assets. Uncertainties that impact these estimates included changes in laws and regulations relating to restoration and abandonment requirements, economic conditions, and supply and demand in the area. When assets are put into service, we make estimates with respect to useful lives (and salvage values where appropriate) that we believe are reasonable. However, subsequent events could cause us to change our estimates, thus impacting the future calculation of depreciation and amortization expense. Historically, adjustments to useful lives have not had a material impact on our aggregate depreciation levels from year to year.

Our oil and gas producing activities are accounted for under the successful efforts method of accounting. Under this method costs that are incurred to acquire leasehold and subsequent development costs are capitalized. Costs that are associated with the drilling of successful exploration wells are capitalized if proved reserves are found. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of certain non-producing leasehold costs are expensed as incurred. The capitalized costs of our producing oil and gas properties are depreciated and depleted by the units-of-production method. Other miscellaneous property, plant and equipment are depreciated over the estimated useful lives of the asset.

A gain on the sale of property, plant and equipment used in our oil and gas producing activities or in our bulk and liquids terminal activities is calculated as the difference between the cost of the asset disposed of, net of depreciation, and the sales proceeds received. A gain on an asset disposal is recognized in income in the period that the sale is closed. A loss on the sale of property, plant and equipment is calculated as the difference between the cost of the asset disposed of, net of depreciation, and the sales proceeds received or the maket value if the asset is being held for sale. A loss is recognized when the asset is sold or when the net cost of an asset held for sale is greater than the market value of the asset.

In addition, we engage in enhanced recovery techniques in which carbon dioxide is injected into certain producing oil reservoirs. In some cases, the acquisition cost of the carbon dioxide associated with enhanced recovery is capitalized as part of our development costs when it is injected. The acquisition cost associated with pressure maintenance operations for reservoir management is expensed when it is injected. When carbon dioxide is recovered in conjunction with oil production, it is extracted and re-injected, and all of the associated costs are expensed as incurred. Proved developed reserves are used in computing units of production rates for drilling and development costs, and total proved reserves are used for depletion of leasehold costs. The units-of-pr oduction rate is determined by field.

As discussed in “—Inventories” above, we own and maintain natural gas in underground storage as part of our inventory. This component of our inventory represents the portion of gas stored in an underground storage facility generally known as “working gas,” and represents an estimate of the portion of gas in these facilities available for routine injection and withdrawal. In addition to this working gas, underground gas storage reservoirs contain injected gas which is not routinely cycled but, instead, serves the function of maintaining the necessary pressure to allow efficient operation of the facility. This gas, generally known as “cushion gas,” is divided into the categories of “recoverable cushion gas” and “unrecoverable cushion gas ,” based on an engineering analysis of whether the gas can be economically removed from the storage facility at any point during its life. The portion of the cushion gas that is determined to be unrecoverable is considered to be a permanent part of the facility itself (thus, part of our “Property, plant and equipment, net” balance in our accompanying consolidated balance sheets), and this unrecoverable portion is depreciated over the facility’s estimated useful life. The portion of the cushion gas that is determined to be recoverable is also considered a component of the facility but is not depreciated because it is expected to ultimately be recovered and sold.

Impairments

We measure long-lived assets that are to be disposed of by sale at the lower of book value or fair value less the cost to sell, and we review for the impairment of long-lived assets whenever events or changes in circumstances indicate that our carrying amount of an asset may not be recoverable. We would recognize an impairment loss when estimated future cash flows expected to result from our use of the asset and its eventual disposition is less than its carrying amount.

We evaluate our oil and gas producing properties for impairment of value on a field-by-field basis or, in certain instances, by logical grouping of assets if there is significant shared infrastructure, using undiscounted future cash flows based on total proved and risk-adjusted probable and possible reserves. For the purpose of impairment testing, we use the

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Kinder Morgan, Inc. Form 10-K

forward curve prices as observed at the test date; however, due to differences between the forward curve and spot prices, the forward curve cash flows may differ from the amounts presented in our supplemental information on oil and gas producing activities disclosed in Note 20.

Oil and gas producing properties deemed to be impaired are written down to their fair value, as determined by discounted future cash flows based on total proved and risk-adjusted probable and possible reserves or, if available, comparable market values. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment. Due to the decline in crude oil and natural gas prices during 2008, on December 31, 2008, we conducted an impairment test on our oil and gas producing properties in the CO2—KMP business segment and determined that no impairment was necessary.

Allowance for Funds Used During Construction/Capitalized Interest

Included in the cost of our qualifying property, plant and equipment is (i) an allowance for funds used during construction (AFUDC) or upgrade for assets regulated by the Federal Energy Regulatory Commission or (ii) capitalized interest. The primary difference between AFUDC and capitalized interest is that AFUDC may include a component for equity funds, while capitalized interest does not. AFUDC on debt, as well as capitalized interest, represents the estimated cost of capital, from borrowed funds, during the construction period that is not immediately expensed, but instead is treated as an asset (capitalized) and amortized to expense over time in our income statements.

Total AFUDC on debt and capitalized interest in 2010, 2009 and 2008 was $12.5 million, $32.9 million and $49.5 million, respectively. Similarly, AFUDC on equity represents an estimate of the cost of capital funded by equity contributions, and in the years ended December 31, 2010, 2009 and 2008, we also capitalized approximately $0.7 million, $22.7 million and $10.8 million, respectively, of equity AFUDC.

Asset Retirement Obligations

We record liabilities for obligations related to the retirement and removal of long-lived assets used in our businesses. We record, as liabilities, the fair value of asset retirement obligations on a discounted basis when they are incurred, which is typically at the time the assets are installed or acquired. Amounts recorded for the related assets are increased by the amount of these obligations. Over time, the liabilities increase due to the change in their present value, and the initial capitalized costs are depreciated over the useful lives of the related assets. The liabilities are eventually extinguished when the asset is taken out of service. For more information on our asset retirement obligations, see Note 5 “Property, Plant and Equipment—Asset Retireme nt Obligations.”

Equity Method of Accounting

We account for investments greater than 20% in affiliates—which we do not control, but do have the ability to exercise significant influence—by the equity method of accounting. Under this method, our equity investments are carried originally at our acquisition cost, increased by our proportionate share of the investee’s net income and by contributions made, and decreased by our proportionate share of the investee’s net losses and by distributions received.

Goodwill

Goodwill represents the excess of the cost of an acquisition price over the fair value of the acquired net assets, and such amounts are reported separately as “Goodwill” on our accompanying consolidated balance sheets. Our total goodwill was $4,830.9 million and $4,744.3 million as of December 31, 2010 and 2009, respectively. Goodwill cannot be amortized, but instead must be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. We perform our goodwill impairment test on May 31 of each year. See Note 7 for more information about goodwill and our annual impairment test.

Revenue Recognition Policies

We recognize revenues as services are rendered or goods are delivered and, if applicable, title has passed. We generally sell natural gas under long-term agreements, generally based on Houston Ship Channel index posted prices. In some cases, we sell natural gas under short-term agreements at prevailing market prices. In all cases, we recognize natural gas sales revenues when the natural gas is sold to a purchaser at a fixed or determinable price, delivery has occurred and title has transferred, and collectibility of the revenue is reasonably assured. The natural gas we market is primarily purchased gas produced by third parties, and we market this gas to power generators, local distribution companies, industrial end-users and national marketing companies. We rec ognize gas gathering and marketing revenues in the month of delivery based on customer nominations and generally, our natural gas marketing revenues are recorded

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Kinder Morgan, Inc. Form 10-K

gross, not net of cost of gas sold.

In addition to storing and transporting a significant portion of the natural gas volumes we purchase and resell, we provide various types of natural gas storage and transportation services for third-party customers. The natural gas remains the property of these customers at all times. In many cases, generally described as firm service, the customer pays a two-part rate that includes (i) a fixed fee reserving the right to transport or store natural gas in our facilities and (ii) a per-unit rate for volumes actually transported or injected into/withdrawn from storage. The fixed-fee component of the overall rate is recognized as revenue in the period the service is provided. The per-unit charge is recognized as revenue when the volumes are delivered to the customers’ ag reed upon delivery point, or when the volumes are injected into/withdrawn from our storage facilities. In other cases, generally described as interruptible service, there is no fixed fee associated with the services because the customer accepts the possibility that service may be interrupted at our discretion in order to serve customers who have purchased firm service. In the case of interruptible service, revenue is recognized in the same manner utilized for the per-unit rate for volumes actually transported under firm service agreements. In addition to our firm and interruptible transportation services, we also provide natural gas balancing services to assist customers in managing short-term gas surpluses or deficits. Revenues are recognized based on the terms negotiated under these contracts.

We provide crude oil transportation services and refined petroleum products transportation and storage services to customers. Revenues are recorded when products are delivered and services have been provided, and adjusted according to terms prescribed by the toll settlements with shippers and approved by regulatory authorities.

We recognize bulk terminal transfer service revenues based on volumes loaded and unloaded. We recognize liquids terminal tank rental revenue ratably over the contract period. We recognize liquids terminal throughput revenue based on volumes received and volumes delivered. Liquids terminal minimum take-or-pay revenue is recognized at the end of the contract year or contract term depending on the terms of the contract. We recognize transmix processing revenues based on volumes processed or sold, and if applicable, when title has passed. We recognize energy-related product sales revenues based on delivered quantities of product.

Revenues from the sale of crude oil, natural gas liquids and natural gas production are recorded using the entitlement method. Under the entitlement method, revenue is recorded when title passes based on our net interest. We record our entitled share of revenues based on entitled volumes and contracted sales prices. Since there is a ready market for oil and gas production, we sell the majority of our products soon after production at various locations, at which time title and risk of loss pass to the buyer. As a result, we maintain a minimum amount of product inventory in storage.

Environmental Matters

We expense or capitalize, as appropriate, environmental expenditures that relate to current operations. We expense expenditures that relate to an existing condition caused by past operations, which do not contribute to current or future revenue generation. We do not discount environmental liabilities to a net present value, and we record environmental liabilities when environmental assessments and/or remedial efforts are probable and we can reasonably estimate the costs. Generally, our recording of these accruals coincides with our completion of a feasibility study or our commitment to a formal plan of action. We recognize receivables for anticipated associated insurance recoveries when such recoveries are deemed to be probable.

We routinely conduct reviews of potential environmental issues and claims that could impact our assets or operations. These reviews assist us in identifying environmental issues and estimating the costs and timing of remediation efforts. We also routinely adjust our environmental liabilities to reflect changes in previous estimates. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us, and potential third-party liability claims. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in our income in the period in which they are reasonably determinable. For more information on our environmental disclosures, see Note 16.

Legal

We are subject to litigation and regulatory proceedings as the result of our business operations and transactions. We utilize both internal and external counsel in evaluating our potential exposure to adverse outcomes from orders, judgments or settlements. When we identify specific litigation that is expected to continue for a significant period of time and require substantial expenditures, we accrue an amount that appears to be better than any other estimate within the range. To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise our estimates, our earnings will be affected. In general, we expense legal costs as incurred and all recorded legal liabilities

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Kinder Morgan, Inc. Form 10-K

are revised as better information becomes available. For more information on our legal disclosures, see Note 16.

Pensions and Other Postretirement Benefits

We fully recognize the overfunded or underfunded status of our consolidating subsidiaries’ pension and postretirement benefit plans as either assets or liabilities on our balance sheet. A plan’s funded status is the difference between the fair value of plan assets and the plan’s benefit obligation. We record deferred plan costs and income—unrecognized losses and gains, unrecognized prior service costs and credits, and any remaining unamortized transition obligations—in accumulated other comprehensive income, until they are amortized to expense. For more information on our pension and postretirement benefit disclosures; see Note 9.

Noncontrolling Interests

Noncontrolling interests represents the outstanding ownership interests in our consolidated subsidiaries that are not owned by us. On January 1, 2009, we adopted certain provisions concerning the accounting and reporting for noncontrolling interests included within the “Consolidation” Topic of the Codification. Specifically, these provisions establish accounting and reporting standards that require (i) the ownership interests in subsidiaries held by parties other than the parent to be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent’s equity and (ii) the equity amount of consolidated net income attributable to the parent and to the noncontrolling interests to be clearly identified and presented on the face of the con solidated statement of income.

The adopted provisions apply prospectively, with the exception of the presentation and disclosure requirements, which must be applied retrospectively for all periods presented. Accordingly, our consolidated net income and comprehensive income are now determined without deducting amounts attributable to our noncontrolling interests. In our accompanying consolidated statements of income, the noncontrolling interests in the net income (or loss) of our consolidated subsidiaries is shown as an allocation of our consolidated net income and is presented separately as “Net income attributable to noncontrolling interests.” In our accompanying consolidated balance sheets, noncontrolling interests represents the o wnership interests in our consolidated subsidiaries’ net assets held by parties other than us. It is presented separately as “Noncontrolling interests” within “Members’ Equity.”

Income Taxes

Income tax expense is recorded based on an estimate of the effective tax rate in effect or to be in effect during the relevant periods. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of assets and liabilities for financial reporting and tax purposes. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. Deferred tax assets are reduced by a valuation allowance for the amount of any tax benefit we do not expect to be realized. Note 4 contains information about our income taxes, including the components of our income tax provision and the composition of our deferred income tax assets and liabilities.

In determining the deferred income tax asset and liability balances attributable to us, we have applied an accounting policy that looks through its investments including its investment in KMP. The application of this policy resulted in no deferred income taxes being provided on the difference between the book and tax basis on the non-tax-deductible goodwill portion of our investment in KMP.

Foreign Currency Transactions and Translation

Foreign currency transactions are those transactions whose terms are denominated in a currency other than the currency of the primary economic environment in which our reporting subsidiary operates, also referred to as its functional currency. Transaction gains or losses result from a change in exchange rates between (i) the functional currency, for example the Canadian dollar for a Canadian subsidiary and (ii) the currency in which a foreign currency transaction is denominated, for example the U.S. dollar for a Canadian subsidiary. Foreign currency transaction gains and losses are included within “Other Income (Expense) – Other, net” in our accompanying consolidated statements of income.

We translate the assets and liabilities of each of our consolidating foreign subsidiaries to U.S. dollars at year-end exchange rates. Income and expense items are translated at weighted-average rates of exchange prevailing during the year and members’ equity accounts are translated by using historical exchange rates. Translation adjustments result from translating all assets and liabilities at current year-end rates, while members’ equity is translated by using historical and

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weighted-average rates. The cumulative translation adjustments balance is reported as a component of the “Accumulated other comprehensive loss” caption in our accompanying consolidated balance sheets.

Risk Management Activities

We utilize energy commodity derivative contracts for the purpose of mitigating our risk resulting from fluctuations in the market price of natural gas, natural gas liquids and crude oil. In addition, we enter into interest rate swap agreements for the purpose of hedging the interest rate risk associated with our debt obligations and cross-currency interest rate swap agreements to mitigate foreign currency risk from our investments in businesses owned and operated outside the United States. We measure our derivative contracts at fair value and we report them on our balance sheet as either an asset or liability. If the derivative transaction qualifies for and is designated as a normal purchase and sale, it is exempted from fair value accounting and is accounted for using traditional ac crual accounting.

Furthermore, changes in our derivative contracts’ fair values are recognized currently in earnings unless specific hedge accounting criteria are met. If a derivative contract meets those criteria, the contract’s gains and losses are allowed to offset related results on the hedged item in our income statement, and we are required to both formally designate the derivative contract as a hedge and document and assess the effectiveness of the contract associated with the transaction that receives hedge accounting. Only designated qualifying items that are effectively offset by changes in fair value or cash flows during the term of the hedge are eligible to use the special accounting for hedging.

Our derivative contracts that hedge our energy commodity price risks involve our normal business activities, which include the sale of natural gas, natural gas liquids and crude oil, and we have designated these derivative contracts as cash flow hedges—derivative contracts that hedge exposure to variable cash flows of forecasted transactions—and the effective portion of these derivative contracts’ gain or loss is initially reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. See Note 13 for more information on our risk management activities and disclosures.

Accounting for Regulatory Activities

Regulatory assets and liabilities represent probable future revenues or expenses associated with certain charges and credits that will be recovered from or refunded to customers through the ratemaking process. The amount of regulatory assets and liabilities reflected within “Deferred charges and other assets” and “Other long-term liabilities and deferred credits,” respectively, in our accompanying consolidated balance sheets as of December 31, 2010 and 2009 are not material to our consolidated balance sheets.

Transfer of Net Assets Between Entities Under Common Control

We account for the transfer of net assets between entities under common control by carrying forward the net assets recognized in the balance sheets of each combining entity to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the combination. Transfers of net assets between entities under common control do not affect the income statement of the combined entity.

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3. Acquisitions and Divestitures

Acquisitions from Unrelated Entities

During 2010, 2009 and 2008, KMP completed the following acquisitions from unrelated entities. For each of these acquisitions, KMP recorded all the acquired assets and assumed liabilities at their estimated fair market values (not the acquired entity’s book values) as of the acquisition date. The results of operations from these acquisitions accounted for as business combinations are included in our consolidated financial statements from the acquisition date.

			Assignment of Purchase Price
			(in millions)
Ref.	Date	Acquisition	Purchase Price		Current Assets		Property Plant & Equipment		Deferred Charges & Other		Goodwill
(1)	8/08	Wilmington, North Carolina Liquids Terminal	$	12.7	$	-	$	5.9	$	-	$	6.8
(2)	12/08	Phoenix, Arizona Products Terminal		27.5		-		27.5		-		-
(3)	4/09	Megafleet Towing Co., Inc. Assets		21.7		-		7.1		4.0		10.6
(4)	7/09	Portland Airport Pipeline		9.0		-		9.0		-		-
(5)	10/09	Crosstex Energy, L.P. Natural Gas Treating Business		270.7		15.0		181.7		25.4		48.6
(6)	11/09	Endeavor Gathering LLC		36.0		-		-		36.0		-
(7)	1/10	USD Terminal Acquisition		201.1		-		43.1		100.0		58.0
(8)	3/10	Mission Valley, California Products Terminal		13.5		-		13.5		-		-
(9)	3/10	Slay Industries Terminal Acquisition		101.6		-		67.9		32.8		0.9
(10)	5/10	KinderHawk Field Services LLC		917.4		-		-		917.4		-
(11)	7/10	Direct Fuels Terminal Acquisition		16.0		-		5.3		-		10.7
(12)	9/10	Gas-Chill, Inc. Natural Gas Treating Assets		13.1		-		8.0		5.1		-
(13)	10/10	Allied Concrete Terminal Acquisition		8.6		-		3.9		4.7		-
(14)	10/10	Chevron Refined Products Terminals		32.3		-		32.1		0.2		-

(1) Wilmington, North Carolina Liquids Terminal

On August 15, 2008, KMP purchased certain terminal assets from Chemserve, Inc. for an aggregate consideration of $12.7 million, consisting of $11.8 million in cash and $0.9 million in assumed liabilities. The liquids terminal facility is located in Wilmington, North Carolina and stores petroleum products and chemicals. The acquisition both expanded and complemented KMP’s existing Southeast region terminal operations, and all of the acquired assets are included in the Terminals—KMP business segment. KMP assigned $6.8 million of its purchase price to “Goodwill,” and the entire amount is expected to be deductible for tax purposes. KMP believes this acquisition resulted in the recognition of goodwill primarily because of certain advantageous factors (in cluding the synergies provided by increasing its liquids storage capacity in the Southeast region of the U.S.) that contributed to its acquisition price exceeding the fair value of acquired identifiable net assets and liabilities—in the aggregate, these factors represented goodwill.

(2) Phoenix, Arizona Products Terminal

Effective December 10, 2008, KMP’s West Coast Products Pipelines operations acquired a refined petroleum products terminal located in Phoenix, Arizona from ConocoPhillips for approximately $27.5 million in cash. The terminal has storage capacity of approximately 200,000 barrels for gasoline, diesel fuel and ethanol. The acquisition complemented KMP’s existing Phoenix liquids assets, and the acquired incremental storage increased KMP’s combined storage capacity in the Phoenix market by approximately 13%. The acquired terminal is included as part the Products Pipelines—KMP business segment.

(3) Megafleet Towing Co., Inc. Assets

Effective April 23, 2009, KMP acquired certain terminals assets from Megafleet Towing Co., Inc. for an aggregate consideration of approximately $21.7 million. KMP’s consideration included $18.0 million in cash and an obligation to pay additional cash consideration on April 23, 2014 (five years from the acquisition date) contingent upon the purchased assets providing KMP an agreed-upon amount of earnings, as defined by the purchase and sale agreement, during the five year period. The contingent consideration had a fair value of $3.7 million as of the acquisition date.

The acquired assets primarily consisted of nine marine vessels that provide towing and harbor boat services along the Gulf coast, the intracoastal waterway, and the Houston Ship Channel, and the acquisition complemented and expanded KMP’s existing Gulf Coast and Texas petroleum coke terminal operations. KMP assigned $10.6 million of the purchase price to “Goodwill,” and we expect that approximately $5.0 million of goodwill will be deductible for tax purposes. KMP believes the primary item that generated the goodwill is the value of the synergies created between the acquired assets and its pre-existing terminal assets (resulting from the increase in services now offered by its Texas petroleum coke

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operations). In February 2010, the JR Nicholls, one of the acquired vessels, overturned and sank in the Houston Ship Channel. For further information about the JR Nicholls incident, see Note 16. For information about events occurring subsequent to December 31, 2010, see “—Divestiture Subsequent to December 31, 2010” below.

(4) Portland Airport Pipeline

On July 31, 2009, KMP acquired a refined products pipeline, as well as associated valves, equipment and other fixtures, from Chevron Pipe Line Company for $9.0 million in cash. The approximate 8.5 mile, 8-inch diameter pipeline is located in Multnomah County, Oregon. The line transports commercial jet fuel from KMP’s Willbridge liquids terminal facility to the Portland International Airport, both located in Portland, Oregon. It has an estimated system capacity of approximately 26,000 barrels per day. The acquisition enhanced KMP’s West Coast terminal operations, and the acquired assets are included in the Products Pipelines—KMP business segment.

(5) Crosstex Energy, L.P. Natural Gas Treating Business

On October 1, 2009, KMP acquired the natural gas treating business from Crosstex Energy, L.P. and Crosstex Energy, Inc. for an aggregate consideration of $270.7 million, consisting of $265.3 million in cash and assumed liabilities of $5.4 million. The acquired assets primarily consisted of approximately 290 natural gas amine-treating and hydrocarbon dew-point control plants and related equipment, and are used to remove impurities and liquids from natural gas in order to meet pipeline quality specifications. The assets are predominantly located in Texas and Louisiana, with additional facilities located in Mississippi, Oklahoma, Arkansas and Kansas. The acquisition complemented and expanded the existing natural gas t reating operations offered by the Texas intrastate natural gas pipeline group and all of the acquired assets are included in the Natural Gas Pipelines—KMP business segment.

KMP measured the identifiable intangible assets acquired at fair value on the acquisition date and accordingly, recognized $25.4 million in “Deferred charges and other assets,” representing the purchased fair value of separate and identifiable relationships with existing natural gas producing customers. KMP estimates the remaining useful life of these existing customer relationships to be between approximately eight and nine years. After measuring all of the identifiable tangible and intangible assets acquired and liabilities assumed at fair value on the acquisition date, KMP recognized $48.6 million of “Goodwill,” an intangible asset representing the future economic benefits expected to be derived from this acquisition that are not assigned to other identifiable, separa tely recognizable assets acquired. KMP believes the primary item that generated the goodwill is its ability to grow the business by leveraging its pre-existing natural gas operations (resulting from the increase in services now offered by its natural gas processing and treating operations in the state of Texas), and KMP believes that this value contributed to its acquisition price exceeding the fair value of acquired identifiable net assets and liabilities—in the aggregate, these factors represented goodwill. Furthermore, this entire amount of goodwill is expected to be deductible for tax purposes.

(6) Endeavor Gathering LLC

On November 1, 2009, KMP acquired a 40% membership interest in Endeavor Gathering LLC for $36.0 million in cash. Endeavor Gathering LLC owns the natural gas gathering and compression business previously owned by GMX Resources Inc. and its wholly-owned subsidiary, Endeavor Pipeline, Inc. Endeavor Gathering LLC provides natural gas gathering service to GMX Resources’ exploration and production activities in its Cotton Valley Sands and Haynesville/Bossier Shale horizontal well developments located in East Texas. The remaining 60% interest in Endeavor Gathering LLC is owned by GMX Resources, Inc. and Endeavor Pipeline Inc. remained operator of the business. The acquired investment complemented KMP’s existing natural gas gathering and transportation business located in the state of Texas. KMP accounts for this investment under the equity method of accounting, and the investment is included in the Natural Gas Pipelines—KMP business segment. For more information on KMP’s investments, see Note 6.

(7) USD Terminal Acquisition

On January 15, 2010, KMP acquired three ethanol handling train terminals from US Development Group LLC for an aggregate consideration of $201.1 million, consisting of $114.3 million in cash, $81.7 million in common units, and $5.1 million in assumed liabilities. The three train terminals are located in Linden, New Jersey; Baltimore, Maryland and Euless, Texas. As part of the transaction, KMP announced the formation of a joint venture with US Development Group LLC to optimize and coordinate customer access to the three acquired terminals, other ethanol terminal assets it already owns and operates, and other terminal projects currently under development by both parties. The acquisition complemented and expanded the ethanol and rail terminal operations KMP previously owned, and all of the acquired assets are included i n the Terminals—KMP business segment.

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Based on the measurement of fair values for all of the identifiable tangible and intangible assets acquired and liabilities assumed on the acquisition date, KMP assigned $94.6 million of the combined purchase price to “Other intangibles, net,” and a combined $5.4 million to “Other current assets” and “Deferred charges and other assets.” The acquired intangible amount represented the fair value of customer relationships, and KMP estimated the remaining useful life of these customer relationships to be 10 years. After measuring all of the identifiable tangible and intangible assets acquired and liabilities assumed at fair value on the acquisition date, KMP recognized $58.0 million of “Goodwill,” an intangible asset representing the future economic benefits exp ected to be derived from this acquisition that are not assigned to other identifiable, separately recognizable assets. KMP believes the primary items that generated the goodwill are the value of the synergies created between the acquired assets and its pre-existing ethanol handling assets, and its expected ability to grow the business by leveraging its pre-existing experience in ethanol handling operations. KMP expects that the entire amount of goodwill will be deductible for tax purposes.

(8) Mission Valley Terminal Acquisition

On March 1, 2010, KMP acquired the refined products terminal assets at Mission Valley, California from Equilon Enterprises LLC (d/b/a Shell Oil Products US) for $13.5 million in cash. The acquired assets included buildings, equipment, delivery facilities (including two truck loading racks), and storage tanks with a total capacity of approximately 170,000 barrels for gasoline, diesel fuel and jet fuel. The terminal operates under a long-term terminaling agreement with Tesoro Refining and Marketing Company. The acquisition enhanced KMP’s Pacific operations and complemented its existing West Coast terminal operations, and the acquired assets are included in the Products Pipelines—KMP business segment.

(9) Slay Industries Terminal Acquisition

On March 5, 2010, KMP acquired certain bulk and liquids terminal assets from Slay Industries for an aggregate consideration of $101.6 million, consisting of $97.0 million in cash, assumed liabilities of $1.6 million, and an obligation to pay additional cash consideration of $3.0 million in years 2013 through 2019, contingent upon the purchased assets providing KMP an agreed-upon amount of earnings during the three years following the acquisition. Including accrued interest, KMP expects to pay approximately $2.0 million of this contingent consideration in the first half of 2013.

The acquired assets included (i) a marine terminal located in Sauget, Illinois; (ii) a transload liquid operation located in Muscatine, Iowa; (iii) a liquid bulk terminal located in St. Louis, Missouri and (iv) a warehousing distribution center located in St. Louis. All of the acquired terminals have long-term contracts with large creditworthy shippers. As part of the transaction, KMP and Slay Industries entered into joint venture agreements at both the Kellogg Dock coal bulk terminal, located in Modoc, Illinois, and at the newly created North Cahokia terminal, located in Sauget and which has approximately 175 acres of land ready for development. All of the assets located in Sauget have access to the Mississippi River and are served by five rail carriers. The acquisition complemented and expanded KMP’s pre-exi sting Midwest terminal operations by adding a diverse mix of liquid and bulk capabilities, and all of the acquired assets are included in the Terminals—KMP business segment.

Based on the measurement of fair values for all of the identifiable tangible and intangible assets acquired and liabilities assumed, KMP assigned $24.6 million of the combined purchase price to “Other intangibles, net” (representing customer contracts with an estimated remaining useful life of 20 years) and $8.2 million to “Investments.” KMP also recorded $0.9 million of the combined purchase price as “Goodwill,” representing certain advantageous factors that contributed to the acquisition price exceeding the fair value of acquired identifiable net assets—in the aggregate, these factors represented goodwill, and KMP expects that the entire amount of goodwill will be deductible for tax purposes.

(10) KinderHawk Field Services LLC

On May 21, 2010, KMP purchased a 50% ownership interest in Petrohawk Energy Corporation’s natural gas gathering and treating business in the Haynesville shale gas formation located in northwest Louisiana. KMP paid an aggregate consideration of $917.4 million in cash for its 50% equity ownership interest, consisting of $921.4 million KMP paid on closing, and $4.0 million received in the fourth quarter of 2010 for the final settlement of estimated capital expenditures and estimated net cash outflows from operating activities for the period January 1, 2010 through May 21, 2010.

During a short transition period, Petrohawk continued to operate the business, and effective October 1, 2010, a newly formed company named KinderHawk Field Services LLC, owned 50% by KMP and 50% by Petrohawk, assumed the joint venture operations. The acquisition complemented and expanded KMP’s existing natural gas gathering and treating businesses, and KMP assigned the entire purchase price to “Investments” (including $144.8 million of equity method goodwill, representing the excess of KMP’s investment cost over its proportionate share of the fair value of the joint

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venture’s identifiable net assets). KMP’s investment and pro rata share of the joint venture’s operating results are included as part of the Natural Gas Pipelines—KMP business segment.

(11) Direct Fuels Terminal Acquisition

On July 22, 2010, KMP acquired a terminal with ethanol tanks, a truck rack and additional acreage in Dallas, Texas, from Direct Fuels Partners, L.P. for an aggregate consideration of $16 million, consisting of $15.9 million in cash and an assumed property tax liability of $0.1 million. The acquired terminal facility is connected to and complements the Dallas, Texas unit train terminal KMP acquired from USD Development Group LLC in January 2010 (described above in “—(7) USD Terminal Acquisition). All of the acquired assets are included in the Terminals—KMP business segment. After measuring all of the identifiable tangible and intangible assets acquired and liabilities assumed at fair value on the acquisition date, KMP recognized $10.7 million of “Goodwill,” an intangible asset representi ng the future economic benefits expected to be derived from the acquisition that was not assigned to other identifiable, separately recognizable assets acquired. KMP believes the primary items that generated the goodwill are the value of the synergies created between the acquired assets and its pre-existing ethanol handling assets, and its expected ability to grow the business by leveraging its pre-existing experience in ethanol handling operations. KMP expects that the entire amount of goodwill will be deductible for tax purposes.

(12) Gas-Chill, Inc. Asset Acquisition

On September 1, 2010, KMP acquired the natural gas treating assets of Gas-Chill, Inc. for an aggregate consideration of $13.1 million in cash, consisting of $10.5 million in cash paid on closing, and an obligation to pay a holdback amount of $2.6 million within eighteen months from closing. The acquired assets primarily consist of more than 100 mechanical refrigeration natural gas hydrocarbon dew point control units that are used to remove hydrocarbon liquids from natural gas streams prior to entering transmission pipelines. The acquisition complemented and expanded the existing natural gas treating operations offered by KMP’s Texas intrastate natural gas pipeline group, and all of the acquired assets are included in the Natural Gas Pipelines—KMP business segment. KMP assigned $8.0 million of its purchas e price to “Property, Plant and Equipment, net” and the remaining $5.1 million to “Other intangibles, net” (representing both a technology-based asset and customer-related contract values).

(13) Allied Concrete Bulk Terminal Assets

On October 1, 2010, KMP acquired certain bulk terminal assets and real property located in Chesapeake, Virginia, from Allied Concrete Products, LLC and Southern Concrete Products, LLC for an aggregate consideration of $8.6 million, consisting of $8.1 million in cash and an assumed environmental liability of $0.5 million. The acquired terminal facility is situated on 42 acres of land and can handle approximately 250,000 tons of material annually, including pumice, aggregates and sand. The acquisition complemented the bulk commodity handling operations at KMP’s nearby Elizabeth River terminal, also located in Chesapeake, and all of the acquired assets will be included in the Terminals—KMP business segment. KMP assigned $3.9 million of its purchase price to “Property, Plant and Equipment, net” a nd the remaining $4.7 million to “Other intangibles, net” (representing customer-related contract values).

(14) Chevron Refined Products Terminal Assets

On October 8, 2010, KMP acquired four separate refined petroleum products terminals from Chevron U.S.A. Inc. for an aggregate consideration of $32.3 million, consisting of $31.5 million in cash and assumed environmental liability of $0.8 million. Combined, the terminals have storage capacity of approximately 650,000 barrels for gasoline, diesel fuel and jet fuel. Chevron has entered into long-term contracts with KMP to terminal product at the terminals. The acquisition complemented and expanded KMP’s existing refined petroleum products assets, and all of the acquired assets are included in the Products Pipelines—KMP business segment. KMP assigned $32.1 million of its purchase price to “Property, Plant and Equipment, net” and the remaining $0.2 million to “Deferred charges and other asse ts” (representing the fair value of petroleum pipeline product additives).

Pro Forma Information

Pro forma consolidated statement of income information that gives effect to all of the acquisitions we have made and all of the joint ventures we have entered into since January 1, 2009 as if they had occurred as of January 1, 2009 is not presented because it would not be materially different from the information presented in our accompanying consolidated statements of income.

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Divestitures

North System Natural Gas Liquids Pipeline System – Discontinued Operations

On July 2, 2007, KMP announced that it entered into an agreement to sell the North System natural gas liquids pipeline and its 50% ownership interest in the Heartland Pipeline Company (collectively referred to in this report as the North System) to ONEOK Partners, L.P. for approximately $298.6 million in cash. KMP’s investment in net assets, including all transaction related accruals, was approximately $145.8 million, most of which represented property, plant and equipment, and KMP recognized approximately $152.8 million of gain in the fourth quarter of 2007 from the sale of these net assets.

In the first half of 2008, following final account and inventory reconciliations, KMP paid a net amount of $2.4 million to ONEOK to fully settle amounts related to (i) working capital items; (ii) total physical product liquids inventory and inventory obligations for certain liquids products and (iii) the allocation of pre-acquisition investee distributions. Prior to the sale, KMP included the financial results of the North System within the Products Pipelines—KMP business segment and, because the sale of the North System did not change the structure of KMP’s internal organization in a manner that caused a change to its reportable business segments, KMP included the incremental gain within the Products Pipelines—KMP business segment disclosures for 2008.

Thunder Creek Gas Services, LLC

Effective April 1, 2008, KMP sold its 25% ownership interest in Thunder Creek Gas Services, LLC, referred to in this report as Thunder Creek, to PVR Midstream LLC, a subsidiary of Penn Virginia Corporation. Prior to the sale, KMP accounted for its investment in Thunder Creek under the equity method of accounting and included its financial results within the Natural Gas Pipelines—KMP business segment. In the second quarter of 2008, KMP received cash proceeds, net of closing costs and settlements, of approximately $50.7 million for its investment.

Cypress Interstate Pipeline LLC

Effective October 1, 2010, Westlake Petrochemicals LLC, a wholly-owned subsidiary of Westlake Chemical Corporation, exercised an option it held to purchase a 50% ownership interest in KMP’s Cypress Pipeline. Accordingly, KMP sold a 50% interest in its subsidiary, Cypress Interstate Pipeline LLC, to Westlake and KMP received proceeds of $10.2 million. At the time of the sale, the carrying value of the net assets of Cypress Interstate Pipeline LLC totaled $20.0 million and consisted mostly of property, plant and equipment. In the fourth quarter of 2010, KMP recognized an $8.8 million gain from this sale, including an $8.6 million gain amount related to the remeasurement of KMP’s retained investment in its fair value. Due to the loss of control of Cypress Interstate Pipeline LLC, KMP recognized the retained investment at its fair value, and the gain amount related to remeasurement represents the excess of the fair value of KMP’s retained investment ($18.6 million as of October 1, 2010) over its carrying value ($10.0 million). This fair value of KMP’s retained investment was determined by applying a multiple to the future annual cash flows expected from its retained 50% interest. The $10.2 million value of the transaction with Westlake Chemical Corporation was based on a contract price and does not represent the fair value of a 50% interest in the Cypress Pipeline in an orderly transaction between market participants. KMP now accounts for its retained investment under the equity method of accounting. KMP included the entire gain within the caption “Other, net” in our accompanying consolidated statement of income.

NGPL PipeCo LLC

On February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC (formerly MidCon Corp.), which owns Natural Gas Pipeline Company of America LLC and certain affiliates, collectively referred to as “NGPL,” to Myria Acquisition Inc. (Myria) for approximately $2.9 billion. We also received approximately $3.0 billion of cash previously held in escrow related to a notes offering by NGPL PipeCo LLC in December 2007, the net proceeds of which were distributed to us principally as repayment of intercompany indebtedness and partially as a dividend, immediately prior to the closing of the sale to Myria. Pursuant to the purchase agreement, Myria acquired all 800 Class B shares and we retained all 200 Class A shares of NGPL PipeCo LLC. We continue to operate NGPL PipeCo LLC’s assets pursuant to a 15- year operating agreement. The total proceeds from this sale of $5.9 billion were used to pay off the entire outstanding balances of Kinder Morgan Kansas, Inc.’s senior secured credit facility’s Tranche A and Tranche B term loans, to repurchase $1.67 billion of its outstanding debt securities and to reduce balances outstanding under its $1.0 billion revolving credit facility.

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Triton Power

Effective October 22, 2010, we sold our ownership interest in Triton Power, a 550-megawatt natural gas-fired electricity generation facility in Michigan, for approximately $15.0 million in cash and recorded a gain on the sale for approximately $16.1 million, which is included in the caption “Other expense (income)” in our accompanying consolidated statement of income.

Other Divestitures

In January 2008, we completed the sale of our interests in three natural gas-fired power plants in Colorado to Bear Stearns received proceeds of $63.1 million.

Earnings of Discontinued Operations

The financial results of discontinued operations have been reclassified for all periods presented and reported in the caption, “Income (loss) from Discontinued Operations, net of tax” in our accompanying consolidated statements of income. Summarized financial results of these operations are as follows (in millions):

	Year Ended December 31,
	2010			2009			2008
Revenues	$	-		$	-		$	-

Income (loss) from discontinued operations before income taxes	$	(1.1	)	$	0.5		$	(0.9	)
Income taxes		0.4			(0.2	)		-
Income (loss) from discontinued operations	$	(0.7	)	$	0.3		$	(0.9	)

The cash flows attributable to discontinued operations are included in our accompanying consolidated statements of cash flows for the years ended December 31, 2010, 2009 and 2008 in the caption “Net Cash Flows Used in Discontinued Operations.”

Acquisition Subsequent to December 31, 2010

On January 3, 2011, KMP purchased 50,000 Class A preferred shares of Watco Companies, LLC for $50.0 million in cash in a private transaction. In connection with its purchase of these preferred shares, the most senior equity security of Watco, KMP entered into a limited liability company agreement with Watco that provides KMP certain priority and participating cash distribution and liquidation rights. KMP will receive priority, cumulative cash distributions from the preferred shares at a rate of 3.25% per quarter, and will participate partially in additional profit distributions at a rate equal to 0.5%. The preferred shares have no conversion features and hold no voting powers, but do provide KMP certain approval rights, including the right to appoint one of the members to Watco’ ;s Board of Managers. As of December 31, 2010, KMP placed its $50.0 million investment in a cash escrow account and included this amount within “Restricted Deposits” on our accompanying consolidated balance sheet. The acquired investment complements KMP’s existing rail transload operations and KMP will account for its investment under the equity method of accounting and include it in the Terminals—KMP business segment.

Watco Companies, LLC is a privately owned, Pittsburg, Kansas based transportation company that was formed in 1983. It is the largest privately held short line railroad company in the United States, operating 22 short line railroads on approximately 3,500 miles of leased and owned track. Its services include (i) rail freight transportation; (ii) industrial switching services; (iii) railcar and locomotive repair; (iv) track construction, maintenance and repair; (v) freight railroad specific transloading and intermodal services; (vi) freight railroad specific warehouse logistics activities and (vii) port terminal freight railroads and associated operations.

Divestiture Subsequent to December 31, 2010

On February 9, 2011, KMP sold a marine vessel to Kirby Inland Marine, L.P., and additionally, KMP and Kirby formed a joint venture named Greens Bayou Fleeting, LLC. Pursuant to the joint venture agreement, KMP both sold a 51% ownership interest in the boat fleeting business acquired from Megafleet Towing Co., Inc. in April 2009 (discussed above in “—Acquisitions from Unrelated Entities—(3) Megafleet Towing Co., Inc. Assets”) to the joint venture for $4.1 million in cash, and KMP contributed the remaining business to the joint venture for a 49% ownership interest. Kirby then made cash contributions to the joint venture in exchange for the remaining 51% ownership interest. Related to the above transactions, in the fourth quarter of 2010, KMP recorded a combined loss amount of $5.5 million to write down

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the carrying value of the net assets to be sold to their estimated fair values as of December 31, 2010. We included this loss within the caption “Other expense (income)” in our accompanying consolidated statement of income for the year ended December 31, 2010.

4. Income Taxes

The components of income (loss) before income taxes from continuing operations are as follows (in millions):

	Year Ended December 31,
	2010			2009			2008
United States		$	394.9		$	1,023.3		$	(2,978.7	)
Foreign			73.0			76.1			80.7
Total		$	467.9		$	1,099.4		$	(2,898.0	)

Components of the income tax provision applicable to continuing operations for federal and state income taxes are as follows (in millions):

	Year Ended December 31,
	2010			2009		2008
Current tax provision
Federal	$	152.5		$	248.9	$	786.6
State		9.7			17.0		18.6
Foreign		3.5			0.1		(4.5	)
		165.7			266.0		800.7

Deferred tax provision
Federal		(38.0	)		29.9		(439.5	)
State		29.2			0.2		11.5
Foreign		10.7			30.5		(68.4	)
		1.9			60.6		(496.4	)
Total tax provision	$	167.6		$	326.6	$	304.3

The difference between the statutory federal income tax expense (and rate) and our actual income tax expense (and effective income tax rate) is summarized as follows (in millions, except percentages):

	Year Ended December 31,
	2010					2009					2008
Federal income tax	$	163.8		35.0	%	$	384.8		35.0	%	$	(1,014.3	)	(35.0	) %
Increase (decrease) as a result of:
Nondeductible goodwill impairment		-		-			-		-			1,411.7		48.7	%
Deferred tax liability on KMI Investment in KMR		79.5		17.0	%		-		-			-		-
State deferred tax rate change		17.4		3.7	%		(10.4	)	(0.9	) %		17.8		0.6	%
Taxes on foreign earnings		14.1		3.0	%		30.2		2.7	%		(68.2	)	(2.4	) %
Net effects of consolidating KMP’s U.S. income tax provision		(105.7	)	(22.6	) %		(93.5	)	(8.5	) %		(77.4	)	(2.7	) %
State income tax, net of federal benefit		16.2		3.5	%		24.6		2.2	%		17.1		0.6	%
Adjustment to KMI’s investment in NGPL		(8.1	)	(1.7	) %		-		-			-		-
Adjustment to employee benefit plan		(4.9	)	(1.0	) %		-		-			-		-
Dividend received deduction		(10.9	)	(2.3	) %		(16.9	)	(1.5	) %		(15.6	)	(0.5	) %
Other		6.2		1.2	%		7.8		0.7	%		33.2		1.2	%
Total	$	167.6		35.8	%	$	326.6		29.7	%	$	304.3		10.5	%

As part of our dividend policy, after our initial public offering (See Note 10 – Subsequent Events – Initial Public Offering) we intend periodically to sell the KMR shares we receive as distributions from KMR. Since we no longer expect to recover our investment in KMR in a tax-free manner, a deferred tax liability was recorded resulting in a $79.5 million increase to income tax expense in 2010.

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Deferred tax assets and liabilities result from the following (in millions):

	December 31,
	2010		2009
Deferred tax assets
Employee benefits	$	66.3	$	57.6
Book accruals		11.1		25.3
Net operating and capital loss carryforwards		58.4		11.4
Interest rate and currency swaps		19.8		24.3
Other		13.3		25.9
Total deferred tax assets		168.9		144.5
Deferred tax liabilities
Property, plant and equipment		265.3		239.9
Investments		1,904.8		1,880.2
Book accruals		15.8		4.7
Derivative instruments		12.0		12.5
Debt adjustment		19.6		19.4
Other		8.0		9.5
Total deferred tax liabilities		2,225.5		2,166.2
Net deferred tax liabilities	$	2,056.6	$	2,021.7

Current deferred tax asset	$	36.1	$	14.2
Non-current deferred tax liability		2,092.7		2,035.9
Net deferred tax liabilities	$	2,056.6	$	2,021.7

KMP, through its corporate subsidiaries, has federal, state and foreign net operating loss carryforwards for which deferred tax assets of approximately $17.8 million have been recorded. These net operating loss carryforwards will expire between 2014 and 2030. We believe that KMP's subsidiaries will be able to generate sufficient taxable income in the future to utilize all of its net operating loss carryforwards. Therefore, no valuation allowance has been recorded for the deferred tax assets associated with these net operating loss carryforwards as of December 31, 2010.

In 2010, we sold certain assets that generated a capital loss of approximately $116.0 million. The capital loss will be carried back and a current deferred tax asset of approximately $40.6 million will be realized as a result of the carryback. As we have sufficient capital gains from prior years to offset this capital loss, no valuation allowance for the deferred tax asset has been recorded.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also the past administrative practices and precedents of the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

A reconciliation of our gross unrecognized tax benefit excluding interest and penalties for the years ended December 31, 2010, 2009 and 2008 is as follows (in millions):

	2010			2009			2008
Balance at beginning of period	$	52.0		$	26.2		$	41.5
Additions based on current year tax positions		-			1.4			2.1
Additions based on prior year tax positions		12.0			19.3			15.9
Settlements with taxing authority		(2.2	)		14.0			(10.2	)
Changes due to lapse in statue of limitations		0.6			(8.9	)		(3.7	)
Reductions for tax positions related to prior year		(9.5	)		-			(19.4	)
Balance at end of period	$	52.9		$	52.0		$	26.2

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense, and as of December 31, 2010, we had $4.1 million of accrued interest and $0.6 million in accrued penalties. As of December 31, 2009, we had $6.5 million of accrued interest and $0.8 million in accrued penalties. As of December 31, 2008, we had $2.9 million of accrued interest and $0.8 million of accrued penalties. In addition, we believe it is reasonably possible that our liability for unrecognized tax benefits will increase by $0.3 million during the next year, and

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that approximately $53.3 million included in the total $52.9 million of unrecognized tax benefits, if recognized, would affect our effective tax rate in future periods. Such amounts exclude interest, while the latter amount of $52.9 million includes both temporary and permanent differences.

We are subject to taxation, and have tax years open to examination for the periods 2007-2010 in the United States, 2005-2010 in Mexico, 2006-2010 in Canada, and 2005-2010 in various states.

5. Property, Plant and Equipment

Classes and Depreciation

As of December 31, 2010 and 2009, our property, plant and equipment consisted of the following (in millions):

	December 31,
	2010			2009
Kinder Morgan, Inc.
General and other	$	46.5		$	45.7
KMP(a)
Natural gas, liquids, crude oil and carbon dioxide pipelines		6,684.4			6,503.6
Natural gas, liquids, carbon dioxide, and terminals station equipment.		10,112.0			9,271.8
Natural gas, liquids (including linefill), and transmix processing		233.7			220.3
Other		1,874.8			1,671.3
Accumulated depreciation, depletion and amortization		(2,953.9	)		(2,002.8	)
		15,997.5			15,709.9
Land and land right-of-way		560.5			519.5
Construction work in process		512.7			574.1
Property, plant and equipment, net	$	17,070.7		$	16,803.5

____________

(a)	Includes the allocation of purchase accounting adjustments associated with the Going Private Transaction (see Note 2).

Depreciation, depletion and amortization expense charged against property, plant and equipment was $1,025.5 million in 2010, $1,047.5 million in 2009 and $897.2 million in 2008.

Asset Retirement Obligations

As of December 31, 2010 and 2009, we have recognized asset retirement obligations in the aggregate amount of $122.0 million and $100.9 million, respectively. The majority of our asset retirement obligations are associated with the CO2—KMP business segment, where KMP is required to plug and abandon oil and gas wells that have been removed from service and to remove its surface wellhead equipment and compressors. We have included $2.5 million of asset retirement obligations as of both December 31, 2010 and 2009 within “Accrued other current liabilities” in our accompanying consolidated balance sheets. The remaining amounts are included within “Other long-term liabilities and deferred credits” at each reporting date.

A reconciliation of the beginning and ending aggregate carrying amount of asset retirement obligations for each of the years ended December 31, 2010 and 2009 is as follows (in millions):

	Year Ended December 31,
	2010			2009
Balance at beginning of period	$	100.9		$	76.5
Liabilities incurred/revised		23.7			26.0
Liabilities settled		(9.1	)		(6.2	)
Accretion expense		6.5			4.6
Balance at end of period	$	122.0		$	100.9

KMP has various other obligations throughout its businesses to remove facilities and equipment on rights-of- way and other leased facilities. We currently cannot reasonably estimate the fair value of these obligations because the associated assets have indeterminate lives. These assets include pipelines, certain processing plants and distribution facilities, and

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certain bulk and liquids terminal facilities. An asset retirement obligation, if any, will be recognized once sufficient information is available to reasonably estimate the fair value of the obligation.

6. Investments

We reported a combined $4,291.1 million and $3,695.6 million as “Investments” in our accompanying consolidated balance sheets as of December 31, 2010 and 2009, respectively. Our investments primarily consist of equity investments where we hold significant influence over investee actions and which we account for under the equity method of accounting.

As of December 31, 2010 and 2009, our investments consisted of the following (in millions):

	December 31,
	2010		2009
Rockies Express Pipeline LLC	$	1,703.0	$	1,693.4
KinderHawk Field Services LLC		924.6		-
Midcontinent Express Pipeline LLC		706.4		662.3
Plantation Pipe Line Company		329.6		340.4
NGPL PipeCo LLC		265.6		698.5
Red Cedar Gathering Company		163.2		145.8
Express pipeline system		68.5		68.0
Endeavor Gathering LLC		36.1		36.2
Eagle Ford Gathering LLC		29.9		-
Cortez Pipeline Company		9.9		11.2
Subsidiary trusts holding solely debentures of Kinder Morgan Kansas, Inc.(a)		-		8.6
All others		46.1		18.0
Total equity investments		4,282.9		3,682.4
Bond investments		8.2		13.2
Total investments	$	4,291.1	$	3,695.6

____________

(a)

Upon the adoption of Accounting Standards Update No. 2009-17, which amended the codification’s “Consolidation” topic, on January 1, 2010 (ASU 2009-17), our subsidiary trusts holding solely debentures of Kinder Morgan Kansas, Inc. are consolidated into our financial statements. For more information on recent accounting pronouncements, see Note 18.

The increase in the carrying amount of our equity investments, including those of KMP, since December 31, 2009, was primarily due to KMP’s acquisition of a 50% ownership interest in KinderHawk Field Services LLC in May 2010. For further information pertaining to the KinderHawk acquisition, see Note 3 “Acquisitions and Divestitures—Acquisitions from Unrelated Entities—(10) KinderHawk Field Services LLC.”

As shown in the table above, in addition to the investment in KinderHawk Field Services LLC, our significant equity investments, including those of KMP, as of December 31, 2010 consisted of the following:

▪

Rockies Express Pipeline LLC—KMP operates and owns a 50% ownership interest in Rockies Express Pipeline LLC, the sole owner of the Rockies Express natural gas pipeline system. The Rockies Express pipeline system began full operations on November 12, 2009 following the completion of its final pipeline segment, Rockies Express-East. The remaining ownership interests in Rockies Express Pipeline LLC are owned by subsidiaries of Sempra Energy and ConocoPhillips.

Effective December 1, 2009, KMP’s ownership interest in Rockies Express Pipeline LLC was reduced to 50% (from 51%), ConocoPhillips’ interest was increased to 25% (from 24%), and minimum voting requirements for most matters was increased to 75% (from 51%) of the member interests. KMP received $31.9 million for the 1% reduction in ownership interest and we included this amount within “Sale or casualty of property, plant and equipment, investments and other net assets, net of removal costs” on our accompanying consolidated statement of cash flows for the year ended December 31, 2009. Sempra Energy continues to own the remaining 25% ownership interest in Rockies Express Pipeline LLC.

Additionally, in 2010 and 2009, KMP made capital contributions of $130.5 million and $1,273.1 million, respectively, to Rockies Express Pipeline LLC and KMP received cash distributions of $208.6 million and $148.8 million, respectively. KMP’s 2009 contributions were primarily made to partially fund both the construction costs

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for the Rockies Express pipeline system and the repayment of senior notes (which matured in August 2009);

▪

NGPL PipeCo LLC — On February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC (formerly MidCon Corp.), which owns Natural Gas Pipeline of America and certain affiliates to Myria Acquisition Inc. (Myria). Pursuant to the purchase agreement, Myria acquired all 800 Class B shares and we retained all 200 Class A shares of NGPL PipeCo LLC. We continue to operate NGPL PipeCo LLC’s assets pursuant to a 15-year operating agreement.

On November 19, 2009, the FERC initiated an investigation, pursuant to Section 5 of the Natural Gas Act, into the justness and reasonableness of the transportation and storage rates as well as the fuel and natural gas lost percentages of NGPL PipeCo LLC’s subsidiary, Natural Gas Pipeline Company of America LLC, referred to as “NGPL.” NGPL reached a settlement in principal with the FERC on April 22, 2010. On June 11, 2010, NGPL filed an offer of settlement, which was approved without modification by the FERC on July 29, 2010. The order approving the settlement has become final and nonappealable. The settlement resolved all issues in the proceeding. The settlement provides that NGPL will reduce its fuel and gas lost and unaccounted for, or “GL&U,” retention factors as of July 1, 2010. The settlement further provides a timeline for ad ditional prospective fuel and GL&U reductions and prospective reductions in the maximum recourse reservation rates that it bills firm transportation and storage shippers.

The events discussed above caused us to reconsider the carrying value of our investment in NGPL PipeCo LLC as of March 31, 2010. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. The fair value represents the price that would be received to sell the investment in an orderly transaction between market participants. We determined the fair value of the investment in NGPL PipeCo LLC by taking the total fair value of NGPL PipeCo LLC (calculated as discussed below) deducting the fair value of the joint venture debt and multiplying by our 20% ownership interest. We calculated the total fair value of NGPL PipeCo LLC from the present value of the expected future after-tax cash flows of the reporting unit, inclusive of a terminal value, which implies a market multiple of approximately 9.5 times EBITDA (earnings before interest, income taxes, depreciation and amortization) discounted at a rate of 7.4%. The result of our analysis showed that the fair value of our investment in NGPL PipeCo LLC was less than its carrying value. In 2010, we recognized a $430.0 million, pre-tax, non-cash impairment charge included in the caption “Earnings (loss) from equity investments” in our accompanying consolidated statement of income;

▪

Midcontinent Express Pipeline LLC—KMP operates and owns a 50% ownership interest in Midcontinent Express Pipeline LLC. It is the sole owner of the Midcontinent Express natural gas pipeline system. The remaining ownership interests in Midcontinent Express Pipeline LLC are owned by Regency Energy Partners LP and Energy Transfer Partners, L.P. Effective May 26, 2010, Energy Transfer Partners, L.P. transferred to Regency Energy Partners LP (i) a 49.9% ownership interest in Midcontinent Express Pipeline LLC and (ii) a one-time right to purchase its remaining 0.1% ownership interest in Midcontinent Express Pipeline LLC on May 26, 2011. As a result of this transfer, Energy Transfer Partners, L.P. now owns a 0.1% ownership interest in Midcontinent Express Pipeline LLC. KMP continues to own the remaining 50% ownership interest in Midcontinent Express Pipeline LLC, and since there was no change in its ownership interest, KMP did not record any equity method adjustments as a result of the ownership change between Regency Energy Partners LP and Energy Transfer Partners, L.P.

Additionally, in 2010 and 2009, KMP made capital contributions of $86.0 million and $664.5 million, respectively, to Midcontinent Express Pipeline LLC to partially fund its pipeline construction and expansion costs. In 2010 and 2009, KMP also received, from Midcontinent Express Pipeline LLC, cash distributions of $72.0 million and $16.2 million, respectively;

▪

Plantation Pipe Line Company—KMP operates and owns a 51.17% ownership interest in Plantation Pipe Line Company, the sole owner of the Plantation refined petroleum products pipeline system. An affiliate of ExxonMobil owns the remaining interest. Each investor has an equal number of directors on Plantation’s board of directors, and board approval is required for certain corporate actions that are considered participating rights; therefore, KMP does not control Plantation Pipe Line Company, and it accounts for its investment under the equity method;

▪

Red Cedar Gathering Company—KMP owns a 49% ownership interest in the Red Cedar Gathering Company. The remaining 51% interest in Red Cedar is owned by the Southern Ute Indian Tribe. Red Cedar is the sole owner of the Red Cedar natural gas gathering, compression and treating system;

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▪

Express pipeline system—KMP acquired a 33 1/3% ownership interest in the Express pipeline system from us effective August 28, 2008;

▪

Endeavor Gathering LLC—KMP acquired a 40% ownership interest in Endeavor Gathering LLC from GMX Resources Inc. effective November 1, 2009 (discussed in Note 3 “Acquisitions and Divestitures—Acquisitions from Unrelated Entities—(6) Endeavor Gathering LLC”);

▪

Eagle Ford Gathering LLC—on May 14, 2010, KMP and Copano Energy, L.L.C. entered into formal agreements for a joint venture to provide natural gas gathering, transportation and processing services to natural gas producers in the Eagle Ford Shale formation in south Texas. KMP named the joint venture Eagle Ford Gathering LLC, and KMP owns a 50% member interest in Eagle Ford Gathering LLC. Copano owns the remaining 50% interest and serves as operator and managing member of Eagle Ford Gathering LLC. For more information on the investment in Eagle Ford, see Items 1 and 2 “Business and Properties—(a) General Development of Business—Recent Developments—Natural Gas Pipelines—KMP” included in our Annual Report on Form 10-K for the year ended December 31, 2010; and

▪

Cortez Pipeline Company—KMP operates and owns a 50% ownership interest in the Cortez Pipeline Company, the sole owner of the Cortez carbon dioxide pipeline system. A subsidiary of Exxon Mobil Corporation owns a 37% ownership interest and Cortez Vickers Pipeline Company owns the remaining 13% ownership interest.

KMP also owns a 50% ownership interest in Fayetteville Express Pipeline LLC, which was formed in August 2008. Fayetteville Express Pipeline LLC is the sole owner of the Fayetteville Express natural gas pipeline system. Energy Transfer Partners, L.P. operates the Fayetteville Express pipeline system and owns the remaining 50% ownership interest in Fayetteville Express Pipeline LLC. The Fayetteville Express system began interim transportation service on October 12, 2010, and began full operations on January 1, 2011. In 2009, KMP made capital contributions of $103.2 million to Fayetteville Express Pipeline LLC to partially fund its pipeline construction costs. As of December 31, 2010 and 2009, however, KMP had no material net investment in Fayetteville Express Pipeline LLC because in No vember 2009, Fayetteville Express Pipeline LLC established and made borrowings under its own revolving bank credit facility in order to fund its pipeline development and construction costs and to make distributions to its member owners to reimburse them for prior contributions (including contributions made in 2008). Accordingly, KMP received cash distributions of $115.6 million from Fayetteville Express Pipeline LLC in 2009.

In addition to the investments listed above, KMP’s significant equity investments included a 25% ownership interest in Thunder Creek Gas Services, LLC until it sold its ownership interest to PVR Midstream LLC on April 1, 2008. The divestiture of the investment in Thunder Creek is discussed in Note 3 “Acquisitions and Divestitures—Divestitures—Thunder Creek Gas Services, LLC.”

Our earnings (losses) from equity investments were as follows (in millions):

	Year Ended December 31,
	2010			2009			2008
Rockies Express Pipeline LLC	$	87.6		$	98.5		$	84.9
Midcontinent Express Pipeline LLC		30.1			14.7			0.5
Red Cedar Gathering Company		28.7			24.9			26.7
Cortez Pipeline Company		22.5			22.3			20.8
Plantation Pipe Line Company		20.0			16.5			13.6
KinderHawk Field Services LLC		19.5			-			-
Endeavor Gathering LLC		3.2			0.1			-
Express pipeline system		(3.3	)		(4.1	)		8.2
NGPL PipeCo LLC(a)		(399.0	)		42.5			40.1
Eagle Ford Gathering LLC		-			-			-
Thunder Creek Gas Services, LLC		-			-			1.3
Horizon Pipeline Company		-			-			0.2
All others		4.5			6.5			4.8
Total	$	(186.2	)	$	221.9		$	201.1
Amortization of excess costs	$	(5.8	)	$	(5.8	)	$	(5.7	)

____________

(a)	2010 amount includes a non-cash investment impairment charge, which we recorded in the amount of $430.0 million (pre-tax) discussed preceding.

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Summarized combined unaudited financial information for our significant equity investments (listed or described above) is reported below (in millions; amounts represent 100% of investee financial information):

	Year Ended December 31,
Income Statement (a)	2010			2009		2008
Revenues	$	2,649.3		$	2,351.9	$	2,170.4
Costs and expenses		2,870.9			1,754.8		1,649.6
Earnings before extraordinary items and cumulative effect of a change in accounting principle		(221.6	)		597.1		520.8
Net income	$	(221.6	)	$	597.1	$	520.8

	December 31,
Balance Sheet	2010		2009
Current assets	$	701.0	$	501.8
Non-current assets		17,759.1		16,687.5
Current liabilities		711.8		2,299.7
Non-current liabilities		7,905.4		6,275.6
Partner’/owners’ equity	$	9,842.9	$	8,614.0

____________

(a)	Amounts exclude NGPL PipeCo LLC earnings prior to the sale of our 80% interest on February 15, 2008.

For information on regulatory matters affecting certain of our equity investments, see Note 17.

As of December 31, 2010 and 2009, our investment amounts also included bond investments totaling $8.2 million and $13.2 million, respectively. These bond investments consisted of certain tax exempt, fixed-income development revenue bonds KMP acquired in the fourth quarter of 2008. Because KMP has both the ability and the intent to hold these debt securities to maturity, we account for these investments at historical cost. KMP acquired its bond investments by issuing notes under the Gulf Opportunity Zone Act of 2005, which are further discussed in Note 8 “Debt—Long-Term Debt—KMP’s Subsidiary Debt—Gulf Opportunity Zone Bonds.”

7. Goodwill and Other Intangibles

Goodwill and Excess Investment Cost

Changes in the gross amounts of our goodwill and accumulated impairment losses for each of the two years ended December 31, 2010 and 2009 are summarized as follows (in millions):

	Products Pipelines– KMP			Natural Gas Pipelines– KMP			CO2—KMP		Terminals– KMP			Kinder Morgan Canada– KMP			Total
Historical Goodwill	$	2,116.5		$	3,439.4		$	1,521.7	$	1,450.8		$	580.7		$	9,109.1
Accumulated impairment losses.		(1,266.5	)		(2,090.2	)		-		(676.6	)		(377.1	)		(4,410.4	)
Balance as of December 31, 2008		850.0			1,349.2			1,521.7		774.2			203.6			4,698.7
Acquisitions and purchase price adjustment		-			48.6			-		(35.4	)		-			13.2
Currency translation adjustments		-			-			-		-			32.4			32.4
Balance as of December 31, 2009		850.0			1,397.8			1,521.7		738.8			236.0			4,744.3
Acquisitions		-			-			-		73.2			-			73.2
Currency translation adjustments		-			-			-		-			13.4			13.4
Balance as of December 31, 2010	$	850.0		$	1,397.8		$	1,521.7	$	812.0		$	249.4		$	4,830.9

For more information on our accounting policies for goodwill, see Note 2 “Summary of Significant Accounting Policies—Goodwill.”

We record the excess of the cost of an acquisition price over the fair value of acquired net assets as an asset on our balance sheet. This amount is referred to and reported separately as “Goodwill” in our accompanying consolidated balance sheets. Goodwill is not subject to amortization but must be tested for impairment at least annually. This test

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requires us to assign goodwill to an appropriate reporting unit and to determine if the implied fair value of the reporting unit’s goodwill is less than its carrying amount.

We evaluate goodwill for impairment on May 31 of each year. For this purpose, we have six reporting units as follows: (i) Products Pipelines—KMP (excluding associated terminals); (ii) Products Pipelines Terminals—KMP (evaluated separately from Products Pipelines—KMP for goodwill purposes); (iii) Natural Gas Pipelines—KMP; (iv) CO2—KMP; (v) Terminals—KMP and (vi) Kinder Morgan Canada—KMP. There were no impairment charges resulting from our May 31, 2010 impairment testing, and no event indicating an impairment has occurred subsequent to that date.

In the second quarter of 2008, we finalized the purchase price allocation associated with our May 2007 Going Private Transaction, establishing the fair values of our individual assets and liabilities including assigning the associated goodwill to our six reporting units, in each case as of the May 31, 2007 acquisition date. A significant portion of the goodwill that arose in conjunction with this acquisition was determined to be associated with the general partner and significant limited partner interests in KMP (a publicly traded master limited partnership, or “MLP), attributable, in part, to the difference between the market multiples that might be paid to acquire the general partner and limited interests in an MLP and the market multiples that might be paid to acquire the individual assets that comprise tha t MLP. This market premium is partially attributable to the incentive distribution right that is embedded in the KMP general partner interest for which a separate intangible asset was not recognized in purchase accounting because this right cannot be detached or transferred apart from the entire general partner interest.

In conjunction with our first annual impairment test of the carrying value of this goodwill, performed as of May 31, 2008, we determined that the fair value of certain reporting units that are part of our investment in KMP were less than the carrying values. The fair value of each reporting unit was determined from the present value of the expected future cash flows from the applicable reporting unit (inclusive of a terminal value calculated using market multiples between six and ten times cash flows) discounted at a rate of 9.0%. The value of each reporting unit was determined on a stand-alone basis from the perspective of a market participant and represented the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Thus, any value ge nerated from the inclusion of these assets in an MLP structure was not captured in the valuation of these reporting units. This resulted in several of the reporting units having fair values less than their carrying values as the incremental value created by the inclusion of these assets in an MLP structure was taken into account in the Going Private Transaction and thus was used in allocating the purchase price. To capture this value at the reporting unit level, we believe it would be necessary to recreate the MLP structure at the reporting unit level. We believe this is not feasible for Kinder Morgan, Inc. or for any market participant, as further discussed below.

Recreating such structure would involve separating each of our reporting units into separate entities so that each reporting unit could be valued on a stand alone basis assuming each such unit was sold as an MLP. Creating separate MLPs would involve significant structural difficulties including potentially numerous adverse state and federal tax consequences to KMP and its unitholders. In addition, it would involve a significant amount of tax, legal and commercial analysis, and based on that analysis may also require customer and/or joint venture consents, lender consents, and regulatory approvals and/or unitholder approval. As a result of these factors, we believe that it is not feasible to apply the MLP structure related value to the individual reporting unit level.

For the reporting units where the fair value was determined to be less than the carrying value, we determined the implied fair value of goodwill. The implied fair value of goodwill within each reporting unit was then compared to the carrying value of goodwill of each such unit, resulting in the following goodwill impairment charges by reporting units: Products Pipelines—KMP (excluding associated terminals) – $1.20 billion, Products Pipelines Terminals—KMP (separate from Products Pipelines—KMP for goodwill impairment purposes) - $70 million, Natural Gas Pipelines—KMP – $2.09 billion, and Terminals—KMP – $677 million, for a total impairment of $4.03 billion. The goodwill impairment charges were non-cash charges and did not have any impact on our cash flows.

With regard to our equity investments in unconsolidated affiliates, in almost all cases, either (i) the price we paid to acquire our share of the net assets of such equity investees or (ii) the revaluation of our share of the net assets of any retained noncontrolling equity investment (from the sale of a portion of our ownership interest in a consolidating subsidiary, thereby losing our controlling financial interest in the subsidiary) differed from the underlying carrying value of such net assets. This differential consists of two pieces. First, an amount related to the difference between the investee’s recognized net assets at book value and at current fair values (representing the appreciated value in plant and other net assets), and secondly, to any premium in excess of fair value (re ferred to as equity method goodwill) we paid to acquire the investment. We include both amounts within “Investments” on our accompanying consolidated balance sheets.

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The first differential, representing the excess of the fair market value of our investees’ plant and other net assets over its underlying book value at either the date of acquisition or the date of the loss of control totaled $166.0 million and $163.2 million as of December 31, 2010 and 2009, respectively. In almost all instances, this differential, relating to the discrepancy between our share of the investee’s recognized net assets at book values and at current fair values, represents our share of undervalued depreciable assets, and since those assets (other than land) are subject to depreciation, we amortize this portion of our investment cost against our share of investee earnings. As of December 31, 2010 this excess investment cost is being amortized over a weighted average lif e of approximately 27.6 years.

The second differential, representing total unamortized excess cost over underlying fair value of net assets acquired (equity method goodwill) was $283.0 million and $138.2 million as of December 31, 2010 and 2009, respectively. This differential is not subject to amortization but rather to impairment testing. Accordingly, in addition to our annual impairment test of goodwill, we periodically reevaluate the amount at which we carry the excess of cost over fair value of net assets accounted for under the equity method, as well as the amortization period for such assets, to determine whether current events or circumstances warrant adjustments to our carrying value and/or revised estimates of useful lives. Our impairment test considers whether the fair value of the equity investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. As of December 31, 2010, we believed no such impairment had occurred and no reduction in estimated useful lives was warranted.

Other Intangibles

Excluding goodwill, our other intangible assets include customer relationships, contracts and agreements, technology-based assets, and lease value. These intangible assets have definite lives and are reported separately as “Other intangibles, net” in our accompanying consolidated balance sheets. Following is information, as of December 31, 2010 and 2009, related to our intangible assets subject to amortization (in millions):

	December 31,
	2010			2009
Customer relationships, contracts and agreements
Gross carrying amount	$	424.7		$	297.9
Accumulated amortization		(99.9	)		(50.9	)
Net carrying amount		324.8			247.0

Technology-based assets, lease value and other
Gross carrying amount		16.3			14.1
Accumulated amortization		(1.9	)		(1.3	)
Net carrying amount		14.4			12.8

Total other intangibles, net	$	339.2		$	259.8

Our customer relationships, contracts and agreements relate primarily to the Terminals—KMP business segment, and include relationships and contracts for handling and storage of petroleum, chemical, and dry-bulk materials, including oil, gasoline and other refined petroleum products, coal, petroleum coke, fertilizer, steel and ores. The values of these intangible assets were determined by us (often in conjunction with third party valuation specialists) by first, estimating the revenues derived from a customer relationship or contract (offset by the cost and expenses of supporting assets to fulfill the contract), and second, discounting the revenues at a risk adjusted discount rate. The increase in the carrying amount of our customer relationships, contracts and agreements since December 31, 2009 was mainly due to the acquisition of intangibles included in our purchase of terminal assets from US Development Group LLC and Slay Industries, discussed in Note 3.

We amortize the costs of our intangible assets to expense in a systematic and rational manner over their estimated useful lives. Among the factors we weigh, depending on the nature of the asset, are the effect of obsolescence, new technology, and competition. For each of the years ended December 31, 2010, 2009 and 2008, the amortization expense on our intangibles totaled $49.6 million, $21.1 million and $19.2 million, respectively. These expense amounts primarily consisted of amortization of our customer relationships, contracts and agreements. Our estimated amortization expense for our intangible assets for each of the next five fiscal years (2011 – 2015) is approximately $43.6 million, $38.2 million, $34.3 million, $30.9 million and $28.0 million, respectively.

The life of each intangible asset is based either on the life of the corresponding customer contract or agreement or, in the case of a customer relationship intangible (the life of which was determined by an analysis of all available data on that

159

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

business relationship), the length of time used in the discounted cash flow analysis to determine the value of the customer relationship. As of December 31, 2010, the weighted average amortization period for our intangible assets was approximately 11.6 years.

8. Debt

Our balances of debt are classified based on the contractual maturity dates of the underlying debt instruments. We defer costs associated with debt issuance over the applicable term. These costs are then amortized as interest expense in our accompanying consolidated statements of income. The net carrying amount of Kinder Morgan Kansas, Inc.’s debt (including both short-term and long-term amounts and excluding the value of interest rate swap agreements) as of December 31, 2010 and 2009 was $3,623.8 million (including the $750.0 million of 5.35% Kinder Morgan Finance Company, LLC’s senior notes paid on January 5, 2011) and $3,044.3 million, respectively. The weighted average interest rate on all of Kinder Morgan Kansas, Inc. and its subsidiaries’ (excluding KMP and it s subsidiaries’) borrowings was approximately 5.01% during 2010 and 5.45% during 2009. Our net carrying amount of KMP’s debt (including both short-term and long-term amounts and excluding the value of interest rate swap agreements) as of December 31, 2010 and 2009 was $11,546.1 million and $10,604.1 million, respectively. The weighted average interest rate on all of KMP’s borrowings was approximately 4.35% during 2010 and 4.57% during 2009.

Short-Term Debt

Kinder Morgan Kansas, Inc.’s outstanding short-term debt as of December 31, 2010 was $750.0 million, which consisted of its 5.35% series senior notes that matured on January 5, 2011. KMP’s outstanding short-term debt as of December 31, 2010 was $1,263.3 million. The balance consisted of (i) $700.0 million in principal amount of KMP’s 6.75% senior notes due March 15, 2011 (including purchase accounting adjustments, the notes had a carrying amount of $700.9 million); (ii) $522.1 million of KMP’s commercial paper borrowings; (iii) $23.7 million in principal amount of tax-exempt bonds that mature on April 1, 2024, but are due on demand pursuant to certain standby purchase agreement provisions contained in the bond indenture (KMP’s subsidiary Kinder Morgan Operating L.P. “B” is t he obligor on the bonds); (iv) a $9.4 million portion of a 5.40% long-term note payable (KMP’s subsidiaries Kinder Morgan Operating L.P. “A” and Kinder Morgan Canada Company are the obligors on the note) and (v) a $7.2 million portion of 5.23% long-term senior notes (KMP’s subsidiary Kinder Morgan Texas Pipeline, L.P. is the obligor on the notes).

Kinder Morgan Kansas, Inc.’s outstanding short-term debt as of December 31, 2009 was $172.1 million. The balance consisted of (i) $171.0 million in outstanding borrowings under Kinder Morgan Kansas, Inc.’s senior secured credit facility and (ii) $1.1 million remaining portion of Kinder Morgan Kansas, Inc.’s 6.50% series debentures, due September 1, 2013. KMP’s outstanding short-term debt as of December 31, 2010 was $596.6 million. The balance consisted of (i) $300.0 million in outstanding borrowings under KMP’s bank credit facility discussed following; (ii) $250.0 million in principal amount of KMP’s 7.50% senior notes that matured on November 1, 2010 (including unamortized discounts and purchase accounting adjustments, the notes had a carrying amount of $251.9 million); (iii) $23.7 million in principal amount of tax-exempt bonds due from KMP’s subsidiary Kinder Morgan Operating L.P. “B;” (iv) an $8.9 million portion of the 5.40% long-term note payable due from KMP’s subsidiaries Kinder Morgan Operating L.P. “A” and Kinder Morgan Canada Company; (v) a $6.8 million portion of the 5.23% senior notes due from KMP’s subsidiary Kinder Morgan Texas Pipeline, L.P. and (vi) $5.3 million in principal amount of adjustable rate industrial development revenue bonds that matured on January 1, 2010 (the bonds were issued by the Illinois Development Finance Authority and KMP’s subsidiary Arrow Terminals L.P. was the obligor on the bonds).

Credit Facilities

	As of December 31, 2010
	Short-term Notes Payable		Weighted- Average Interest Rate
	(In millions)
Kinder Morgan Kansas, Inc. – Secured debt(a)	$	-		-	%
KMP – Unsecured debt(b)	$	522.1		0.67	%

____________

(a)	The average short-term debt outstanding (and related weighted-average interest rate) was $203.0 million (1.74%) during the year ended December 31, 2010.
(b)	The average short-term debt outstanding (and related weighted-average interest rate) was $542.1 million (0.77%) during the year ended December 31, 2010.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Kinder Morgan Kansas, Inc.’s $1.0 billion six-year senior secured revolving credit facility matures on May 30, 2013 and includes a sublimit of $300 million for the issuance of letters of credit and a sublimit of $50 million for swingline loans. Kinder Morgan Kansas, Inc. does not have a commercial paper program. As of December 31, 2009, there were $171.0 million in borrowings outstanding under Kinder Morgan Kansas, Inc.’s credit facility and the weighted average interest on these borrowings was 1.61%.

As of December 31, 2010, the amount available for borrowing under Kinder Morgan Kansas, Inc.’s credit facility was reduced by $40.6 million consisting of four letters of credit required under provisions of Kinder Morgan Kansas, Inc.’s property and casualty, workers’ compensation and general liability insurance policies.

The applicable margin for the revolving credit facility is subject to change pursuant to a leverage-based pricing grid. In addition, the credit agreement provides for customary commitment fees and letter of credit fees under the revolving credit facility. The credit agreement contains customary terms and conditions and is unconditionally guaranteed by each of Kinder Morgan Kansas, Inc.’s wholly owned material domestic restricted subsidiaries, to the extent permitted by applicable law and contract. Voluntary prepayments can be made at any time on revolving credit loans and swingline loans, in each case without premium or penalty, and on LIBOR Loans (as defined in the credit agreement) on the interest payment date without premium or penalty.

Kinder Morgan Kansas, Inc.’s credit facility included the following restrictive covenants as of December 31, 2010:

▪

total debt divided by earnings before interest, income taxes, depreciation and amortization may not exceed 6.00: 1.00;

▪

certain limitations on indebtedness, including payments and amendments;

▪

certain limitations on entering into mergers, consolidations, sales of assets and investments;

▪

limitations on granting liens; and

▪

prohibitions on making any dividend to shareholders if an event of default exists or would exist upon making such dividend.

On June 23, 2010, KMP successfully renegotiated its previous $1.79 billion five-year unsecured revolving bank credit facility that was due August 18, 2010, replacing it with a new $2.0 billion three-year, senior unsecured revolving credit facility that expires June 23, 2013. Similar to its previous facility, KMP’s $2.0 billion credit facility is with a syndicate of financial institutions, and the facility permits KMP to obtain bids for fixed rate loans from members of the lending syndicate. Wells Fargo Bank, National Association is the administrative agent, and borrowings under the credit facility can be used for general partnership purposes and as a backup for KMP’s commercial paper program. KMP had no borrowings under the credit facility as of December 31, 2010. As of December 31, 2009, the outstanding balance under its previous $1.79 billion credit facility was $300.0 million, and the weighted average interest rate on these borrowings was 0.59%.

The covenants of this senior unsecured revolving credit facility are substantially similar to the covenants of KMP’s previous facility; however, the interest rates for borrowing under this facility have increased from its previous facility. Interest on KMP’s credit facility accrues at its option at a floating rate equal to either (i) the administrative agent’s base rate (but not less than the Federal Funds Rate, plus 0.5%) or (ii) LIBOR, plus a margin, which varies depending upon the credit rating of its long-term senior unsecured debt. The credit facility can be amended to allow for borrowings of up to $2.3 billion.

As of December 31, 2010, the amount available for borrowing under KMP’s credit facility was reduced by a combined amount of $758.9 million, consisting of $522.1 million of commercial paper borrowings and $236.8 million of letters of credit, consisting of: (i) a $100.0 million letter of credit that supports certain proceedings with the California Public Utilities Commission involving refined products tariff charges on the intrastate common carrier operations of KMP’s Pacific operations’ pipelines in the state of California; (ii) a combined $87.9 million in three letters of credit that support tax-exempt bonds; (iii) a $16.2 million letter of credit that supports debt securities issued by the Express pipeline system; (iv) a $16.1 million letter of credit that supports KMP’s indemnification obli gations on the Series D note borrowings of Cortez Capital Corporation and (v) a combined $16.6 million in other letters of credit supporting other obligations of KMP and its subsidiaries.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Additionally, KMP’s $2.0 billion credit facility included the following restrictive covenants as of December 31, 2010:

▪

total debt divided by earnings before interest, income taxes, depreciation and amortization for the preceding four quarters may not exceed:

▪

5.5, in the case of any such period ended on the last day of (i) a fiscal quarter in which KMP makes any Specified Acquisition (as defined in the credit facility) or (ii) the first or second fiscal quarter next succeeding such a fiscal quarter; or

▪

5.0, in the case of any such period ended on the last day of any other fiscal quarter;

▪

certain limitations on entering into mergers, consolidations and sales of assets;

▪

limitations on granting liens; and

▪

prohibitions on making any distribution to holders of units if an event of default exists or would exist upon making such distribution.

In addition to normal repayment covenants, under the terms of KMP’s credit facility, the occurrence at any time of any of the following would constitute an event of default: (i) KMP’s failure to make required payments of any item of indebtedness or any payment in respect of any hedging agreement, provided that the aggregate outstanding principal amount for all such indebtedness or payment obligations in respect of all hedging agreements is equal to or exceeds $75 million; (ii) KMP’s general partner’s failure to make required payments of any item of indebtedness, provided that the aggregate outstanding principal amount for all such indebtedness is equal to or exceeds $75 million; (iii) adverse judgments rendered against KMP for the payment of money in an aggregate amount in excess of $75 milli on, if this same amount remains undischarged for a period of thirty consecutive days during which execution shall not be effectively stayed and (iv) voluntary or involuntary commencements of any proceedings or petitions seeking KMP’s liquidation, reorganization or any other similar relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law.

Other than the relatively non-restrictive negative covenants and events of default in KMP’s credit facility, there are no provisions protecting against a situation where KMP is unable to terminate an agreement with a counterparty who is facing an impending financial collapse, and such collapse may be hastened due to cross-defaults. Also, KMP’s credit facility does not contain a material adverse change clause coupled with a lockbox provision; however, the facility does provide that the margin KMP will pay with respect to borrowings, and the facility fee that it will pay on the total commitment, will vary based on its senior debt credit rating. None of KMP’s debt is subject to payment acceleration as a result of any change to its credit ratings.

Commercial Paper Program

KMP’s commercial paper program provides for the issuance of $2 billion of commercial paper. On October 13, 2008, Standard & Poor’s Ratings Services lowered KMP’s short-term credit rating to A-3 from A-2, and on May 6, 2009, Moody’s Investors Service, Inc. downgraded KMP’s commercial paper rating to Prime-3 from Prime-2 and assigned a negative outlook to KMP’s long-term credit rating. As a result of these revisions and the commercial paper market conditions, KMP was unable to access commercial paper borrowings throughout 2009.

However, on February 25, 2010, Standard & Poor’s revised its outlook on KMP’s long-term credit rating to stable from negative, affirmed KMP’s long-term credit rating at BBB, and raised KMP’s short-term credit rating to A-2 from A-3. The rating agency’s revisions reflected its expectations that KMP’s financial profile will improve due to lower guaranteed debt obligations and higher expected cash flows associated with the completion and start-up of KMP’s 50%-owned Rockies Express and Midcontinent Express natural gas pipeline systems and its fully-owned Kinder Morgan Louisiana natural gas pipeline system. Due to this favorable change in KMP’s short-term credit rating it resumed issuing commercial paper in March 2010. In the near term, KMP expects that its s hort-term liquidity and financing needs will be met through a combination of borrowings made under its bank credit facility and commercial paper program.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Long-Term Debt

Kinder Morgan Kansas, Inc.’s long-term debt balance, excluding the value of interest rate swaps, at December 31, 2010 and 2009 was $2,873.8 million and $2,872.2 million, respectively. KMP’s long-term debt balance, excluding the value of interest rate swaps, at December 31, 2010 and 2009 was $10,282.8 million and $10,007.5 million, respectively. The balances consisted of the following (in millions).

	December 31,
	2010			2009
Kinder Morgan Kansas, Inc.
Debentures
6.50% series, due September 1, 2013	$	-		$	1.1
6.67% series, due November 1, 2027		7.0			7.0
7.25% series, due March 1, 2028		32.0			32.0
7.45% series, due March 1, 2098		25.9			25.9
Senior Notes
6.50% series, due September 1, 2012		841.8			844.1
5.15% series, due March 1, 2015		238.0			235.6
Deferrable Interest Debentures Issued to Subsidiary Trusts
8.56% junior subordinated deferrable interest debentures due April 15, 2027(a)		-			15.8
7.63% junior subordinated deferrable interest debentures due April 15, 2028(a)		-			19.9
Bank credit facility borrowings		-			171.0
Kinder Morgan Finance Company, LLC
5.35% series, due January 5, 2011		750.0			745.9
5.70% series, due January 5, 2016		817.0			811.6
6.00% series, due January 15, 2018		750.0			-
6.40% series, due January 5, 2036		35.1			34.4
Subsidiary Trusts
Preferred Capital Trust Securities
8.56% K N Capital Trust I due April 15, 2027(a)		12.7			-
7.63% K N Capital Trust III due April 15, 2028(a)		14.4			-
Kinder Morgan G.P., Inc.
$1,000 Liquidation Value Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock		100.0			100.0
Unamortized Debt Discount on Long-term Debt		(0.1	)		-
Current Maturities of Long-term Debt		(750.0	)		(172.1	)
Total Long-term Debt – Kinder Morgan Kansas, Inc.	$	2,873.8		$	2,872.2

Kinder Morgan Energy Partners, L.P. borrowings
7.50% senior notes due November 1, 2010	$	-		$	251.8
6.75% senior notes due March 15, 2011		700.9			704.3
7.125% senior notes due March 15, 2012		453.6			456.2
5.85% senior notes due September 15, 2012		500.0			500.0
5.00% senior notes due December 15, 2013		494.5			492.8
5.125% senior notes due November 15, 2014		493.1			491.7
5.625% senior notes due February 15, 2015		300.0			300.0
6.00% senior notes due February 1, 2017		598.2			598.0
5.95% senior notes due February 15, 2018		975.0			975.0
9.00% senior notes due February 1, 2019(b)		500.0			500.0
6.85% senior notes due February 15, 2020		700.0			700.0
5.30% senior notes due September 15, 2020		600.0			-
5.80% senior notes due March 1, 2021		400.0			400.0
7.40% senior notes due March 15, 2031		309.9			310.1
7.75% senior notes due March 15, 2032		315.8			316.1
7.30% senior notes due August 15, 2033		513.4			513.7
5.80% senior notes due March 15, 2035		478.0			477.7
6.50% senior notes due February 1, 2037		395.9			395.8
6.95% senior notes due January 15, 2038		1,175.0			1,175.0
6.50% senior notes due September 1, 2039		600.0			600.0
6.55% senior notes due September 15, 2040		400.0			-
Bank credit facility borrowings		522.1			300.0
Subsidiary borrowings:
Arrow Terminals L.P.-IL Development Revenue Bonds due January 1, 2010		-			5.3
Kinder Morgan Louisiana Pipeline LLC-6.0% LA Development Revenue note due January 1, 2011		-			5.0
Kinder Morgan Operating L.P. “A”-5.40% BP note, due March 31, 2012		10.2			14.9
Kinder Morgan Canada Company-5.40% BP note, due March 31, 2012		9.0			13.2
Kinder Morgan Texas Pipeline, L.P.-5.23% Senior Notes, due January 2, 2014		23.6			30.5

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Kinder Morgan Liquids Terminals LLC-N.J. Development Revenue Bonds due January 15, 2018		25.0			25.0
Kinder Morgan Columbus LLC-5.50% MS Development Revenue note due September 1, 2022		8.2			8.2
Kinder Morgan Operating L.P. “B”-Jackson-Union Cos. IL Revenue Bonds due April 1, 2024		23.7			23.7
International Marine Terminals-Plaquemines, LA Revenue Bonds due March 15, 2025		40.0			40.0
Other miscellaneous subsidiary debt		1.3			1.3
Unamortized Debt Discount on Long-term Debt		(20.3	)		(21.2	)
Current Maturities of Long-term Debt		(1,263.3	)		(596.6	)
Total Long-term Debt – KMP	$	10,282.8		$	10,007.5

____________

(a)

As a result of the implementation of ASU 2009-17, effective January 1, 2010, we (i) include the transactions and balances of our business trust, K N Capital Trust I and K N Capital Trust III, in our consolidated financial statements and (ii) no longer include our Junior Subordinated Deferrable Interest Debentures issued to the Capital Trusts (see Note 18 “Recent Accounting Pronouncements”).

(b)

KMP issued its $500 million in principal amount of 9.00% senior notes due February 1, 2019 in December 2008. Each holder of the notes has the right to require KMP to repurchase all or a portion of the notes owned by such holder on February 1, 2012 at a purchase price equal to 100% of the principal amount of the notes tendered by the holder plus accrued and unpaid interest to, but excluding, the repurchase date. On and after February 1, 2012, interest will cease to accrue on the notes tendered for repayment. A holder’s exercise of the repurchase option is irrevocable.

Kinder Morgan Kansas, Inc.

The 2028 and 2098 debentures and the 2012 and 2015 senior notes are redeemable in whole or in part, at Kinder Morgan Kansas, Inc.’s option at any time, at redemption prices defined in the associated prospectus supplements. The 2027 debentures are redeemable in whole or in part, at Kinder Morgan Kansas, Inc.’s option after November 1, 2004 at redemption prices defined in the associated prospectus supplements.

On September 2, 2010, Kinder Morgan Kansas, Inc. paid the remaining $1.1 million principal balance outstanding on Kinder Morgan Kansas, Inc.’s 6.50% series debentures, due 2013.

Kinder Morgan Finance Company, LLC

On December 20, 2010, Kinder Morgan Finance Company, LLC, a wholly owned subsidiary of Kinder Morgan Kansas, Inc., completed a public offering of senior notes. It issued a total of $750 million in principal amount of 6.00% senior notes due January 15, 2018. Net proceeds received from the issuance of the notes, after underwriting discounts and commissions, were $744.2 million, which were used to retire the principal amount of the 5.35% senior notes that matured on January 5, 2011.

The 2011, 2016, 2018 and 2036 senior notes issued by Kinder Morgan Finance Company, LLC are redeemable in whole or in part, at Kinder Morgan Kansas, Inc.’s option at any time, at redemption prices defined in the associated prospectus supplements. Each series of these notes is fully and unconditionally guaranteed by Kinder Morgan Kansas, Inc. on a senior unsecured basis as to principal, interest and any additional amounts required to be paid as a result of any withholding or deduction for Canadian taxes.

Capital Trust Securities

Kinder Morgan Kansas, Inc.’s business trusts, K N Capital Trust I and K N Capital Trust III, are obligated for $12.7 million of 8.56% Capital Trust Securities maturing on April 15, 2027 and $14.4 million of 7.63% Capital Trust Securities maturing on April 15, 2028, respectively, which it guarantees. The 2028 Securities are redeemable in whole or in part, at Kinder Morgan Kansas, Inc.’s option at any time, at redemption prices as defined in the associated prospectus. The 2027 Securities are redeemable in whole or in part at Kinder Morgan Kansas, Inc.’s option and at any time in certain limited circumstances upon the occurrence of certain events and at prices, all defined in the associated prospectus supplements. Upon redemption by Kinder Morgan Kansas, Inc. or at maturity of the Junior Subordinated Deferrable Interest Debentures, it must use the proceeds to make redemptions of the Capital Trust Securities on a pro rata basis.

164

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KMP

All of KMP’s fixed rate senior notes provide that it may redeem the notes at any time at a price equal to 100% of the principal amount of the notes plus accrued interest to the redemption date plus a make-whole premium.

On May 19, 2010, KMP completed a public offering of senior notes. KMP issued a total of $1 billion in principal amount of senior notes in two separate series, consisting of $600 million of 5.30% notes due September 15, 2020, and $400 million of 6.55% notes due September 15, 2040. KMP received proceeds from the issuance of the notes, after underwriting discounts and commissions, of $993.1 million and KMP used the proceeds to reduce the borrowings under its commercial paper program and its bank credit facility.

In addition, on November 1, 2010, KMP paid $250 million to retire the principal amount of its 7.50% senior notes that matured on that date. KMP borrowed the necessary funds under its commercial paper program.

During 2009, KMP completed two separate public offerings of senior notes. With regard to these offerings, KMP received proceeds, net of underwriting discounts and commissions, as follows: (i) $993.3 million from a May 14, 2009 public offering of a total of $1 billion in principal amount of senior notes, consisting of $300 million of 5.625% notes due February 15, 2015, and $700 million of 6.85% notes due February 15, 2020 and (ii) $987.4 million from a September 16, 2009 public offering of a total of $1 billion in principal amount of senior notes, consisting of $400 million of 5.80% notes due March 1, 2021 and $600 million of 6.50% notes due September 1, 2039. KMP used the proceeds from all of its 2009 debt offerings to reduce borrowings under its bank credit facility.

In addition, on February 1, 2009, KMP paid $250 million to retire the principal amount of its 6.30% senior notes that matured on that date. KMP borrowed the necessary funds under its bank credit facility.

Interest Rate Swaps

Information on our interest rate swaps is contained in Note 13 “Risk Management—Interest Rate Risk Management.”

KMP’s Subsidiary Debt

KMP’s subsidiaries are obligors on the following debt. The agreements governing these obligations contain various affirmative and negative covenants and events of default. KMP does not believe that these provisions will materially affect distributions to its partners.

Arrow Terminals L.P. Debt

On January 1, 2010, KMP’s subsidiary Arrow Terminals L.P. paid the $5.3 million outstanding principal amount of its Adjustable Rate Industrial Development Revenue Bonds issued by the Illinois Development Finance Authority that matured on that date, and following its repayment, Arrow Terminals L.P. had no outstanding debt.

Kinder Morgan Operating L.P. “A” Debt

Effective January 1, 2007, KMP acquired the remaining approximately 50.2% interest in the Cochin pipeline system that it did not already own. As part of the purchase price consideration, two of KMP’s subsidiaries issued a long-term note payable to the seller having a fair value of $42.3 million. KMP valued the debt equal to the present value of amounts to be paid, determined using an annual interest rate of 5.40%. KMP’s subsidiaries Kinder Morgan Operating L.P. “A” and Kinder Morgan Canada Company are the obligors on the note, and the principal amount of the note, along with interest, is due in five annual installments of $10.0 million beginning March 31, 2008. The third installment was paid on March 31, 2010, and as of December 31, 2010, the net pr esent value of the note (representing the outstanding balance included as debt on our accompanying consolidated balance sheet) was $19.2 million. As of December 31, 2009, the net present value of the note was $28.1 million.

Kinder Morgan Texas Pipeline, L.P. Debt

KMP’s subsidiary, Kinder Morgan Texas Pipeline, L.P. is the obligor on a series of unsecured senior notes, which were assumed on August 1, 2005 when it acquired a natural gas storage facility located in Liberty County, Texas from a third party. The notes have a fixed annual stated interest rate of 8.85%; however, it valued the debt equal to the present value of amounts to be paid determined using an approximate interest rate of 5.23%. The assumed principal amount, along with interest, is due in monthly installments of approximately $0.7 million, and the final payment is due January 2, 2014. During 2010, KMP paid a combined principal amount of $6.9 million, and as of December 31, 2010 and 2009

165

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Kinder Morgan Texas Pipeline L.P.’s outstanding balance under the senior notes was $23.6 million and $30.5 million, respectively. Additionally, the unsecured senior notes may be prepaid at any time in amounts of at least $1.0 million and at a price equal to the higher of par value or the present value of the remaining scheduled payments of principal and interest on the portion being prepaid.

Kinder Morgan Liquids Terminals LLC Debt

KMP’s subsidiary, Kinder Morgan Liquids Terminals LLC is the obligor on $25.0 million of Economic Development Revenue Refunding Bonds issued by the New Jersey Economic Development Authority. These bonds have a maturity date of January 15, 2018. Interest on these bonds is computed on the basis of a year of 365 or 366 days, as applicable, for the actual number of days elapsed during Commercial Paper, Daily or Weekly Rate Periods and on the basis of a 360-day year consisting of twelve 30-day months during a Term Rate Period. As of December 31, 2010, the interest rate was 0.29%. KMP has an outstanding letter of credit issued by Citibank in the amount of $25.4 million that backs-up the $25.0 million principal amount of the bonds and $0.4 million of interest on the bonds f or up to 46 days computed at 12% on a per annum basis on the principal thereof.

Kinder Morgan Operating L.P. “B” Debt

KMP’s subsidiary Kinder Morgan Operating L.P. “B” is the obligor of a principal amount of $23.7 million of tax-exempt bonds due April 1, 2024. The bonds were issued by the Jackson-Union Counties Regional Port District, a political subdivision embracing the territories of Jackson County and Union County in the state of Illinois. These variable rate demand bonds bear interest at a weekly floating market rate and are backed-up by a letter of credit issued by Wells Fargo.

The bond indenture also contains certain standby purchase agreement provisions which allow investors to put (sell) back their bonds at par plus accrued interest. As of December 31, 2010, the interest rate on these bonds was 0.38%. KMP’s outstanding letter of credit issued by Wells Fargo totaled $24.1 million, which backs-up a principal amount of $23.7 million and $0.4 million of interest on the bonds for up to 55 days computed at 12% per annum on the principal amount thereof.

International Marine Terminals Debt

KMP owns a 66 2/3% interest in the International Marine Terminals (IMT) partnership. The principal assets owned by IMT are dock and wharf facilities financed by the Plaquemines Port, Harbor and Terminal District (Louisiana) $40.0 million Adjustable Rate Annual Tender Port Facilities Revenue Refunding Bonds (International Marine Terminals Project) Series 1984A and 1984B. As of December 31, 2010, the interest rate on these bonds was 1.20%.

On March 15, 2005, these bonds were refunded and the maturity date was extended from March 15, 2006 to March 15, 2025. No other changes were made under the bond provisions. The bonds are backed by two letters of credit issued by Wells Fargo. On March 19, 2002, an Amended and Restated Letter of Credit Reimbursement Agreement relating to the letters of credit in the amount of $45.5 million was entered into by IMT and KBC Bank. In connection with that agreement, KMP agreed to guarantee the obligations of IMT in proportion to its ownership interest. KMP’s obligation is approximately $30.3 million for principal, plus interest and other fees.

Gulf Opportunity Zone Bonds

To help fund its business growth in the states of Mississippi and Louisiana, KMP completed the purchase of a combined $13.2 million in principal amount of tax exempt revenue bonds in two separate transactions in December 2008. To acquire its investment, two of KMP’s subsidiaries issued notes with identical terms under the Gulf Opportunity Zone Act of 2005. The notes consisted of the following: (i) $8.2 million in principal amount of 5.5% Development Revenue Bonds issued by the Mississippi Business Finance Corporation (MBFC), a public, non-profit corporation that coordinates a variety of resources used to assist business and industry in the state of Mississippi and (ii) $5.0 million in principal amount of 6.0% Development Revenue Bonds issued by the Louisiana Community Development Authorit y (LCDA), a political subdivision of the state of Louisiana.

The Mississippi revenue bonds mature on September 1, 2022, and both principal and interest is due in full at maturity. KMP holds an option to redeem in full (and settle the note payable to MBFC) the principal amount of bonds it holds without penalty after one year. KMP redeemed the Louisiana revenue bonds in December 2010 (by settling its $5.0 million note payable to LCDA), and it replaced this investment with a new investment of $100.0 million in principal amount of Development Revenue Bonds that mature on December 1, 2040 and pay interest at a rate equal to one-month

166

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

LIBOR plus 1.75%. KMP paid for this investment by issuing a $100.0 million note payable to LCDA with identical terms, and for this bond issuance, KMP elected to offset its borrowing against the investment it acquired.

Kinder Morgan G.P., Inc. Preferred Shares

As of December 31, 2010, Kinder Morgan G.P., Inc. had outstanding 100,000 shares of its $1,000 Liquidation Value Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock due 2057. Until August 18, 2012, dividends will accumulate, commencing on the issue date, at a fixed rate of 8.33% per annum and will be payable quarterly in arrears, when and if declared by Kinder Morgan G.P., Inc.’s Board of Directors, on February 18, May 18, August 18 and November 18 of each year, beginning November 18, 2007. After August 18, 2012, dividends on the preferred stock will accumulate at a floating rate of the 3-month LIBOR plus 3.8975% and will be payable quarterly in arrears, when and if declared by Kinder Morgan G.P., Inc.’s Board of Directors, on February 18, May 18, August 18 and November 18 of each year, beginning November 18, 2012. The preferred stock has approval rights over a commencement of or filing of voluntary bankruptcy by KMP or its SFPP, L.P. or Calnev Pipe Line LLC subsidiaries.

During 2010, $8.3 million in cash dividends, or $83.30 per share, was paid on Kinder Morgan G.P. Inc.’s Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock. On January 19, 2011, Kinder Morgan G.P., Inc.’s Board of Directors declared a quarterly cash dividend on its Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock of $20.825 per share that was paid on February 18, 2011 to shareholders of record as of January 31, 2011.

Maturities of Debt

The scheduled maturities of our outstanding debt balances, including purchase accounting adjustments and excluding the value of interest rate swaps, as of December 31, 2010, are summarized as follows (in millions):

Year	Kinder Morgan Kansas, Inc		KMP
2011	$	750.0	$	1,263.3
2012		841.8		1,470.7
2013		-		502.1
2014		-		493.7
2015		238.0		299.9
Thereafter		1,794.0		7,516.4
Total	$	3,623.8	$	11,546.1

Subsequent Events

On January 5, 2011, Kinder Morgan Finance Company, LLC, a wholly owned subsidiary of Kinder Morgan Kansas, Inc., paid $750.0 million to retire the principal amount of its 5.35% senior notes that matured on that date using proceeds from the December 2010 issuance of $750.0 million of its 6.00% senior notes due January 15, 2018.

In January 2011, KMP terminated a previously issued $55.0 million letter of credit issued by Deutsche Bank to support its pipeline and terminal operations in Canada. Specifically, this letter of credit supported the operations of the Kinder Morgan Canada—KMP business segment owned by its subsidiary KMEP Canada ULC. To replace this letter of credit, on January 6, 2011, KMP entered into a credit agreement with The Toronto-Dominion Bank that allows it to obtain the issuance of letters of credit up to a limit of C$70.0 million to support the Canadian operations. Each letter of credit issued pursuant to this credit agreement will expire one year after issuance or, in the case of any renewal or extension, one year after such renewal or extension. As of February 14, 2011, letters of c redit having a combined face amount of C$50.7 million have been issued pursuant to this credit agreement.

9. Share-based Compensation and Employee Benefits

Share-based Compensation

Kinder Morgan, Inc. (Formerly Kinder Morgan Holdco LLC)

We completed an initial public offering in February 2011 as discussed further in Note 10 “Members’ Equity—Subsequent Events—Initial Public Offering.” The following discussion of our equity interests is based on the classes of ownership interests outstanding as of December 31, 2010 and 2009.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Our limited liability company agreement created three classes of ownership interests or units: Class A units, Class A-1 Units and Class B Units. For further information, see Note 10 “Members’ Equity.” The Class A-1 Units were granted to certain members of management. The Class B units were granted to certain members of management as a replacement to previous incentive compensation programs. The granting of both the Class A-1 Units and the Class B Units are being accounted for as equity awards.

Class A-1 Units

Class A-1 Units entitled the holder to receive a distribution once certain other distribution criteria had been met. A total of 27,570,736 Class A-1 Units (including phantom Class A-1 Units) were authorized and outstanding as of December 31, 2010 and 2009, all of which were granted as of the close of the Going Private Transaction. Class A-1 Units may be purchased, under certain circumstances including a service condition, by KMI for no consideration for a period of four years from the date of issuance. As the A-1 units were equity interests in KMI, a private limited liability company at that time, a discounted cash flow analysis was prepared to determine a grant date fair value of these awards of $6.2 million. This grant date fair value is being amortized over the 4 year requisite service period. During each of the years ended December 31, 2010, 2009 and 2008, we recognized compensation expense with respect to such units, however, we have no obligation, nor do we expect to pay any amounts in respect of such units.

Class B Units

Class B Units entitled the holder to receive a distribution once certain other distribution criteria had been met. A total of 1,978,513,629 Class B Units (including phantom Class B Units) were granted as of the close of the Going Private Transaction or shortly thereafter. Class B Units were subject to time vesting where one third of each grant time vested or was to time vest, as applicable, on the third, fourth, and fifth anniversary of the date of issuance. As the Class B units were equity interests in KMI, a private limited liability company at that time, a discounted cash flow analysis was prepared to determine a grant date fair value of these awards of $23.0 million. This grant date fair value is being amortized over the 5 year requisite service period with one third of the total fair value being amortized over 3, 4 and 5 years, respectively. During the years ended December 31, 2010, 2009 and 2008, we amortized $4.5 million, $6.0 million and $6.0 million with respect to such units, however, we have no obligation, nor do we expect to pay any amounts in respect to such units. As of January 1, 2009, there were 1,977,524,373 Class B units outstanding. During 2009 there were 8,903,310 Class B units granted and 7,914,054 Class B units forfeited and as of December 31, 2009, 1,978,513,629 Class B units were outstanding. During 2010 there were no Class B units granted or forfeited and 1,978,513,629 were outstanding as of December 31, 2010.

Kinder Morgan Energy Partners, L.P.

KMP has two common unit-based compensation plans: The Directors’ Unit Appreciation Rights Plan and the Kinder Morgan Energy Partners, L.P. Common Unit Compensation Plan for Non-Employee Directors.

The Directors’ Unit Appreciation Rights Plan was established on April 1, 2003. Pursuant to this plan, and on this date of adoption, each of KMR’s then three non-employee directors was granted 7,500 common unit appreciation rights. In addition, 10,000 common unit appreciation rights were granted to each of KMR’s then three non-employee directors on January 21, 2004, at the first meeting of the board in 2004. During the first board meeting of 2005, the plan was terminated and replaced by the Kinder Morgan Energy Partners, L.P. Common Unit Compensation Plan for Non-Employee Directors (discussed following); however, all unexercised awards made under the plan remain outstanding.

Upon the exercise of unit appreciation rights, KMP will pay, within thirty days of the exercise date, the participant an amount of cash equal to the excess, if any, of the aggregate fair market value of the unit appreciation rights exercised as of the exercise date over the aggregate award price of the rights exercised. The fair market value of one unit appreciation right as of the exercise date will be equal to the closing price of one common unit on the New York Stock Exchange on that date. The award price of one unit appreciation right will be equal to the closing price of one common unit on the New York Stock Exchange on the date of grant. Proceeds, if any, from the exercise of a unit appreciation right granted under the plan will be payable only in cash (that is, no exercise wil l result in the issuance of additional common units) and will be evidenced by a unit appreciation rights agreement. All unit appreciation rights granted vest on the six-month anniversary of the date of grant. If a unit appreciation right is not exercised in the ten year period following the date of grant, the unit appreciation right will expire and not be exercisable after the end of such period. In addition, if a participant ceases to serve on the board for any reason prior to the vesting date of a unit appreciation right, such unit appreciation right will immediately expire on the date of cessation of service and may not be exercised.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

During 2008, 10,000 unit appreciation rights were exercised at an aggregate fair value of $60.32 per unit. During 2009, 17,500 unit appreciation rights were exercised at an aggregate fair value of $53.75 per unit. As of December 31, 2010, 17,500 unit appreciation rights had been granted, vested and remained outstanding.

The Kinder Morgan Energy Partners, L.P. Common Unit Compensation Plan for Non-Employee Directors recognizes that the compensation to be paid to each non-employee director is fixed by the KMR board, generally annually, and that the compensation is payable in cash. Pursuant to the plan, in lieu of receiving cash compensation, each non-employee director may elect to receive common units. A non-employee director may make a new election each calendar year. The total number of common units authorized under this compensation plan is 100,000. All common units issued under this plan are subject to forfeiture restrictions that expire six months from the date of issuance. A total of 2,450, 2,450, 3,200 and 4,338 common units were issued to non-employee directors in 2011, 2010, 2009 and 2008, respectively, as a result of their elections to receive common units in lieu of cash compensation.

Pension and Postretirement Benefit Plans

Kinder Morgan, Inc.

Retirement Plans

We have defined benefit pension plans covering eligible full-time employees. These plans provide pension benefits that are based on the employees’ compensation during the period of employment, age and years of service. These plans are tax-qualified subject to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended. Our funding policy is to contribute annually the recommended contribution using the actuarial cost method and assumptions used for determining annual funding requirements. Plan assets consist primarily of pooled fixed income, equity, bond and money market funds. The Plan did not have any material investments in our company or affiliates as of December 31, 2010 and 2009.

Total amounts recognized in net periodic pension cost include the following components (in millions):

	Year Ended December 31,
	2010			2009			2008
Net periodic pension benefit cost
Service cost	$	12.0		$	4.8		$	10.8
Interest cost		16.3			15.8			14.5
Expected return on assets		(19.5	)		(16.2	)		(23.2	)
Amortization of prior service cost		0.1			0.1			0.1
Amortization of loss		6.5			7.9			0.3
Net periodic pension benefit cost	$	15.4		$	12.4		$	2.5

The following table sets forth the reconciliation of the beginning and ending balances of the pension benefit obligation (in millions):

	Year Ended December 31,
	2010			2009
Benefit obligation at beginning of period	$	274.4		$	255.0
Service cost		12.0			4.8
Interest cost		16.3			15.8
Actuarial loss (gain)		19.7			12.4
Benefits paid		(14.1	)		(13.6	)
Benefit obligation at end of period	$	308.3		$	274.4

The accumulated benefit obligation at December 31, 2010 and 2009 was $298.0 million and $265.2 million, respectively.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

The following table sets forth the reconciliation of the beginning and ending balances of the fair value of the plans’ assets and the plans’ funded status (in millions):

	Year Ended December 31,
	2010			2009
Fair value of plan assets at beginning of period	$	220.1		$	179.7
Actual return on plan assets during the period		24.2			34.0
Contributions by employer		20.0			20.0
Benefits paid during the period		(14.1	)		(13.6	)
Fair value of plan assets at end of period		250.2			220.1
Benefit obligation at end of period		(308.3	)		(274.4	)
Funded status at end of period	$	(58.1	)	$	(54.3	)

Our accompanying consolidated balance sheets at December 31, 2010 and 2009 include a balance of $58.1 million and $54.3 million, respectively, under the caption “Other Long-term Liabilities and Deferred Credits” related to our pension plans.

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value (in millions):

	Assets at fair value at December 31, 2010
	Level 1		Level 2		Level 3		Total
Money market funds	$	-	$	14.1	$	-	$	14.1
Insurance contracts		-		12.0		-		12.0
Mutual funds		11.8		67.6		-		79.4
Common and preferred stocks		88.6		0.1		0.1		88.8
Corporate bonds		-		29.0		-		29.0
U.S. government securities		-		12.2		-		12.2
Asset backed securities		-		2.9		-		2.9
Limited partnerships		-		-		6.9		6.9
Private equity		-		-		4.4		4.4

Total asset fair value	$	100.4	$	137.9	$	11.4	$	249.7	(a)

____________

(a)	Excludes $0.5 million in interest, dividend, tax claim and investment receivables.

	Assets at fair value at December 31, 2009
	Level 1		Level 2		Level 3		Total
Money market funds	$	-	$	20.1	$	-	$	20.1
Insurance contracts		-		12.2		-		12.2
Mutual funds		-		61.1		-		61.1
Common and preferred stocks		75.6		-		-		75.6
Corporate bonds		-		23.8		-		23.8
U.S. government securities		-		15.2		-		15.2
Asset backed securities		-		3.2		-		3.2
Limited partnerships		-		-		5.2		5.2
Private equity		-		-		3.2		3.2

Total asset fair value	$	75.6	$	135.6	$	8.4	$	219.6	(a)

____________

(a)	Excludes $0.5 million in interest, dividend and security receivables.

An asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Following is a description of the valuation methodologies used for assets measured at fair value:

Common stocks and fixed income: Valued at the closing price reported on the active market on which the individual securities are traded.

Money market funds: Valued at amortized cost, which approximates fair value.

Mutual funds: Valued at the net asset value (NAV) of shares held by the plan at year end.

Limited partnership and private equity investments: Valued at net fair value utilizing discounted present value.

Insurance contracts: Valued at contract value, which approximates fair value.

The table below sets forth a summary of changes in the fair value of the Plan’s level 3 assets (in millions):

	Level 3 assets at fair value at December 31, 2010
	Limited Partnerships		Private Equity		Common Stock		Total
Balance, beginning of year	$	5.2	$	3.2	$	-	$	8.4
Transfers to level 3		-		-		0.1		0.1
Realized and unrealized gains/(losses)		0.6		0.4		-		1.0
Purchases and sales		1.1		0.8		-		1.9
Level 3 end of year balance	$	6.9	$	4.4	$	0.1	$	11.4
Changes in unrealized net gains (losses) relating to contracts still held at end of period	$	0.7	$	0.3	$	-	$	1.0

	Level 3 assets at fair value at December 31, 2009
	Limited Partnerships			Private Equity			Total
Balance, beginning of year	$	4.6		$	2.6		$	7.2
Realized and unrealized gains/(losses)		0.4			(0.5	)		(0.1	)
Purchases and sales		0.2			1.1			1.3
Level 3 end of year balance	$	5.2		$	3.2		$	8.4
Changes in unrealized net gains (losses) relating to contracts still held at end of period	$	(0.6	)	$	(0.6	)	$	(1.2	)

Changes in the underlying value of level 3 assets due to the effect of measurement were immaterial for the years ended December 31, 2010 and 2009.

Other changes in plan assets and benefit obligations recognized in other comprehensive income consist of (in millions):

	Year Ended December 31,
	2010			2009
Beginning balance	$	96.6		$	109.9
Net (gain)/loss arising during period		15.1			(5.3	)
Prior service cost arising during period		-			-
Amortization of (gain)/loss		(6.5	)		(7.9	)
Amortization of prior service cost		(0.1	)		(0.1	)
Ending balance	$	105.1		$	96.6

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Accumulated Other comprehensive loss balances for retirement plans at December 31, 2010 and 2009 consist of the following (in millions):

	December 31,
	2010			2009
Unrecognized net (gain) or loss		$	104.5		$	96.0
Unrecognized prior service cost			0.6			0.6
Total		$	105.1		$	96.6

Our actuarial estimates allocate costs based on projected employee costs. As experience develops under our plan, actuarial gains (losses) result from experience more favorable (unfavorable) than assumed.

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic pension benefit cost over the next fiscal year is $6.7 million.

We expect to contribute approximately $20 million to the Plan during 2011.

The following net benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions):

Fiscal year	Expected net benefit payments
2011	$	16.1
2012	$	17.0
2013	$	17.7
2014	$	18.6
2015	$	20.3
2016-2020	$	126.2

Certain collectively bargained employees and “grandfathered” employees continue to accrue benefits through the defined pension benefit plan described above. The remainder of the employees accrue benefits through a Personal Retirement Account (PRA) in the Kinder Morgan, Inc. Cash Balance Retirement Plan, a cash balance plan. We allocate contribution credits equivalent to 3% of eligible compensation every pay period to participants’ PRA. For plan years prior to 2011, interest was credited to the PRA at the 30-year U.S. Treasury bond rate published in the Internal Revenue Bulletin for the November of the prior year. Beginning January 1, 2011, interest is credited to the PRA at the 5-year U.S. Treasury bond rate published in the Internal Revenue Bulletin for the November of the prior year, plus 0.25%. Employees become 100% vested in the plan after three years and may take a lump sum distribution upon termination of employment or retirement. As a result of a cost savings effort in 2009, all company contributions to the plan were suspended from April 12, 2009 through December 31, 2009. Company contributions were reinstated effective January 1, 2010.

In addition to the Retirement Plan described above, we have the Kinder Morgan, Inc. Savings Plan (the “Plan), a defined contribution 401(k) plan. The Plan permits all eligible Plan participants to contribute between 1% and 50% of eligible compensation, on a pre-tax or after-tax (Roth 401k) basis, into their accounts. In addition to a Company contribution equal to 4% of eligible compensation per year for most of the Plan participants, we may make discretionary contributions. Certain Plan participant’s contributions and Company contributions are based on collective bargaining agreements. The contributions are made each pay period on behalf of each eligible participant. Participants may direct the investment of their contributions and all Company contributions, including discretionary contributions, into a variety of investments. Plan assets are held and distributed pursuant to a trust agreement. The total amount contributed for the years ended December 31, 2010, 2009 and 2008 was $21.0 million, $19.8 million and $20.8 million, respectively.

Company contributions for participants vest on the second anniversary of the date of hire. Vesting on Company contributions for bargaining employees will follow the collective bargaining agreements.

At its July 2008 meeting, the Compensation Committee of our Board of Directors approved a special contribution of an additional 1% of base pay into the Plan for each eligible participant. Each eligible participant received an additional 1% Company contribution based on eligible base pay each pay period beginning with the first pay period of August 2008 and continuing through the last pay period of July 2009. The additional 1% contribution did not change or otherwise

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

impact the annual 4% contribution that most of the eligible participants received and the vesting schedule mirrored the Company’s 4% contribution.

Commencing February 1, 2009 through February 1, 2010, the Company suspended both the annual 4% contribution as well as the discretionary 1% contribution for participants with a title of Vice President or greater.

The Office of the Chair announced an amendment to the Plan to be effective in August of 2011. For most of the Plan’s eligible participants, the amendment increases the 4% contribution to 5% and will eliminate the Company’s discretionary 1% contribution.

Additionally, participants have an option to make after-tax “Roth” contributions (Roth 401(k) option) to a separate participant account. Unlike traditional 401(k) plans, where participant contributions are made with pre-tax dollars, earnings grow tax-deferred, and the withdrawals are treated as taxable income, Roth 401(k) contributions are made with after-tax dollars, earnings are tax-free, and the withdrawals are tax-free if they occur after both (i) the fifth year of participation in the Roth 401(k) option and (ii) attainment of age 59 ½, death or disability. The Company contribution will still be considered taxable income at the time of withdrawal.

Beginning in 2006, we elected not to make any restricted stock awards as a result of the Going Private Transaction. To ensure that certain key employees who had previously received restricted stock and restricted stock unit awards continued under a long-term retention and incentive program, the Company implemented the Long-term Incentive Retention Award plan. The plan provides cash awards approved by the compensation committees of the Company which are granted in July of each year to recommended key employees. Senior management is not eligible for these awards. These grants require the employee to sign a grant agreement. The grants vest 100% after the third year anniversary of the grant provided the employee remains with the Company. Grants were made in July of 2010, 2009 and 2008. During the years ended December 31 , 2010, December 31, 2009 and December 31, 2008, we amortized $3.3 million, $2.3 million and $6.9 million, respectively, related to these grants.

Other Postretirement Employee Benefits

We have a postretirement plan providing medical and life insurance benefits upon retirement. For certain eligible employees and their eligible dependents that are “grandfathered,” we also provide a subsidized premium. All others who are eligible pay the full cost. NGPL funds a portion of the future expected postretirement benefit cost under the plan by making payments to Voluntary Employee Benefit Association trusts. Plan assets are invested in a mix of equity funds and fixed income instruments similar to the investments in our pension plans.

Total amounts recognized in net periodic postretirement benefit cost include the following components (in millions):

	Year Ended December 31,
	2010			2009			2008
Net periodic postretirement benefit cost
Service cost	$	0.2		$	0.3		$	0.3
Interest cost		4.5			4.5			4.6
Expected return on assets		(5.1	)		(4.6	)		(6.5	)
Amortization of loss		3.4			2.5			0.5
Net periodic postretirement benefit cost	$	3.0		$	2.7		$	(1.1	)

The following table sets forth the reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation (in millions):

	Year Ended December 31,
	2010			2009
Benefit obligation at beginning of period	$	75.6		$	78.0
Service cost		0.2			0.3
Interest cost		4.5			4.5
Actuarial loss (gain)		11.9			1.1
Benefits paid		(11.5	)		(11.7	)
Retiree contributions		3.4			3.4
Benefit obligation at end of period	$	84.1		$	75.6

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

The following table sets forth the reconciliation of the beginning and ending balances of the fair value of plan assets and the plan’s funded status (in millions):

	Year Ended December 31,
	2010			2009
Fair value of plan assets at beginning of period	$	54.1		$	49.1
Actual return on plan assets		8.1			6.8
Contributions		6.7			7.0
Retiree contributions		3.4			3.4
Benefits paid		(11.7	)		(12.2	)
Fair value of plan assets at end of period		60.6			54.1
Benefit obligation at end of period		(84.1	)		(75.6	)
Funded status at end of period	$	(23.5	)	$	(21.5	)

Our accompanying consolidated balance sheets at December 31, 2010 and 2009 include balances of $23.5 million and $21.5 million, respectively, under the caption “Other Long-term Liabilities and Deferred Credits,” related to our other postretirement benefit plans.

The following table sets forth by level, within the fair value hierarchy, the fair value of postretirement benefit assets (in millions):

	Assets at fair value at December 31, 2010
	Level 1		Level 2		Level 3		Total
Money market funds	$	-	$	5.5	$	-	$	5.5
Insurance contracts		-		44.8		-		44.8
Mutual funds		10.3		-		-		10.3

Total asset fair value	$	10.3	$	50.3	$	-	$	60.6

	Assets at fair value at December 31, 2009
	Level 1		Level 2		Level 3		Total
Money market funds	$	-	$	5.5	$	-	$	5.5
Insurance contracts		-		41.6		-		41.6
Mutual funds		7.0		-		-		7.0

Total asset fair value	$	7.0	$	47.1	$	-	$	54.1

Other changes in plan assets and benefit obligations recognized in other comprehensive income consist of (in millions):

	Year Ended December 31,
	2010			2009
Beginning balance	$	34.9		$	37.9
Net (gain)/loss arising during period		8.9			(0.5	)
Amortization of (gain)/loss		(3.4	)		(2.5	)
Ending balance	$	40.4		$	34.9

Accumulated other comprehensive loss balances for other postretirement employee benefits at December 31, 2010 and 2009 consist of the following (in millions):

	December 31,
	2010		2009
Unrecognized net (gain) or loss	$	40.4	$	34.9

174

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

The estimated net loss for the postretirement benefit plans that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost over the next fiscal year is $3.5 million. NGPL contributed approximately $1.3 million to the plan in February 2011.

A one-percentage-point increase (decrease) in the assumed health care cost trend rate for each future year would have increased (decreased) the aggregate of the service and interest cost components of the 2011 net periodic postretirement benefit cost by approximately $5,000 $(4,000) and would have increased (decreased) the accumulated postretirement benefit obligation as of December 31, 2010 by approximately $75,000 $(71,000).

The following net benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions):

Fiscal year	Expected net benefit payments
2011	$	7.4
2012	$	7.1
2013	$	6.8
2014	$	6.6
2015	$	6.5
2016-2019	$	30.0

Actuarial Assumptions

The assumptions used to determine benefit obligations for the pension and postretirement benefit plans were:

	Year Ended December 31,
	2010		2009			2008
Discount rate	(b)			(a)			6.25	%
Expected long-term return on assets	8.90	%		8.90	%		8.75	%
Rate of compensation increase (pension plan only)	3.50	%		3.50	%		3.50	%

____________

(a)	Discount rates of 5.75% and 6.00% were used to determine obligations for 2009 other postretirement benefits and pension benefits, respectively.
(b)	Discount rates of 5.00% and 5.50% are used to determine obligations for 2010 other postretirement benefits and pension benefits, respectively.

The assumptions used to determine net periodic benefit cost for the pension and postretirement benefits were:

	Year Ended December 31,
	2010		2009			2008
Discount rate	(a)			6.25	%		5.75	%
Expected long-term return on assets	8.90	%		8.75	%		9.00	%
Rate of compensation increase (pension plan only)	3.50	%		3.50	%		3.50	%

____________

(a)	Discount rates of 5.75% and 6.00% are used to determine net periodic benefit cost for other postretirement benefits and pension benefits, respectively.

The assumed healthcare cost trend rates for the postretirement plan were:

	Year Ended December 31,
	2010		2009			2008
Healthcare cost trend rate assumed for next year	3.00	%		3.00	%		3.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	3.00	%		3.00	%		3.00	%
Year the rate reaches the ultimate trend rate	2010			2009			2008

175

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Plan Investment Policies

The investment policies and strategies for the assets of our pension and retiree medical and retiree life insurance plans are established by the Fiduciary Committee (the “Committee), which is responsible for investment decisions and management oversight of each plan. The stated philosophy of the Committee is to manage these assets in a manner consistent with the purpose for which the plans were established and the time frame over which the plans’ obligations need to be met. The objectives of the investment management program are to (1) meet or exceed plan actuarial earnings assumptions over the long term and (2) provide a reasonable return on assets within established risk tolerance guidelines and liquidity needs of the plans with the goal of paying benefit and expense obligations when due. In seeking to meet these objectives, the Committee recognizes that prudent investing requires taking reasonable risks in order to raise the likelihood of achieving the targeted investment returns. In order to reduce portfolio risk and volatility, the Committee has adopted a strategy of using multiple asset classes.

As of December 31, 2010, the following target asset allocation ranges were in effect for the pension plans (Minimum/Target/Maximum): Cash – 0%/0%/5%; Fixed Income –20%/30%/40%; Equity – 47%/65%/85% and Alternative Investments – 0%/5%/10%. As of December 31, 2010, the following target asset allocation ranges were in effect for the retiree medical and retiree life insurance plans (Minimum/Target/Maximum): Cash – 0%/5%/15%; Fixed Income –25%/35%/45% and Equity – 40%/60%/80%. In order to achieve enhanced diversification, the equity category is further subdivided into sub-categories with respect to small cap vs. large cap, value vs. growth and international vs. domestic, each with its own target asset allocation.

In implementing its investment policies and strategies, the Committee has engaged a professional investment advisor to assist with its decision making process and has engaged professional money managers to manage plan assets. The Committee believes that such active investment management will achieve superior returns with comparable risk in comparison to passive management. Consistent with its goal of reasonable diversification, no manager of an equity portfolio for the plan is allowed to have more than 10% of the market value of the portfolio in a single security or weight a single economic sector more than twice the weighting of that sector in the appropriate market index. Finally, investment managers are not permitted to invest or engage in the following equity transactions unless specific permission is given in w riting (which permission has not been requested or granted by the Committee to-date): derivative instruments, except for the purpose of asset value protection (such as the purchase of protective puts), direct ownership of letter stock, restricted stock, limited partnership units (unless the security is registered and listed on a domestic exchange), venture capital, short sales, margin purchases or borrowing money, stock loans and commodities. In addition, fixed income holdings in the following investments are prohibited without written permission: private placements, except medium-term notes and securities issued under SEC Rule 144a; foreign bonds (non-dollar denominated); municipal or other tax exempt securities, except taxable municipals; margin purchases or borrowing money to effect leverage in the portfolio; inverse floaters, interest only and principle only mortgage structures; and derivative investments (futures or option contracts) used for speculative purposes. Certain other types of investments such as hedge funds and land purchases are not prohibited as a matter of policy but have not, as yet, been adopted as an asset class or received any allocation of fund assets.

Return on Plan Assets

For the year ending December 31, 2010, our defined benefit pension plan yielded a weighted-average rate of return of 10.64%, above the expected rate of return on assets of 8.9%. Investment performance for a balanced fund comprised of a similar mix of assets yielded a weighted-average return of 11.34%, so the plans underperformed the benchmark balanced fund index. For the year ending December 31, 2010, our retiree medical and retiree life insurance plans yielded a weighted-average rate of return of 11.46%, above the expected rate of return on assets of 8.9%. Investment performance for a balanced fund comprised of a similar mix of assets yielded a weighted-average return of 11.67%, so the plans underperformed the benchmark balanced fund index.

At December 31, 2010, our pension plan assets consisted of 64.3% equity, 28.4% fixed income, 4.4% alternative investments and 2.9% cash and cash equivalents, and the retiree medical and retiree life insurance plan assets consisted of 52.6% equity, 32.9% fixed income and 14.5% cash and cash equivalents. Historically over long periods of time, widely traded large cap equity securities have provided a return of 10%, while fixed income securities have provided a return of 6%, indicating that a long term expected return predicated on the asset allocation as of December 31, 2010 would be approximately 8.74% to 9.30% if investments were made in the broad indexes for the defined benefit pension plan, and 7.96% to 8.47% for the retiree medical and retiree life insurance plan. We arrived at an overall expected return of 8.9% for the periodic benefit cost calculations and an overall expected return of 8.9% for the benefit obligation calculations as of December 31, 2010.

176

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Kinder Morgan Energy Partners, L.P.

Pension and Postretirement Benefit Plans

Two of KMP’s subsidiaries, Kinder Morgan Canada Inc. and Trans Mountain Pipeline Inc. (as general partner of Trans Mountain Pipeline L.P.) are sponsors of pension plans for eligible Trans Mountain employees. The plans include registered defined benefit pension plans, supplemental unfunded arrangements, which provide pension benefits in excess of statutory limits, and defined contributory plans. KMP also provides postretirement benefits other than pensions for retired employees.

KMP’s combined net periodic benefit costs for these Trans Mountain pension and postretirement benefit plans for 2010, 2009 and 2008 were approximately $3.9 million, $2.9 million, and $3.5 million, respectively, recognized ratably over each year. As of December 31, 2010, KMP estimates its overall net periodic pension and postretirement benefit costs for these plans for the year 2011 will be approximately $6.6 million, although this estimate could change if there is a significant event, such as a plan amendment or a plan curtailment, which would require a remeasurement of liabilities. KMP expects to contribute approximately $7.1 million to these benefit plans in 2011.

Additionally, in connection with its acquisition of SFPP, L.P. in 1998, KMP acquired certain liabilities for pension and postretirement benefits. KMP provides medical and life insurance benefits to current employees, their covered dependents and beneficiaries of SFPP. KMP also provides the same benefits to former salaried employees of SFPP and KMP will continue to fund these costs for those employees currently in the plan during their retirement years.

SFPP’s postretirement benefit plan is frozen and no additional participants may join the plan. Benefits under the SFPP postretirement benefit plan are provided by the Burlington Northern Santa Fe railroad and KMP reimburses BNSF for the costs of the plan. As of the date of this report, KMP has not received its 2010 actuarial valuation report for the SFPP postretirement benefit plan; however, in 2010, KMP recorded a credit of less than $0.1 million for net periodic benefit costs related to this plan, and for each of the years ended December 31, 2009 and 2008, KMP’s net periodic benefit cost for the SFPP postretirement benefit plan was a credit of less than $0.1 million. The credits in all three years resulted in increases to income, largely due to amortizations of an actuarial gain and a negative prior service cost. As of December 31, 2010, KMP estimates its overall net periodic postretirement benefit cost for the SFPP postretirement benefit plan for the year 2011 will again be a credit of less than $0.1 million; however, this estimate could change if a future significant event would require a remeasurement of liabilities. In addition, KMP expects to contribute approximately $0.3 million to this postretirement benefit plan in 2011.

As of December 31, 2010 and 2009, the recorded value of KMP’s pension and postretirement benefit obligations for these plans was a combined $44.8 million and $37.4 million, respectively. KMP considers its pension and postretirement benefit liability exposure and the fair value of its pension and postretirement plan assets to be minimal in relation to the value of its total consolidated assets and net income.

Multiemployer Plans

As a result of acquiring several terminal operations, primarily KMP’s acquisition of Kinder Morgan Bulk Terminals, Inc. effective July 1, 1998, KMP participates in several multi-employer pension plans for the benefit of employees who are union members. KMP does not administer these plans and contributes to them in accordance with the provisions of negotiated labor contracts. Other benefits include a self-insured health and welfare insurance plan and an employee health plan where employees may contribute for their dependents’ health care costs. Amounts charged to expense for these plans were approximately $10.3 million, $8.4 million and $7.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.

10. Members’ Equity

During the years ended December 31, 2010, 2009 and 2008, there were no material changes in our ownership interests in subsidiaries, in which we retained a controlling financial interest.

Kinder Morgan, Inc. – Equity Interests

During 2010, and prior to the initial public offering in February 2011 discussed following in “—Subsequent Events—Initial Public Offering, our equity consisted of the following outstanding (or potentially outstanding) equity interests:

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Class A Units – Those individuals and entities that invested directly in the Going Private Transaction, either through (i) cash; (ii) contribution of common shares of Kinder Morgan Kansas, Inc.; (iii) surrender of restricted common shares of Kinder Morgan Kansas, Inc. (restricted stock) or (iv) surrender of options to acquire Kinder Morgan Kansas, Inc. common stock (Kinder Morgan options), received one Class A Unit per dollar contributed, with share and share-related contributions valued at $107.50/share, the publicly offered Kinder Morgan Kansas, Inc. common share repurchase price (with the exception of shares contributed by certain Kinder Morgan Kansas, Inc. officers that were valued at a slightly lesser amount per share).

Class A-1 Units – As of the date of the Going Private Transaction, tax was accelerated for those individuals who held either unvested restricted stock or Kinder Morgan Kansas, Inc. options. For those individuals, in general, a tax liability was triggered as a result of this acceleration. In order to allow those individuals to effectively participate in the Going Private Transaction at an amount approximating the pre-tax value of their contributed equity, the Class A-1 Units were granted in an amount computed by multiplying an effective tax rate (reflecting both the expected federal and state tax obligation) by the taxable amount triggered by the acceleration.

Class B Units – As a part of the basic Going Private Transaction structure, certain members of management of Kinder Morgan Kansas, Inc. (who were already Class A Unit and/or Class A-1 Unit holders) were granted incremental interests in Kinder Morgan Holdco LLC without any requirement on their part to contribute cash or existing equity interests for those incremental interests. In addition, Class B Units were issued to certain others who were neither Class A Unit nor Class A-1 Unit holders. These incremental equity interests were granted in the form of “Class B Units.” Class B Units were only entitled to receive distributions after Class A Units received a multiple of initial capital contributions, as discussed below.

Class B Series Units – Under certain circumstances, Class B Units forfeited would have been made available for reissuance in the form of one or more new series of Class B Units, collectively referred to as the “Class B Series Units”.

Class B-1 Units – If individuals who held Class B Units terminated their employment other than for cause (as defined), death or disability, and certain milestones had not been met with respect to cumulative distributions made, Class B Units would have been forfeited and would have been (i) transferred to an incentive pool (as defined) or (ii) made available for reissuance in the form of one or more new series of Class B Units, collectively referred to as the “Class B-1 Units”.

Our limited liability company agreement prescribed that our distributions were to have been made to these individual classes of equity interests as follows:

First: 100% to the holders of the Class A Units (other than Class A-1 Units) until the cumulative amount distributed is equal to 100% of the sum of the Initial Capital Contributions (as defined, but generally represents the initial contributions made in exchange for the Class A Units). Then,

100% to the holders of the Class A Units (other than Class A-1 Units) until the cumulative amount distributed pursuant to this distribution waterfall is equal to 2% of the sum of the Initial Capital Contributions. Then,

100% to the holders of the Class A-1 Units until the cumulative amount distributed pursuant to this distribution waterfall equals 2% of the sum of the Notional Capital Contributions (as defined, but generally represents the calculated tax liability resulting from acceleration of certain equity compensation awards). Then,

100% to the holders of the Class A Units (including the Class A-1 Units) until the cumulative amount distributed to the holders of Class A and A-1 Units pursuant to this distribution waterfall equals 150% of Total Capital Contributions (as defined, but generally represents the sum of amounts contributed or deemed to be contributed in exchange for equity interests). Then,

to the Class B Units until the cumulative amount distributed to Class B Units equals the product of 5% and the cumulative amount distributed pursuant to this distribution waterfall in excess of Total Capital Contributions. Then,

95% to the holders of the Class A Units (including the Class A-1 Units) and 5% to the holders of the Class B Units until the cumulative amount distributed pursuant to this distribution waterfall equals 200% of Total Capital Contributions. Then,

178

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

to the holders of the Class B Units until the cumulative amount distributed pursuant to this and the previous provisions of this distribution waterfall to holders of Class B Units equals the product of 10% and the cumulative amount distributed pursuant to this distribution waterfall in excess of Total Contributions. Then,

between 10-20% Class B Distribution to the holders of the Class B Units and 100% of the remainder to the holders of the Class A Units (including the Class A-1 Units) until the cumulative amount distributed pursuant to this distribution waterfall equals 400% of Total Capital Contributions. Then,

80% to the holders of the Class A Units (including the Class A-1 Units) and 20% to the holders of the Class B Units.

During the years ended December 31, 2010 and 2009, we paid distributions on our Class A units totaling $700.0 million and $650.0 million, respectively.

Comprehensive Income – Income Tax Expense

The following table sets forth the tax amounts included in the respective components of other comprehensive income (loss) (in millions):

Tax Benefit (Expense) Included in Other Comprehensive Income (Loss)

	Year Ended December 31,
	2010			2009			2008
Kinder Morgan, Inc.
Change in fair value of derivatives utilized for hedging purposes	$	8.9		$	85.5		$	(121.3	)
Reclassification of change in fair value of derivatives to net income		(10.4	)		24.5			(69.4	)
Foreign currency translation adjustments		(20.6	)		(34.7	)		31.0
Benefit plan adjustments		9.2			(1.6	)		37.7
Benefit plan amortization		(3.7	)		(3.7	)		(0.2	)
Tax benefit (expense) included in total other comprehensive income (loss) attributable to Kinder Morgan, Inc.		(16.6	)		70.0			(122.2	)

Noncontrolling interests
Change in fair value of derivatives utilized for hedging purposes		3.8			20.7			(34.1	)
Reclassification of change in fair value of derivatives to net income		(9.4	)		(4.5	)		(34.6	)
Foreign currency translation adjustments		(5.0	)		(11.4	)		17.2
Benefit plan adjustments		0.1			0.1			(0.2	)
Benefit plan amortization		-			-			-
Tax benefit (expense) included in total other comprehensive income (loss) attributable to noncontrolling interests		(10.5	)		4.9			(51.7	)

Total
Change in fair value of derivatives utilized for hedging purposes		12.7			106.2			(155.4	)
Reclassification of change in fair value of derivatives to net income		(19.8	)		20.0			(104.0	)
Foreign currency translation adjustments		(25.6	)		(46.1	)		48.2
Benefit plan adjustments		9.3			(1.5	)		37.5
Benefit plan amortization		(3.7	)		(3.7	)		(0.2	)
Tax benefit (expense) included in total other comprehensive income (loss)	$	(27.1	)	$	74.9		$	(173.9	)

179

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Noncontrolling Interests

The caption “Noncontrolling interests” in our accompanying consolidated balance sheets consists of interests in the following subsidiaries (in millions):

	December 31,
	2010		2009
KMP	$	3,135.4	$	2,746.4
KMR		1,956.2		1,870.7
Triton Power Company LLC(a)		-		45.9
Other		8.3		11.6
	$	5,099.9	$	4,674.6

____________

(a)

Upon the adoption of Accounting Standards Update No. 2009-17, which amended the codification’s “Consolidation” topic, on January 1, 2010, Triton Power Company LLC is no longer consolidated into our financial statements, but is treated as an equity investment. On October 22, 2010, we sold Triton Power (see Notes 3 and 18).

KMP

Noncontrolling interests in KMP represent the economic interests in this subsidiary that we do not own. At December 31, 2010, we owned, directly, and indirectly in the form of i-units corresponding to the number of shares of KMR we owned, approximately 34.8 million limited partner units of KMP. These units, which consist of 16.4 million common units, 5.3 million Class B units and 13.1 million i-units, represent approximately 11.0% of the total limited partner interests of KMP. In addition, we are the sole common stockholder of the general partner of KMP, which holds an effective 2% interest in KMP and its operating partnerships. Together, at December 31, 2010, our limited partner and general partner interests represented approximately 12.8% of KMP’s total equity interests and represented an approximate 50% eco nomic interest in KMP. This difference results from the existence of incentive distribution rights held by the general partner shareholder.

Contributions

Contributions from our noncontrolling interests consist primarily of KMP’s issuance of its common units that we did not purchase or obtain. On January 16, 2009, KMP entered into an equity distribution agreement with UBS Securities LLC (UBS). According to the provisions of this agreement, which was amended and restated on October 1, 2009, KMP may offer and sell from time to time common units having an aggregate offering value of up to $600 million through UBS, as sales agent. Sales of the units will be made by means of ordinary brokers’ transactions on the New York Stock Exchange at market prices, in block transactions or as otherwise agreed between KMP and UBS. Under the terms of this agreement, KMP also may sell common units to UBS as principal for its own account at a p rice agreed upon at the time of the sale. Any sale of common units to UBS as principal would be pursuant to the terms of a separate agreement between KMP and UBS.

This equity distribution agreement provides KMP the right, but not the obligation, to sell common units in the future, at prices it deems appropriate. KMP retains at all times complete control over the amount and the timing of each sale, and it will designate the maximum number of common units to be sold through UBS, on a daily basis or otherwise as it and UBS agree. UBS will then use its reasonable efforts to sell, as KMP’s sales agent and on its behalf, all of the designated common units. KMP may instruct UBS not to sell common units if the sales cannot be effected at or above the price designated by KMP in any such instruction. Either KMP or UBS may suspend the offering of common units pursuant to the agreement by notifying the other party.

In 2010, KMP issued 3,902,225 of its common units pursuant to its equity distribution agreement. After commissions of $2.0 million, KMP received net proceeds from the issuance of these common units of $266.3 million. KMP used the proceeds to reduce the borrowings under its commercial paper program and its bank credit facility.

KMP also completed the following equity issuances in 2010:

▪

On January 15, 2010, KMP issued 1,287,287 common units—valued at $81.7 million—as a portion of its purchase price for additional ethanol handling terminal assets it acquired from US Development Group LLC (for more information on this acquisition, see Note 3 “Acquisitions and Divestitures—Acquisitions from Unrelated Entities—(7) USD Terminal Acquisition;”

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

▪

On May 7, 2010, KMP issued, in a public offering, 6,500,000 of its common units at a price of $66.25 per unit, less commissions and underwriting expenses. After commissions and underwriting expenses, KMP received net proceeds of $417.4 million for the issuance of these common units, and used the proceeds to reduce the borrowings under its commercial paper program and its bank credit facility; and

▪

On July 2, 2010, KMP completed an offering of 1,167,315 of its common units at a price of $64.25 per unit in a privately negotiated transaction. KMP received net proceeds of $75.0 million for the issuance of these common units, and used the proceeds to reduce the borrowings under its commercial paper program and its bank credit facility.

The above equity issuances during the year ended December 31, 2010 had the associated effects of increasing our (i) noncontrolling interests associated with KMP by $804.5 million; (ii) accumulated deferred income taxes by $13.0 million and (iii) additional paid-in capital by $22.9 million.

2009 Issuances

In 2009, KMP issued 5,488,947 of its common units pursuant to its equity distribution agreement with UBS. After commissions of $4.0 million, KMP received net proceeds from the issuance of these common units of $281.2 million. KMP used the proceeds to reduce the borrowings under its bank credit facility.

KMP also completed three separate underwritten public offerings of its common units in 2009—receiving net proceeds of $874.4 million as discussed following—and in April 2009, it issued 105,752 common units—valued at $5.0 million—as the purchase price for additional ownership interests in certain oil and gas properties.

In its first 2009 underwritten public offering, completed in March, KMP issued 5,666,000 of its common units at a price of $46.95 per unit, less underwriting commissions and expenses. KMP received net proceeds of $258.0 million for the issuance of these common units. In its second offering, completed in July, KMP issued 6,612,500 common units at a price of $51.50 per unit, less underwriting commissions and expenses, and received net proceeds of $329.9 million. In its final 2009 public offering, completed in December, KMP issued 5,175,000 common units at a price of $57.15 per unit, less underwriting commissions and expenses, and received net proceeds of $286.5 million for the issuance of these common units. KMP used the proceeds from each of these three public offerings to reduce the borrowings under its bank credit facility.

These KMP’s issuances of common units during the year ended December 31, 2009, collectively, had the associated effects of increasing our (i) noncontrolling interests associated with KMP by $1,116.9 million; (ii) accumulated deferred income taxes by $15.6 million and (iii) additional paid-in capital by $28.1 million.

Distributions

Distributions to our noncontrolling interests consist primarily of distributions by KMP to its common unit holders.KMP’s partnership agreement requires that it distribute 100% of ‘‘Available Cash,’’ as defined in its partnership agreement, to its partners within 45 days following the end of each calendar quarter. Available Cash consists generally of all of KMP’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.

KMR, as the delegate of Kinder Morgan G.P., Inc., of which we indirectly own all of the outstanding common equity, and the general partner of KMP, is granted discretion, subject to the approval of Kinder Morgan G.P., Inc. in certain cases, to establish, maintain and adjust reserves for the proper conduct of KMP’s business, which might include reserves for matters such as future operating expenses, debt service, sustaining capital expenditures and rate refunds, and for 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 KMR determines KMP’s quarterly distributions, it considers current and expected reserve need s along with current and expected cash flows to identify the appropriate sustainable distribution level.

Pursuant to KMP’s partnership agreement, distributions to its unitholders are characterized either as distributions of cash from operations or as distributions of cash from interim capital transactions. This distinction affects the distributions to owners of common units, Class B units and i-units relative to the distributions retained by Kinder Morgan G.P., Inc. as KMP’s general partner.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Cash from Operations. Cash from operations generally refers to KMP’s cash balance on the date it commenced operations, plus all cash generated by the operation of its business, after deducting related cash expenditures, net additions to or reductions in reserves, debt service and various other items.

Cash from Interim Capital Transactions. Interim capital transactions generally include borrowings, sales of debt and equity securities and sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets and assets disposed of in the ordinary course of business.

Rule for Characterizing Distributions. All available cash distributed by KMP from any source will be treated as distributions of cash from operations unless the sum of all available cash distributed exceeds the cumulative amount of cash from operations actually generated from the date KMP commenced operations through the end of the calendar quarter prior to any applicable distribution. Any portion of a distribution of available cash for that quarter which, when added to the sum of all prior distributions, is in excess of the cumulative amount of cash from operations, will be considered a distribution of cash from interim capital transactions and treated as described under ‘‘—Allocation of Distributions from Interim Capital Transactions.’’ For purposes of calculating the sum of all distributions of available cash, the total equivalent cash amount of all distributions of i-units to KMR, as the holder of all i-units, will be treated as distributions of available cash, even though the distributions to KMR are made in additional i-units rather than in cash. KMP retains this cash and uses it in its business. To date, all of KMP’s cash distributions, other than a $177.1 million distribution of cash from interim capital transactions for the second quarter of 2010 (paid in August 2010), have qualified under the rule stated above as distributions of cash from operations.

Allocation of Distributions from Operations. Cash from operations for each quarter will be distributed effectively as follows:

▪

first, 98% to the owners of all classes of units pro rata and 2% to Kinder Morgan G.P., Inc. as KMP’s 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 Kinder Morgan G.P., Inc. as KMP’s 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 Kinder Morgan G.P., Inc. as KMP’s 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 the owner of i-units in the equivalent number of i-units, and 50% to Kinder Morgan G.P., Inc. as KMP’s general partner.

Allocation of Distributions from Interim Capital Transactions. Any distribution by KMP of available cash that would constitute cash from interim capital transactions would be distributed effectively as follows:

▪

98% to all owners of common units and Class B units pro rata in cash and to the holder of i-units in equivalent i-units; and

▪

2% to Kinder Morgan G.P., Inc. as KMP’s general partner, until KMP has distributed cash from this source in respect of a common unit outstanding since KMP’s original public offering in an aggregate amount per unit equal to the initial common unit price of $5.75, as adjusted for splits.

As cash from interim capital transactions is distributed, it would be treated as if it were a repayment of the initial public offering price of the common units. To reflect that repayment, the first three distribution target levels of cash from operations would be adjusted downward proportionately by multiplying each distribution target level amount by a fraction, the numerator of which is the unrecovered initial common unit price immediately after giving effect to that distribution and the denominator of which is the unrecovered initial common unit price immediately prior to giving effect to that distribution. When the initial common unit price is fully recovered, then each of the first three distribution target levels will have been reduced to zero. Thereafter, all distributions of available cash from all sources will be treated as if they were cash from operations and distributed 50% to all classes of units pro rata, with the distribution to i-units being made instead in the form of i-units, and 50% to Kinder Morgan G.P., Inc. as KMP’s general partner. In connection with the distribution of cash from interim capital transactions for the second quarter 2010, mentioned following, we waived any adjustment in the target distribution levels and any reduction in the unrecovered initial common unit price that otherwise would have been made because of that distribution of cash from interim capital transactions.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

KMP’s distribution of cash for the year ended December 31, 2010 from interim capital transactions totaled $177.1 million (approximately $0.56 per limited partner unit) which resulted in Kinder Morgan G.P., Inc, as KMP’s general partner receiving a reduced incentive amount of $168.3 million (including our 2% general partner interest, total cash distributions to us were reduced by $170.0 million). We, as KMP’s general partner, also waived an incentive amount equal to $11.1 million related to common units issued to finance a portion of KMP’s acquisition of a 50% interest in KinderHawk Field Services LLC joint venture and have agreed not to take incenti ve distributions related to this acquisition through year-end 2011.

During the year ended December 31, 2010, KMP paid distributions of $4.32 per common unit, of which $847.6 million was paid to the public holders (represented in noncontrolling interests) of KMP’s common units. On January 19, 2010, KMP declared a quarterly distribution of $1.13 per common unit for the quarterly period ended December 31, 2010. The distribution was paid on February 14, 2010 to unitholders of record as of January 31, 2010.

Kinder Morgan Management, LLC

KMR’s distributions are paid in the form of additional shares or fractions thereof calculated by dividing the KMP cash distribution per common unit by the average of the market closing prices of a KMR share determined for a ten-trading day period ending on the trading day immediately prior to the ex-dividend date for the shares. KMR has paid share distributions totaling 6,369,724, 7,540,357 and 5,565,424 shares in the years ended December 31, 2010, 2009 and 2008, respectively. On February 14, 2011, KMR made a share distribution of 0.017393 shares per outstanding share (1,598,556 total shares) to shareholders of record as of January 31, 2011, based on the $1.13 per common unit distribution declared by KMP.

At December 31, 2010, our subsidiary, Kinder Morgan Kansas, Inc., owned approximately 13.1 million KMR shares representing approximately 14.3% of KMR’s outstanding shares.

Subsequent Events

Noncontrolling Interest Contributions

In early-January 2011, KMP issued 110,902 of its common units for the settlement of sales made on or before December 31, 2010 pursuant to its equity distribution agreement with UBS. After commissions of $0.1 million, KMP received net proceeds of $7.7 million for the issuance of these common units, and used the proceeds to reduce the borrowings under its commercial paper program and its bank credit facility.

Initial Public Offering

In the following discussion, the Investors refer to: (i) Richard D. Kinder, our Chairman and Chief Executive Officer; (ii) investment funds advised by, or affiliated with, Goldman, Sachs & Co., Highstar Capital LP, The Carlyle Group and Riverstone Holdings LLC, which we refer to collectively as the ‘‘Sponsor Investors;’’ (iii) Fayez Sarofim, one of our directors, and investment entities affiliated with him, and an investment entity affiliated with Michael C. Morgan, another of our directors, and William V. Morgan, one of our founders, and (iv) a number of other members of our management.

On February 16, 2011, we completed an initial public offering of our common stock (the offering). In connection with the offering, we converted from a Delaware limited liability company to a Delaware corporation. Our outstanding Class A units, Class B units and Class A-1 units were converted to Class A shares, Class B shares and Class C shares, respectively. Upon this conversion, the Sponsor Investors then converted some of their Class A shares on a one-for-one basis into our common stock sold in the initial public offering. No shares were sold by members of Kinder Morgan management in the offering. All of the common stock that was sold in the offering was sold by existing investors, consisting of investment funds advised by, or affiliated with, Goldman, Sachs & amp; Co., Highstar Capital LP, The Carlyle Group and Riverstone Holdings LLC, and we did not receive any proceeds from the offering.

We have 707,000,000 shares outstanding on a fully converted basis. In the offering, we sold 109,786,590 shares, or approximately 15.5% of our outstanding shares. Upon the closing of the offering, our Class A shares, Class B shares and Class C shares were convertible into a fixed aggregate of 597,213,410 shares of common stock (investor retained stock), which represents 84.5% of our outstanding shares of common stock on a fully-converted basis. The number of shares of common stock into which Class A shares, Class B shares and Class C shares will convert will be determined in accordance with our certificate of incorporation. The conversion of our shares of investor retained stock into shares of our common stock will not increase our total fully converted shares outstanding. Initially, our Class A shares wi ll be convertible into shares of common stock on a one-for-one basis and our Class B shares and Class C shares will not be

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convertible into any shares of our common stock. Any conversion of Class B shares and Class C shares will decrease on a share for share basis the number of shares of our common stock into which our Class A shares would be able to convert. The terms of the Class A shares, Class B shares and Class C shares are intended to preserve substantially the same relative rights to share in the value of Kinder Morgan, Inc.’s equity that the Class A units, Class B units and Class A-1 units, respectively, had with respect to Kinder Morgan Holdco LLC’s equity.

Kinder Morgan, Inc. Dividends Paid

On February 11, 2011, Kinder Morgan, Inc’s Board of Directors declared and paid a dividend to our existing investors of $245.8 million with respect to the period for which we were not public. This consisted of $205.0 million for the fourth quarter of 2010 and $104.8 million for the first 46 days of 2011, representing the portion of the first quarter of 2011 that we were not public, less a one time adjustment of $64.0 million in available earnings and profits reserved for the after tax cost of one-time cash bonuses (and premium pay) in an aggregate amount of approximately $100 million to certain of our non-executive management employees. We expect to pay such bonuses pursuant to the shareholders’ agreement in the second quarter of 2011. The payment of any bonuses to holders of our Class B shares or Class C shares is subject to supermajority approval of our board of directors in accordance with our bylaws.

11. Related Party Transactions

Significant Investors

One of our investors, Goldman Sachs Capital Partners and certain of its affiliates (Goldman Sachs), is considered “related parties” to us as that term is defined in the authoritative accounting literature. Goldman Sachs has acted in the past, and may act in the future, as an underwriter for equity and/or debt issuances for us, Kinder Morgan Kansas, Inc., KMP and KMR. Also, on January 15, 2010, KMP acquired three ethanol handling train terminals from U.S. Development Group, of which Goldman Sachs effectively owned 49%, for an aggregate consideration of $197.4 million, consisting of $115.7 million in cash and $81.7 million in its common units. The three train terminals are located in Linden, New Jersey , Baltimore, Maryland, and Dallas, Texas. As part of the transaction, KMP announced the formation of a venture with U.S. Development Group to optimize and coordinate customer access to the three acquired terminals, other ethanol terminal assets KMP already owns and operates, and other terminal projects currently under development by both parties. We also conduct commodity risk management activities i~ the ordinary course of implementing our risk management strategies in which the counterparty to certain of our derivative transactions is an affiliate of Goldman Sachs. In conjunction with these activities, we are a party (through one of KMP’s subsidiaries engaged in the production of crude oil) to a hedging facility with J. Aron & Company/Goldman Sachs, which requires us to provide certain periodic information but does not require the posting of margin. As a result of changes in the market value of our derivative positions, we have recorded both amounts receivable fr om and payable to Goldman Sachs affiliates. The following table summarizes the fair values of our energy commodity derivative contracts that are (i) associated with commodity price risk management activities with J. Aron & Company/Goldman Sachs and (ii) included within “Fair value of derivative contracts” in our accompanying consolidated balance sheets (in millions):

	December 31,
	2010			2009
Derivative Assets (Liabilities)
Current Assets: Fair value of derivative contracts	$	-		$	4.3
Assets: Fair value of derivative contracts	$	12.7		$	18.4
Current Liabilities: Fair value of derivative contracts	$	(221.4	)	$	(96.8	)
Long-term Liabilities and Deferred Credits: Fair value of derivative contracts	$	(57.5	)	$	(190.8	)

Cortez Pipeline Company

In March 2008, KMP’s subsidiary Kinder Morgan CO2 Company, L.P. sold certain pipeline meter equipment to Cortez Pipeline Company, its 50% equity investee, for its current fair value of $5.7 million. The meter equipment is still being employed in conjunction with our CO2–business segment.

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Kinder Morgan NatGas Operator LLC

KMP’s subsidiary Kinder Morgan NatGas Operator LLC operates the Rockies Express and the Midcontinent Express natural gas pipeline systems pursuant to two separate operating agreements. It entered into the Rockies Express agreement in April 2008, and according to the provisions of the agreement, it is reimbursed for its costs and it receives a management fee of 1%, based on Rockies Express’ operating income, less all depreciation, depletion and amortization expenses. In 2010 and 2009, it received management fees of $5.4 million and $4.0 million, respectively. Kinder Morgan NatGas Operator LLC operates the Midcontinent Express pipeline system according to the provisions of an operating agreement entered into in March 2007. It is reimbursed for its operating costs; however, it receives no special management fees according to this agreement.

Terminals—KMP Business Segment

Mr. C. Berdon Lawrence, a non-management director on the boards of Kinder Morgan G.P., Inc. and KMR, is also Chairman of the Board of Kirby Corporation. For services in the ordinary course of Kirby Corporation’s and the Terminals—KMP segment’s businesses, Kirby Corporation received payments from KMP’s subsidiaries totaling $39,828, $18,878 and $430,835 in 2010, 2009 and 2008, respectively, and Kirby made payments, in 2008, to KMP’s subsidiaries totaling $144,300.

Notes Receivable

Plantation Pipe Line Company

KMP has a long-term note receivable bearing interest at the rate of 4.72% per annum from Plantation Pipe Line Company, its 51.17%-owned equity investee. The note provides for semiannual payments of principal and interest on June 20 and December 31 each year, with a final principal payment due July 20, 2011. KMP received principal repayment amounts of $2.7 million in 2010. As of December 31, 2010, the outstanding note receivable balance was $82.1 million, and we included this amount within “Accounts, notes and interest receivable, net,” on our accompanying consolidated balance sheet. As of December 31, 2009, the note receivable balance was $84.8 million, and we included $2.6 million within “Accounts, notes and interest receivable, net” on our accompanying consolidated bal ance sheet, and the remaining outstanding balance within “Notes receivable.”

Express US Holdings LP

On June 30, 2008, we exchanged our C$113.6 million preferred equity interest in Express US Holdings LP for two subordinated notes from Express US Holdings LP (the obligor) with a combined face value of $111.4 million (C$113.6 million). The debentures, denominated in Canadian dollars, are due in full on January 9, 2023, each bearing an interest rate of 12.0% per annum and providing for quarterly payments of interest in Canadian dollars on March 31, June 30, September 30 and December 31 each year.

On August 28, 2008, we sold our one-third interest in the net assets of the Express pipeline system (Express), as well as our full ownership of the net assets of the Jet Fuel pipeline system (Jet Fuel), to KMP. This transaction included the sale of the subordinated notes described above. We accounted for this transaction as a transfer of net assets between entities under common control. Therefore, following the sale of Express and Jet Fuel to KMP, KMP recognized the assets and liabilities acquired at our carrying amounts (historical cost) at the date of transfer.

As of December 31, 2010 and 2009, the outstanding note receivable balance, representing the translated amount included in our accompanying consolidated financial statements in U.S. dollars, was $114.2 million and $108.1 million, respectively, and we included these amounts within “Notes receivable” in our accompanying consolidated balance sheets.

NGPL PipeCo LLC

On February 15, 2008, we entered into an Operations and Reimbursement Agreement (Agreement) with NGPL PipeCo LLC. The Agreement provides for us to be reimbursed, at cost, for pre-approved operations and maintenance costs, plus a $43.2 million annual general and administration fixed fee charge (Fixed Fee), for services provided under the Agreement. This Fixed Fee escalates at 3% each year until 2011 and is billed monthly. For the years ended December 31, 2010 and 2009 and 2008, these Fixed Fees totaled $47.2 million, $45.8 million and $39.0 million, respectively. In addition, KMP purchases natural gas transportation and storage services from NGPL. For each of the years ended December 31, 2010, 2009 and 2008, these expenses totaled $7.8 million, $8.8 million and $7.2 million, respectively, and we include these amounts within “Gas purchases and other costs of sales” in our accompanying consolidated statements of income.

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Other Receivables and Payables

As of December 31, 2010 and 2009, our related party receivables (other than notes receivable discussed above in

“– Notes Receivable”) totaled $23.3 million and $14.6 million, respectively. The December 31, 2010 receivables amount consisted of (i) $16.1 million included within “Accounts, notes and interest receivable, net” on our accompanying consolidated balance sheet and (ii) $7.2 million of natural gas imbalance receivables included within “Other current assets.” The $16.1 million amount primarily related to accounts and interest receivables due from the Express pipeline system, the Rockies Express pipeline system and NGPL. The related party natural gas imbalance receivables consisted of amounts due from NGPL. The December 31, 2009 amount consisted of (i) $11.5 million included within “Accounts, notes and interest receivable, net̶ 1; and primarily related to receivables due from the Express pipeline system, the Rockies Express pipeline system and NGPL and (ii) $3.1 million of natural gas imbalance receivables due from NGPL included within “Other current assets” and consisting primarily of amounts due from NGPL.

As of December 31, 2010 and 2009, our related party payables totaled $4.6 million and $1.2 million, respectively. The December 31, 2010 amount consisted of (i) $0.9 million included within “Accounts payable” and primarily related to amounts due to RGZ, Inc. and (ii) $3.7 million of natural gas imbalance payables included within “Accrued other current liabilities” and consisting of amounts due to the Rockies Express pipeline system. The December 31, 2009 related party payable amounts are included within “Accounts payable” on our accompanying balance sheet, and primarily consisted of amounts we owed to RGZ, Inc.

Interest

Our accompanying consolidated statements of income includes related-party net interest income totaling $17.3 million, $16.1 million and $5.5 million for the years ended December 31, 2010, 2009 and 2008, respectively. Related party interest income is primarily related to interest income from Plantation Pipe Line Company and Express US Holdings LP.

12. Commitments and Contingent Liabilities

Leases

The table below depicts future gross minimum rental commitments under our operating leases as of December 31, 2010 (in millions):

Year	Commitment
2011	$	49.6
2012		38.2
2013		29.9
2014		24.5
2015		20.4
Thereafter		63.0
Total minimum payments	$	225.6

The remaining terms on our operating leases, including probable elections to exercise renewal options, range from one to 38 years. We have not reduced our total minimum payments for future minimum sublease rentals aggregating approximately $1.7 million. Total lease and rental expenses were $69.0 million, $73.1 million and $84.2 million for the years ended December 31, 2010, 2009 and 2008, respectively. The amount of capital leases included within “Property, Plant and Equipment, net” in our accompanying consolidated balance sheets as of December 31, 2010 and 2009 are not material to our consolidated balance sheets.

Contingent Debt

KMP’s contingent debt disclosures pertain to certain types of guarantees or indemnifications KMP has made and cover certain types of guarantees included within debt agreements, even if the likelihood of requiring KMP’s performance under such guarantee is remote. Most of these agreements are with entities that are not consolidated in our financial statements; however, KMP has invested in and holds equity ownership interests in these entities.

As of December 31, 2010, KMP’s contingent debt obligations with respect to these investments, as well as KMP’s obligations with respect to related letters of credit, are summarized below (dollars in millions):

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Kinder Morgan, Inc. Form 10-K

Entity	KMP’s Ownership Interest	Investment Type		Total Entity Debt			KMP’s Contingent Share of Entity Debt	(a)
Fayetteville Express Pipeline LLC(b)	50%	Limited Liability	$	940.0	(c)	$	470.0

Cortez Pipeline Company(d)	50%	General Partner	$	142.4	(e)	$	87.3	(f)

Midcontinent Express Pipeline LLC(g)	50%	Limited Liability	$	799.0	(h)	$	16.7	(i)

Nassau County, Florida Ocean Highway and Port Authority(j)	N/A	N/A		N/A		$	18.3	(k)

_________

(a)	Represents the portion of the entity’s debt that KMP may be responsible for if the entity cannot satisfy its obligations.
(b)	Fayetteville Express Pipeline LLC is a limited liability company and the owner of the Fayetteville Express natural gas pipeline system. The remaining limited liability company member interest in Fayetteville Express Pipeline LLC is owned by Energy Transfer Partners, L.P.
(c)	Amount represents borrowings under a $1.1 billion, unsecured revolving bank credit facility that is due May 11, 2012.
(d)	Cortez Pipeline Company is a Texas general partnership that owns and operates a common carrier carbon dioxide pipeline system. The remaining general partner interests are owned by ExxonMobil Cortez Pipeline, Inc., an indirect wholly-owned subsidiary of Exxon Mobil Corporation, and Cortez Vickers Pipeline Company, an indirect subsidiary of M.E. Zuckerman Energy Investors Incorporated.
(e)	Amount consists of (i) $32.1 million of fixed rate Series D notes due May 15, 2013 (interest on the Series D notes is paid annually and based on an average interest rate of 7.14% per annum); (ii) $100.0 million of variable rate Series E notes due December 11, 2012 (interest on the Series E notes is paid quarterly and based on an interest rate of three-month LIBOR plus a spread) and (iii) $10.3 million of outstanding borrowings under a $40.0 million committed revolving bank credit facility that is also due December 11, 2012.
(f)	KMP is severally liable for its percentage ownership share (50%) of the Cortez Pipeline Company debt ($71.2 million). In addition, as of December 31, 2010, Shell Oil Company shares KMP’s several guaranty obligations jointly and severally for $32.1 million of Cortez’s debt balance related to the Series D notes; however, KMP is obligated to indemnify Shell for the liabilities it incurs in connection with such guaranty. Accordingly, as of December 31, 2010, KMP has a letter of credit in the amount of $16.1 million issued by JP Morgan Chase, in order to secure its indemnification obligations to Shell for 50% of the Cortez debt balance of $32.1 million related to the Series D notes.
	Further, pursuant to a Throughput and Deficiency Agreement, the partners of Cortez Pipeline Company are required to contribute capital to Cortez in the event of a cash deficiency. The agreement contractually supports the financings of Cortez Capital Corporation, a wholly-owned subsidiary of Cortez Pipeline Company, by obligating the partners of Cortez Pipeline to fund cash deficiencies at Cortez Pipeline, including anticipated deficiencies and cash deficiencies relating to the repayment of principal and interest on the debt of Cortez Capital Corporation. The partners’ respective parent or other companies further severally guarantee the obligations of the Cortez Pipeline owners under this agreement.
(g)	Midcontinent Express Pipeline LLC is a limited liability company and the owner of the Midcontinent Express natural gas pipeline system. The remaining limited liability company member interests in Midcontinent Express Pipeline LLC are owned by Regency Energy Partners, L.P. and Energy Transfer Partners, L.P.
(h)	Amount consists of an aggregate carrying value of $799.0 million in fixed rate senior notes issued by Midcontinent Express Pipeline LLC in a private offering in September 2009. All payments of principal and interest in respect of these senior notes are the sole obligation of Midcontinent Express. Noteholders have no recourse against KMP or the other member owners of Midcontinent Express Pipeline LLC for any failure by Midcontinent Express to perform or comply with its obligations pursuant to the notes or the indenture.
(i)	As of December 31, 2010, Midcontinent Express had no outstanding borrowings under its $175.4 million, unsecured revolving bank credit facility that is due February 28, 2011. However, its credit facility can be used for the issuance of letters of credit to support the operation of its pipeline system, and as of December 31, 2010, a letter of credit having a face amount of $33.3 million was issued under the credit facility by the Bank of Tokyo-Mitsubishi UFJ, Ltd. KMP’s contingent responsibility with regard to this outstanding letter of credit was $16.7 million (50% of total face amount).
(j)	Arose from KMP’s Vopak terminal acquisition in July 2001. Nassau County, Florida Ocean Highway and Port Authority is a political subdivision of the state of Florida.
(k)	KMP has posted a letter of credit as security for borrowings under Adjustable Demand Revenue Bonds issued by the Nassau County, Florida Ocean Highway and Port Authority. The bonds were issued for the purpose of constructing certain port improvements located in Fernandino Beach, Nassau County, Florida. KMP’s subsidiary, Nassau Terminals LLC, is the operator of the marine port facilities. The bond indenture is for 30 years and allows the bonds to remain outstanding until December 1, 2020.

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Kinder Morgan, Inc. Form 10-K

Principal payments on the bonds are made on the first of December each year, and corresponding reductions are made to the letter of credit. As of December 31, 2010, this letter of credit had a face amount of $18.3 million.

KMP also holds a 50% equity ownership interest in Rockies Express Pipeline LLC, a limited liability company and the owner of the Rockies Express natural gas pipeline system. Subsidiaries of Sempra Energy and ConocoPhillips own the remaining member interests, and pursuant to certain guaranty agreements remaining in effect on December 31, 2009, all three member owners of Rockies Express Pipeline LLC had agreed to guarantee, severally in the same proportion as their percentage ownership of the member interests in Rockies Express Pipeline LLC, borrowings under its $2.0 billion five-year, unsecured revolving bank credit facility that is due April 28, 2011. On April 8, 2010, Rockies Ex press Pipeline LLC amended its bank credit facility to allow for borrowings up to $200 million (a reduction from $2.0 billion), and on this same date, each of its three member owners were released from their respective debt obligations under the previous guaranty agreements. Accordingly, KMP no longer has a contingent debt obligation with respect to Rockies Express Pipeline LLC.

KMP accounts for its investments in Fayetteville Express Pipeline LLC, Cortez Pipeline Company, and Midcontinent Express Pipeline LLC under the equity method of accounting. For the year ended December 31, 2010, KMP’s share of earnings, based on its ownership percentage and before amortization of excess investment cost, if any, was $22.5 million from Cortez Pipeline Company and $30.1 million from Midcontinent Express Pipeline LLC. KMP had no equity earnings from its investment in Fayetteville Express Pipeline LLC during 2010.

Subsequent Event

On February 25, 2011, Midcontinent Express Pipeline amended its bank credit facility to allow for borrowings up to $75.0 million and on this same date each of its member owners, including KMP, were released from their respective debt obligations under the previous guaranty agreements.

13. Risk Management

Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, natural gas liquids and crude oil. We also have exposure to interest rate risk as a result of the issuance of debt obligations by our subsidiaries. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to certain of these risks.

Energy Commodity Price Risk Management

Primarily through our subsidiary, KMP, we are exposed to risks associated with changes in the market price of natural gas, natural gas liquids and crude oil as a result of the forecasted purchase or sale of these products. Specifically, these risks are primarily associated with price volatility related to (i) pre-existing or anticipated physical natural gas, natural gas liquids and crude oil sales; (ii) natural gas purchases and (iii) natural gas system use and storage. Price changes are often caused by shifts in the supply and demand for these commodities, as well as their locations.

The principal use of energy commodity derivative contracts is to mitigate the risk associated with unfavorable market movements in the price of energy commodities. The energy commodity derivative contracts act as a hedging (offset) mechanism against the volatility of energy commodity prices by allowing this price risk to be transferred to counterparties who are able and willing to bear it.

For derivative contracts that are designated and qualify as cash flow hedges pursuant to generally accepted accounting principles, the portion of the gain or loss on the derivative contract that is effective in offsetting the variable cash flows associated with the hedged forecasted transaction is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are commodity sales). The remaining gain or loss on the derivative contract in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), is re cognized in earnings during the current period. The effectiveness of hedges using an option contract may be assessed based on changes in the option’s intrinsic value with the change in the time value of the contract being excluded from the assessment of hedge effectiveness. Changes in the excluded component of the change in an option’s time value are included currently in earnings. During 2010, we recognized a net gain of $5.3 million related to crude oil and natural gas hedges, and resulting from both hedge ineffectiveness and amounts excluded from effectiveness testing. During 2009, we recognized a net loss

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of $13.5 million from crude oil hedges that resulted from hedge ineffectiveness and amounts excluded from effectiveness testing.

Additionally, during each of the two years ended December 31, 2010 and 2009, we reclassified losses of $21.2 million and gains of $39.4 million, respectively, from “Accumulated other comprehensive loss” balance into earnings. No material amounts were reclassified into earnings as a result of the discontinuance of cash flow hedges because it was probable that the original forecasted transactions would no longer occur by the end of the originally specified time period or within an additional two-month period of time thereafter, but rather were reclassified as a result of the hedged forecasted transactions actually affecting earnings (i.e. when the forecasted sales and purchase actually occurred). The proceeds or payments resulting from the settlement of cash flow hedges are reflected in the operating section of our statement of cash flows as changes to net income and working capital.

The “Accumulated other comprehensive loss” balance included in our Members’ Equity was $136.5 million as of December 31, 2010, and $167.9 million as of December 31, 2009. These totals included “Accumulated other comprehensive loss” amounts associated with energy commodity price risk management activities of $93.3 million of losses as of December 31, 2010 and $95.7 million of losses as of December 31, 2009. Approximately $67.3 million of the total loss amount associated with energy commodity price risk management activities and included in our Members’ Equity as of December 31, 2010 is expected to be reclassified into earnings during the next year (when the associated forecasted sales and purchases are also expected to occur). As of December 31, 2010, the maxi mum length of time over which we have hedged our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2015.

As of December 31, 2010, KMP had entered into the following outstanding commodity forward contracts to hedge its forecasted energy commodity purchases and sales:

	Net open position long/(short)
Derivatives designated as hedging contracts
Crude oil	(23.2	)	million barrels
Natural gas fixed price	(19.0	)	billion cubic feet
Natural gas basis	(13.9	)	billion cubic feet
Derivatives not designated as hedging contracts
Natural gas basis	0.5		billion cubic feet

For derivative contracts that are not designated as a hedge for accounting purposes, all realized and unrealized gains and losses are recognized in the statement of income during the current period. These types of transactions include basis spreads, basis-only positions and gas daily swap positions. KMP primarily enters into these positions to economically hedge an exposure through a relationship that does not qualify for hedge accounting. Until settlement occurs, this will result in non-cash gains or losses being reported in our operating results associated with KMP.

Interest Rate Risk Management

In order to maintain a cost effective capital structure, it is our policy to borrow funds using a mix of fixed rate debt and variable rate debt. Interest rate swap agreements are used to manage the interest rate risk associated with the fair value of fixed rate borrowings and to effectively convert a portion of the underlying cash flows related to the long-term fixed rate debt securities into variable rate cash flows in order to achieve our desired mix of fixed and variable rate debt.

Since the fair value of fixed rate debt varies inversely with changes in the market rate of interest, swap agreements are entered into to receive a fixed and pay a variable rate of interest in order to convert the interest expense associated with certain of our subsidiaries’ senior notes from fixed rates to variable rates, resulting in future cash flows that vary with the market rate of interest. These swaps, therefore, hedge against changes in the fair value of the fixed rate debt included in our accompanying balance sheets that result from market interest rate changes. For derivative contracts that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized i n current earnings.

As of December 31, 2010, Kinder Morgan Kansas, Inc. and its subsidiary, KMP, had a notional principal amount of $725 million and $4,775 million, respectively, and as of December 31, 2009, $725 million and $5,200 million, respectively, of fixed-to-variable interest rate swap agreements, effectively converting the interest expense associated with certain senior notes from fixed rates to variable rates based on an interest rate of LIBOR plus a spread. All of Kinder Morgan Kansas, Inc.’s and KMP’s swap agreements have termination dates that correspond to the maturity dates of the

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related series of senior notes and, as of December 31, 2010, the maximum length of time over which we have hedged a portion of our exposure to the variability in the value of this debt due to interest rate risk is through January 15, 2038.

In May 2010, KMP entered into three separate fixed-to-variable interest rate swap agreements having a combined notional principal amount of $400 million. Each agreement effectively converts a portion of the interest expense associated with its 5.30% senior notes due September 15, 2020 from a fixed rate to a variable rate based on an interest rate of LIBOR plus a spread. In November 2010, KMP terminated five of its existing fixed-to-variable swap agreements in separate transactions. These swap agreements had a combined notional principal amount of $825 million, and KMP received combined proceeds of $157.6 million from the early termination of these swap agreements.

Fair Value of Derivative Contracts

The fair values of current and non-current asset and liability derivative contracts are each reported separately as “Fair value of derivative contracts” on our accompanying consolidated balance sheets. The following table summarizes the fair values of derivative contracts included in our accompanying consolidated balance sheets as of December 31, 2010 and 2009 (in millions):

Fair Value of Derivative Contracts

		Asset derivatives				Liability derivatives
		December 31,				December 31,
		2010		2009		2010			2009
	Balance sheet location	Fair value				Fair value
Derivatives designated as hedging contracts
Energy commodity derivative contracts	Current	$	20.1	$	19.1	$	(275.9	)	$	(270.8	)
	Non-current		43.1		57.3		(103.0	)		(241.5	)
Subtotal			63.2		76.4		(378.9	)		(512.3	)

Interest rate swap agreements	Non-current		258.6		236.0		(69.2	)		(218.5	)
Cross currency swap agreements	Non-current		-		-		-			(9.6	)
Total			321.8		312.4		(448.1	)		(740.4	)

Derivatives not designated as hedging contracts

Energy commodity derivative contracts	Current		3.9		1.7		(5.6	)		(1.2	)

Total derivatives		$	325.7	$	314.1	$	(453.7	)	$	(741.6	)

The offsetting entry to adjust the carrying value of the debt securities whose fair value was being hedged is included within “Value of interest rate swaps” on our accompanying consolidated balance sheets, which also includes any unamortized portion of proceeds received from the early termination of interest rate swap agreements. As of December 31, 2010 and 2009, this unamortized premium totaled $461.9 million and $337.5 million, respectively, and as of December 31, 2010, the weighted average amortization period for this premium was approximately 17.1 years.

Effect of Derivative Contracts on the Income Statement

The following four tables summarize the impact of our derivative contracts on our accompanying consolidated statements of income for each of the years ended December 31, 2010 and 2009 (in millions):

Derivatives in fair value hedging relationships	Location of gain/(loss) recognized in income on derivative	Amount of gain/(loss) recognized in income on derivative(a)					Hedged items in fair value hedging relationships	Location of gain/(loss) recognized in income on related hedged item	Amount of gain/(loss) recognized in income on related hedged items(a)
		Year Ended December 31,							Year Ended December 31,
		2010		2009					2010			2009
Interest rate swap agreements	Interest, net – income/(expense)	$	329.5	$	(585.1	)	Fixed rate debt	Interest, net – income/(expense)	$	(329.5	)	$	585.1
Total		$	329.5	$	(585.1	)	Total		$	(329.5	)	$	585.1

____________

190

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

(a)

Amounts reflect the change in the fair value of interest rate swap agreements and the change in the fair value of the associated fixed rate debt which exactly offset each other as a result of no hedge ineffectiveness. Amounts do not reflect the impact on interest expense from the interest rate swap agreements under which we pay variable rate interest and receive fixed rate interest.

Derivatives in cash flow hedging relationships	Amount of gain/(loss) recognized in OCI on derivative (effective portion)				Location of gain/(loss) reclassified from Accumulated OCI into income (effective portion)	Amount of gain/(loss) reclassified from Accumulated OCI into income (effective portion)				Location of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
	Year Ended December 31,					Year Ended December 31,					Year Ended December 31,
	2010		2009			2010		2009			2010		2009
Energy commodity derivative contracts	$	(18.8)	$	(138.7)	Revenues-natural gas sales	$	1.0	$	13.1	Revenues	$	5.3	$	(13.5)
					Revenues-product sales and other		(23.4)		25.7
					Gas purchases and other costs of sales		1.2		0.6	Gas purchases and other costs of sales		-		-
Total	$	(18.8)	$	(138.7)	Total	$	(21.2)	$	39.4	Total	$	5.3	$	(13.5)

____________

Derivatives in cash flow hedging relationships	Amount of gain/(loss) recognized in OCI on derivative (effective portion)				Location of gain/(loss) reclassified from Accumulated OCI into income (effective portion)	Amount of gain/(loss) reclassified from Accumulated OCI into income (effective portion)				Location of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
	Year Ended December 31,					Year Ended December 31,					Year Ended December 31,
	2010		2009			2010		2009			2010		2009
Cross currency swap agreements	$	9.6	$	(41.6)	Other, net	$	-	$	-	Revenues	$	-	$	-
Total	$	9.6	$	(41.6)	Total	$	-	$	-	Total	$	-	$	-

____________

Derivatives not designated as hedging contracts	Location of gain/(loss) recognized in income on derivative	Amount of gain/(loss) recognized in income on derivative
		Year Ended December 31,
		2010		2009
Energy commodity derivative contracts	Gas purchases and other costs of sales	$	2.3	$	(4.2)
Total		$	2.3	$	(4.2)

Net Investment Hedges

We are exposed to foreign currency risk from our investments in businesses owned and operated outside the United States. In 2005 and 2006, Kinder Morgan Kansas, Inc. entered into various cross-currency interest rate swap transactions, which were designated as net investment hedges, in order to hedge the value of the investment in Canadian operations. Over time, as the exposure to foreign currency risk through our Canadian operations was reduced through dispositions, Kinder Morgan Kansas, Inc. began to terminate cross-currency swap agreements. The final cross-currency swap agreements were terminated during the third quarter of 2010 and there were no outstanding cross currency interest rate swaps at December 31, 2010. In the periods with outstanding cross-currency swap agreements, the effective portion of the changes in fair value of these swap transactions was reported as a cumulative translation adjustment included in the balance sheet caption “Accumulated other comprehensive loss.”

191

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Credit Risks

Our subsidiaries, Kinder Morgan Kansas, Inc. and KMP, have counterparty credit risk as a result of the use of financial derivative contracts. These counterparties consist primarily of financial institutions, major energy companies and local distribution companies. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions.

We maintain credit policies with regard to counterparties that we believe minimize our overall credit risk. These policies include (i) an evaluation of potential counterparties’ financial condition (including credit ratings); (ii) collateral requirements under certain circumstances and (iii) the use of standardized agreements which allow for netting of positive and negative exposure associated with a single counterparty. Based on our policies, exposure, credit and other reserves, our management does not anticipate a material adverse effect on our financial position, results of operations, or cash flows as a result of counterparty performance.

Over-the-counter swaps and options are entered into with counterparties outside central trading organizations such as futures, options or stock exchanges. These contracts are with a number of parties, all of which have investment grade credit ratings. While derivative transactions are entered into principally with investment grade counterparties and actively monitor their ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk in the future.

Our maximum potential exposure to credit losses on derivative contracts as of December 31, 2010 was (in millions):

	Asset position
Interest rate swap agreements	$	258.6
Energy commodity derivative contracts		67.1
Gross exposure		325.7
Netting agreement impact		(58.8	)
Net exposure	$	266.9

In conjunction with the purchase of exchange-traded derivative contracts or when the market value of our derivative contracts with specific counterparties exceeds established limits, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. As of December 31, 2010, KMP had no outstanding letters of credit supporting its hedging activities; however, as of December 31, 2009, KMP had outstanding letters of credit totaling $55.0 million in support of its hedging of energy commodity price risks associated with the sale of natural gas, natural gas liquids and crude oil.

Additionally, as of December 31, 2010, KMP’s counterparties associated with its energy commodity contract positions and over-the-counter swap agreements had margin deposits with KMP totaling $2.4 million, and we reported this amount within “Accrued other current liabilities” in our accompanying consolidated balance sheet. As of December 31, 2009, KMP had cash margin deposits associated with its energy commodity contract positions and over-the-counter swap partners totaling $15.2 million, and we reported this amount as “Restricted deposits” in our accompanying consolidated balance sheet.

KMP also has agreements with certain counterparties to its derivative contracts that contain provisions requiring it to post additional collateral upon a decrease in its credit rating. Based on contractual provisions as of December 31, 2010, KMP estimates that if its credit rating was downgraded, it would have the following additional collateral obligations (in millions):

Credit Ratings Downgraded(a)	Incremental obligations		Cumulative Obligations(b)
One notch to BBB-/Baa3	$	-	$	-

Two notches to below BBB-/Baa3 (below investment grade)	$	65.2	$	65.2

__________

(a)

If there are split ratings among the independent credit rating agencies, most counterparties use the higher credit rating to determine our incremental collateral obligations, while the remaining use the lower credit rating. Therefore, a two notch downgrade to below BBB-/Baa3 by one agency would not trigger the entire $65.2 million incremental obligation.

192

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

(b)	Includes current posting at current rating.

14. Fair Value

The Codification emphasizes that fair value is a market-based measurement that should be determined based on assumptions (inputs) that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable, and valuation techniques used to measure fair value should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Accordingly, the Codification establishes a hierarchal disclosure framework that ranks the quality and reliability of information used to determine fair values. The hierarchy is associated with the level of pricing observability utilized in measuring fair value and defines three levels of inputs to the fair value measurement process—quoted prices are the most reliable valuation inputs, whereas model values that include inputs based on unobservable data are the least reliable. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.

The three broad levels of inputs defined by the fair value hierarchy are as follows:

▪

Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

▪

Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and

▪

Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).

Fair Value of Derivative Contracts

The following two tables summarize the fair value measurements of our (i) energy commodity derivative contracts; (ii) interest rate swap agreements and (iii) cross currency interest rate swap agreements as of December 31, 2010 and 2009, based on the three levels established by the Codification (in millions). The fair value measurements as of December 31, 2009 in the two tables below do not include cash margin deposits of $15.2 million, which are reported separately as “Restricted deposits” in our accompanying consolidated balance sheet (in millions):

	Asset fair value measurements using
	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of December 31, 2010
Energy commodity derivative contracts(a)	$	67.1	$	-	$	23.5	$	43.6
Interest rate swap agreements	$	258.6	$	-	$	258.6	$	-

As of December 31, 2009
Energy commodity derivative contracts(a)	$	78.1	$	-	$	14.4	$	63.7
Interest rate swap agreements	$	236.0	$	-	$	236.0	$	-

	Liability fair value measurements using
	Total			Quoted prices in active markets for identical liabilities (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
As of December 31, 2010
Energy commodity derivative contracts(b)	$	(384.5	)	$	-	$	(359.7	)	$	(24.8	)
Interest rate swap agreements	$	(69.2	)	$	-	$	(69.2	)	$	-

As of December 31, 2009
Energy commodity derivative contracts(b)	$	(513.5	)	$	-	$	(462.8	)	$	(50.7	)
Interest rate swap agreements	$	(218.5	)	$	-	$	(218.5	)	$	-
Cross currency interest rate swap agreements	$	(9.6	)	$	-	$	(9.6	)	$	-

__________

193

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

(a)	Level 2 consists primarily of OTC natural gas hedges that are settled on NYMEX. Level 3 consists primarily of natural gas options and West Texas Intermediate options.
(b)	Level 2 consists primarily of OTC West Texas Intermediate hedges and OTC natural gas hedges that are settled on NYMEX. Level 3 consists primarily of natural gas basis swaps and West Texas Intermediate options.

The table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts for each of the years ended December 31, 2010 and 2009 (in millions):

Significant unobservable inputs (Level 3)

	Year Ended December 31,
	2010			2009
Derivatives-net asset (liability)
Beginning of period	$	13.0		$	44.1
Realized and unrealized net gains (losses)		1.7			(48.4	)
Purchases and settlements		4.1			17.3
Transfers in (out) of Level 3		-			-
End of period	$	18.8		$	13.0

Change in unrealized net losses relating to contracts still held at end of period	$	(10.7	)	$	(42.1	)

Fair Value of Financial Instruments

Fair value as used in the disclosure of financial instruments represents the amount at which an instrument could be exchanged in a current transaction between willing parties. As of each reporting date, the estimated fair value of our outstanding publicly-traded debt is based upon quoted market prices, if available, and for all other debt, fair value is based upon prevailing interest rates currently available to us. In addition, we adjust (discount) the fair value measurement of our long-term debt for the effect of credit risk.

The estimated fair value of our outstanding debt balance as of December 31, 2010 and 2009 (both short-term and long-term, but excluding the value of interest rate swaps), is disclosed below (in millions):

	December 31, 2010				December 31, 2009
	Carrying Value		Estimated fair value		Carrying Value		Estimated fair value
Total Debt(a)	$	15,169.9	$	16,129.1	$	13,648.4	$	14,158.2

__________

(a)	The 2010 amounts include the $750.0 million of 5.35% senior notes paid on January 5, 2011 (see note 8 “Debt – Subsequent Events”)

15. Reportable Segments

We divide our operations into the following reportable business segments. These segments and their principal source of revenues are as follows:

▪

Products Pipelines—KMP— the transportation and terminaling of refined petroleum products, including gasoline, diesel fuel, jet fuel and natural gas liquids;

▪

Natural Gas Pipelines—KMP—the sale, transport, processing, treating, storage and gathering of natural gas;

▪

CO2—KMP—the production and sale of crude oil from fields in the Permian Basin of West Texas and the transportation and marketing of carbon dioxide used as a flooding medium for recovering crude oil from mature oil fields;

▪

Terminals—KMP—the transloading and storing of refined petroleum products and dry and liquid bulk products, including coal, petroleum coke, cement, alumina, salt and other bulk chemicals;

194

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

▪

Kinder Morgan Canada—KMP—the transportation of crude oil and refined products from Alberta, Canada to marketing terminals and refineries in British Columbia, the state of Washington and the Rocky Mountains and Central regions of the United States;

▪

NGPL PipeCo LLC— consists of our 20% interest in NGPL PipeCo LLC, the owner of Natural Gas Pipeline Company of America and certain affiliates, collectively referred to as Natural Gas Pipeline Company of America or NGPL, a major interstate natural gas pipeline and storage system, which we operate; and

▪

Power— during the historical periods presented in this report, we had a business segment referred to as ‘‘Power,’’ which consisted of our ownership of a natural gas-fired electric generation facilities. On October 22, 2010, we sold our facility located in Michigan, referred to as ‘‘Triton Power,’’ for approximately $15.0 million in cash (see Note 3).

On August 28, 2008, we sold our one-third interest in the net assets of the Express pipeline system (Express), as well as our full ownership of the net assets of the Jet Fuel pipeline system (Jet Fuel), to KMP. We accounted for this transaction as a transfer of net assets between entities under common control. Therefore, following the sale of Express and Jet Fuel to KMP, KMP recognized the assets and liabilities acquired at our carrying amounts (historical cost) at the date of transfer. The results of Express and Jet Fuel are reported in the Kinder Morgan Canada—KMP segment for all periods presented.

On February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC business segment to Myria (see Note 3). Effective February 15, 2008, we began to account for the results of operations of the NGPL PipeCo LLC segment as an equity investment.

We evaluate performance principally based on each segments’ earnings before depreciation, depletion and amortization expenses (including amortization of excess cost of equity investments), which excludes general and administrative expenses, third-party debt costs and interest expense, unallocable interest income, and unallocable income tax expense. Our reportable segments are strategic business units that offer different products and services, and they are based on the way our chief operating decision maker organizes the operations within our enterprise for assessing performance and allocating resources. Each segment is managed separately because each segment involves different products and marketing strategies.

Because KMP’s partnership agreement requires it to distribute 100% of its available cash to its partners on a quarterly basis (KMP’s available cash consists primarily of all of its cash receipts, less cash disbursements and changes in reserves), we consider each period’s earnings before all non-cash depreciation, depletion and amortization expenses to be an important measure of business segment performance for our segments that are also segments of KMP. We account for intersegment sales at market prices, while we account for asset transfers at either market value or, in some instances, book value.

During 2010, 2009 and 2008, we did not have revenues from any single customer that exceeded 10% of our consolidated revenues.

195

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Financial information by segment follows (in millions):

	Year Ended December 31,
	2010			2009			2008
Revenues
Products Pipelines—KMP
Revenues from external customers	$	883.0		$	826.6		$	815.9
Natural Gas Pipelines—KMP
Revenues from external customers		4,416.5			3,806.9			8,422.0
CO2—KMP
Revenues from external customers		1,298.4			1,131.3			1,269.2
Terminals—KMP
Revenues from external customers		1,264.0			1,108.1			1,172.7
Intersegment revenues		1.1			0.9			0.9
Kinder Morgan Canada—KMP
Revenues from external customers		268.5			226.1			198.9
NGPL PipeCo LLC(a)
Revenues from external customers		-			-			132.1
Intersegment revenues		-			-			0.9
Power(b)
Revenues from external customers		9.4			40.4			44.0
Other
NGPL PipeCo LLC fixed fee revenue		47.2			45.8			39.0
Other revenues		3.6			-			1.0
Intersegment revenues		-			-			(0.9	)
Total segment revenues		8,191.7			7,186.1			12,095.7
Less: Total intersegment revenues		(1.1	)		(0.9	)		(0.9	)
Total consolidated revenues	$	8,190.6		$	7,185.2		$	12,094.8

	Year Ended December 31,
	2010			2009			2008
Operating expenses(c)
Products Pipelines—KMP(d)	$	414.6		$	269.5		$	291.0
Natural Gas Pipelines—KMP		3,756.8			3,192.7			7,803.3
CO2—KMP		308.1			271.1			391.8
Terminals—KMP		629.2			536.8			631.8
Kinder Morgan Canada—KMP		91.6			72.5			68.0
NGPL PipeCo LLC(a)		-			-			43.5
Power(b)		5.3			23.6			24.8
Other		2.1			0.1			0.1
Total segment operating expenses		5,207.7			4,366.3			9,254.3
Less: Total intersegment operating expenses		(1.1	)		(0.9	)		(0.9	)
Total consolidated operating expenses	$	5,206.6		$	4,365.4		$	9,253.4

	Year Ended December 31,
	2010			2009			2008
Other expense (income)
Products Pipelines—KMP(e)	$	11.8		$	1.1		$	1,269.5
Natural Gas Pipelines—KMP(e)		0.9			(6.6	)		2,090.0
CO2—KMP		-			-			-
Terminals—KMP(e)		(3.3	)		(25.0	)		683.0
Kinder Morgan Canada—KMP		-			-			-
Other		(16.0	)		(0.1	)		0.1
Total consolidated other expense (income)	$	(6.6	)	$	(30.6	)	$	4,042.6

196

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

	Year Ended December 31,
	2010		2009		2008
Depreciation, depletion and amortization
Products Pipelines—KMP	$	127.0	$	121.3	$	116.9
Natural Gas Pipelines—KMP		150.3		120.5		99.9
CO2—KMP		542.9		620.6		498.1
Terminals—KMP		215.5		169.1		157.4
Kinder Morgan Canada—KMP		42.9		38.5		36.7
NGPL PipeCo LLC(a)		-		-		9.3
Other		0.2		0.2		0.1
Total consolidated depreciation, depletion and amortization	$	1,078.8	$	1,070.2	$	918.4

	Year Ended December 31,
	2010			2009			2008
Earnings (loss) from equity investments
Products Pipelines—KMP	$	22.8		$	18.7		$	15.7
Natural Gas Pipelines—KMP		169.1			141.8			113.4
CO2—KMP		22.5			22.3			20.7
Terminals—KMP		1.7			0.7			2.7
Kinder Morgan Canada—KMP		(3.3	)		(4.1	)		8.3
NGPL PipeCo LLC(a)(f)		(399.0	)		42.5			40.3
Power		-			-			-
Other		-			-			-
Total consolidated equity earnings (loss)	$	(186.2	)	$	221.9		$	201.1

	Year Ended December 31,
	2010		2009		2008
Amortization of excess cost of equity investments
Products Pipelines—KMP	$	3.4	$	3.4	$	3.3
Natural Gas Pipelines—KMP		0.4		0.4		0.4
CO2—KMP		2.0		2.0		2.0
Terminals—KMP		-		-		-
Kinder Morgan Canada—KMP		-		-		-
Total consolidated amortization of excess cost of equity investments	$	5.8	$	5.8	$	5.7

	Year Ended December 31,
	2010		2009		2008
Interest income
Products Pipelines—KMP	$	4.0	$	4.1	$	4.3
Natural Gas Pipelines—KMP		2.3		6.2		1.2
CO2—KMP		2.0		-		-
Terminals—KMP		-		-		-
Kinder Morgan Canada—KMP		13.2		12.0		3.9
Total segment interest income		21.5		22.3		9.4
Unallocated interest income		1.9		3.4		38.1
Total consolidated interest income	$	23.4	$	25.7	$	47.5

197

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

	Year Ended December 31,
	2010			2009		2008
Other, net-income (expense)
Products Pipelines—KMP	$	12.4		$	8.3	$	(2.3	)
Natural Gas Pipelines—KMP		2.0			25.6		15.1
CO2—KMP		2.5			-		1.9
Terminals—KMP		4.7			3.7		1.7
Kinder Morgan Canada—KMP		2.6			11.9		(10.1	)
Other		(0.1	)		-		0.7
Total consolidated other, net-income (expense)	$	24.1		$	49.5	$	7.0

	Year Ended December 31,
	2010			2009			2008
Income tax benefit (expense)
Products Pipelines—KMP	$	1.1		$	(3.1	)	$	4.9
Natural Gas Pipelines—KMP		(3.3	)		(5.7	)		(2.7	)
CO2—KMP		0.9			(4.0	)		(3.9	)
Terminals—KMP		(5.3	)		(5.2	)		(19.7	)
Kinder Morgan Canada—KMP		(7.8	)		(18.9	)		19.0
Total segment income tax expense		(14.4	)		(36.9	)		(2.4	)
Unallocated income tax expense		(153.2	)		(289.7	)		(301.9	)
Total consolidated income tax expense	$	(167.6	)	$	(326.6	)	$	(304.3	)

	Year Ended December 31,
	2010			2009			2008
Segment earnings (loss) before depreciation, depletion, amortization and amortization of excess cost of equity investments(g)
Products Pipelines—KMP	$	496.9		$	584.0		$	(722.0	)
Natural Gas Pipelines—KMP		828.9			788.7			(1,344.3	)
CO2—KMP		1,018.2			878.5			896.1
Terminals—KMP		640.3			596.4			(156.5	)
Kinder Morgan Canada—KMP		181.6			154.5			152.0
NGPL PipeCo LLC(a)(f)		(399.0	)		42.5			129.8
Power		4.1			4.8			5.7
Segment earnings (loss) before depreciation, depletion, amortization and amortization of excess cost of equity investments		2,771.0			3,049.4			(1,039.2	)
Total segment depreciation, depletion and amortization		(1,078.8	)		(1,070.2	)		(918.4	)
Total segment amortization of excess cost of equity investments		(5.8	)		(5.8	)		(5.7	)
NGPL PipeCo LLC fixed fee revenue		47.2			45.8			39.0
Other revenues		3.6			-			-
General and administrative expenses		(631.1	)		(373.0	)		(352.5	)
Unallocable interest and other, net(h)		(652.6	)		(583.7	)		(623.6	)
Unallocable income tax expense		(153.2	)		(289.7	)		(301.9	)
Income (loss) from continuing operations	$	300.3		$	772.8		$	(3,202.3	)

	Year Ended December 31,
	2010		2009		2008
Capital expenditures(i)
Products Pipelines—KMP	$	144.2	$	199.8	$	221.7
Natural Gas Pipelines—KMP		135.4		372.0		946.5
CO2—KMP		372.8		341.8		542.6
Terminals—KMP		326.3		378.2		454.1
Kinder Morgan Canada—KMP		22.2		32.0		368.1
NGPL PipeCo LLC(a)		-		-		10.3
Other		1.6		0.5		2.0
Total consolidated capital expenditures	$	1,002.5	$	1,324.3	$	2,545.3

198

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

	2010		2009
Investments at December 31
Products Pipelines—KMP	$	354.9	$	346.9
Natural Gas Pipelines—KMP		3,563.3		2,542.8
CO2—KMP		9.9		11.2
Terminals—KMP		27.4		18.7
Kinder Morgan Canada—KMP		69.8		68.7
NGPL PipeCo LLC(a)		265.6		698.5
Total segment investments		4,290.9		3,686.8
Other		0.2		8.8
Total consolidated investments	$	4,291.1	$	3,695.6

	2010		2009
Assets at December 31
Products Pipelines—KMP	$	5,650.9	$	5,614.7
Natural Gas Pipelines—KMP		10,960.0		9,956.7
CO2—KMP		4,057.2		4,230.5
Terminals—KMP		5,009.3		4,537.3
Kinder Morgan Canada—KMP		1,870.0		1,797.7
NGPL PipeCo LLC(a)		265.6		698.5
Power (b)		-		67.6
Total segment assets		27,813.0		26,903.0
Other(j)		1,095.1		678.0
Total consolidated assets	$	28,908.1	$	27,581.0

____________

(a)	Effective February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC to Myria. As a result of the sale, beginning February 15, 2008, we account for our 20% ownership interest in NGPL PipeCo LLC as an equity method investment and 100% of NGPL PipeCo LLC revenues, earnings and assets prior to the sale, are included in the above tables.
(b)	Upon the adoption of Accounting Standards Update No. 2009-17, which amended the codification’s “Consolidation” topic, on January 1, 2010, Triton Power operations are no longer be consolidated into our financial statements, but are treated as an equity investment, resulting in decreases to revenues, operating expenses and noncontrolling interests with no impact to segment earnings before DD&A (see Note 18). As noted preceding, Triton Power was sold for approximately $15.0 million on October 22, 2010.
(c)	Includes natural gas purchases and other costs of sales, operations and maintenance expenses, fuel and power expenses and taxes, other than income taxes.
(d)	2010 amount includes a $172.0 million litigation reserve related to KMP’s West Coast pipeline rate case (see Note 16).
(e)	2008 includes non-cash goodwill impairment charges (see Note 7).
(f)	2010 amount includes an impairment charge of $430.0 million to reduce the carrying value of our investment in NGPL PipeCo LLC (see Note 6).
(g)	Includes revenues, earnings from equity investments, allocable interest income, and other, net, less operating expenses, allocable income taxes, and other expense (income).
(h)	Includes (i) interest expense and (ii) miscellaneous other income and expenses not allocated to business segments.
(i)	Sustaining capital expenditures, including KMP’s share of Rockies Express’ sustaining capital expenditures, for each of the years ended December 31, 2010, 2009 and 2008, were $180.8 million, $172.7 million and $183.9 million, respectively.
(j)	Includes cash and cash equivalents, margin and restricted deposits, unallocable interest receivable, prepaid assets and deferred charges, and risk management assets related to the fair value of interest rate swaps.

We do not attribute interest and debt expense to any of our reportable business segments. For each of the years ended December 31, 2010, 2009 and 2008, we reported total consolidated interest expense of $668.3 million, $599.1 million and $675.8 million, respectively.

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Kinder Morgan, Inc. Form 10-K

Following is geographic information regarding the revenues and long-lived assets of our business segments (in millions):

	Year Ended December 31,
	2010		2009		2008
Revenues from external customers
United States	$	7,814.6	$	6,862.3	$	11,804.2
Canada		356.5		301.9		269.3
Mexico and other(a)		19.5		21.0		21.3
Total consolidated revenues from external customers	$	8,190.6	$	7,185.2	$	12,094.8

	2010		2009		2008
Long-lived assets at December 31(b)
United States	$	19,926.5	$	19,263.5	$	17,511.1
Canada		1,928.7		1,834.3		1,568.7
Mexico and other(a)		95.9		98.8		97.7
Total consolidated long-lived assets	$	21,951.1	$	21,196.6	$	19,177.5

__________

(a)	Includes operations in Mexico and the Netherlands.
(b)	Long-lived assets exclude (i) goodwill and (ii) other intangibles, net.

16. Litigation, Environmental and Other Contingencies

Below is a brief description of our ongoing material legal proceedings, including any material developments that occurred in such proceedings during 2010. This note also contains a description of any material legal proceedings that were initiated against us during 2010, and a description of any material events occurring subsequent to December 31, 2010 but before the filing of this report.

In this note, we refer to KMP’s subsidiary SFPP, L.P. as SFPP; KMP’s subsidiary Calnev Pipe Line LLC as Calnev; Chevron Products Company as Chevron; Navajo Refining Company, L.P. as Navajo; BP West Coast Products, LLC as BP; ConocoPhillips Company as ConocoPhillips; Tesoro Refining and Marketing Company as Tesoro; Texaco Refining and Marketing Inc. as Texaco; Western Refining Company, L.P. as Western Refining; ExxonMobil Oil Corporation as ExxonMobil; Valero Energy Corporation as Valero; Valero Marketing and Supply Company as Valero Marketing; Continental Airlines, Inc., Northwest Airlines, Inc., Southwest Airlines Co. and US Airways, Inc., collectively, as the Airlines; KMP’s subsidiary Kinder Morgan CO2 Company, L.P. (the s uccessor to Shell CO2 Company, Ltd.) as Kinder Morgan CO2; the United States Court of Appeals for the District of Columbia Circuit as the D.C. Circuit; the Federal Energy Regulatory Commission as the FERC; the California Public Utilities Commission as the CPUC; the United States Department of the Interior, Minerals Management Service as the MMS; the Union Pacific Railroad Company (the successor to Southern Pacific Transportation Company) as UPRR; the Texas Commission of Environmental Quality as the TCEQ; The Premcor Refining Group, Inc. as Premcor; Port Arthur Coker Company as PACC; KMP’s subsidiary Kinder Morgan Bulk Terminals, Inc. as KMBT; KMP’s subsidiary Kinder Morgan Liquids Terminals LLC as KM LT; Rockies Express Pipeline LLC as Rockies Express; and Plantation Pipe Line Company as Plantation. “OR” dockets designate complaint proceed ings, and “IS” dockets designate protest proceedings.

Federal Energy Regulatory Commission Proceedings

The tariffs and rates charged by SFPP and Calnev are subject to numerous ongoing proceedings at the FERC, including the shippers’ complaints and protests regarding interstate rates on the pipeline systems listed below. These complaints and protests have been filed over numerous years beginning in 1992 through and including 2009. In general, these complaints and protests allege the rates and tariffs charged by SFPP are not just and reasonable. If the shippers are successful in proving their claims, they are entitled to seek reparations (which may reach up to two years prior to the filing of their complaints) or refunds of any excess rates paid, and SFPP may be required to reduce its rates going forward. These proceedings tend to be protracted, with decisions of the FERC often appealed to the federal courts.

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As to SFPP, the issues involved in these proceedings include, among others: (i) whether certain of KMP’s Pacific operations’ rates are “grandfathered” under the Energy Policy Act of 1992, and therefore deemed to be just and reasonable; (ii) whether “substantially changed circumstances” have occurred with respect to any grandfathered rates such that those rates could be challenged; (iii) whether indexed rate increases are justified and (iv) the appropriate level of return and income tax allowance KMP may include in its rates. The issues involving Calnev are similar.

SFPP

As a result of FERC’s approval in May 2010 of a settlement agreement with eleven of twelve shipper litigants, a wide range of rate challenges dating back to 1992 were resolved (Historical Cases Settlement). The Historical Cases Settlement resolved all but two of the cases outstanding between SFPP and the eleven shippers, and SFPP does not expect any material adverse impacts from the remaining two unsettled cases with the eleven shippers.

The Historical Cases Settlement and other legal reserves related to SFPP rate litigation resulted in a $158.0 million charge to earnings in the first quarter of 2010, and in June 2010, KMP made settlement payments of $206.3 million to the eleven shippers. However, because a portion of KMP’s partnership distributions for the second quarter of 2010 (which KMP paid in August 2010) was a distribution of cash from interim capital transactions (rather than a distribution of cash from operations) our second quarter 2010 distribution from KMP was reduced by $170.0 million and our second quarter pre-tax earnings were reduced by $168.3 million. As provided in KMP’s partnership agreement, we receive no incentive distribution on ICT Distributions; therefore, there was no practical impact to KMP’s li mited partners from this ICT Distribution because (i) the expected cash distribution to the limited partners did not change; (ii) fewer dollars in the aggregate were distributed, because there was no incentive distribution paid to us related to the portion of the quarterly distribution that was an ICT Distribution and (iii) we, in this instance, have agreed to waive any resetting of the incentive distribution target levels, as would otherwise occur according to KMP’s partnership agreement.

KMP’s second quarter 2010 ICT Distribution is expected to allow it to resolve the remaining FERC rate cases (discussed above) and CPUC rate cases (discussed below) without impacting future distributions. Due to our support, KMP was able to make $4.40 in distributions per unit to its limited partners for 2010.

Furthermore, (i) KMP’s declared cash distributions for both the third and fourth quarters of 2010 contain no distributions of cash from interim capital transactions, but instead consist entirely of distributions of cash from operations and (ii) KMP recognized a $14.0 million increase in expense in December 2010 associated with overall adjustments to its rate case liabilities. For more information on KMP’s partnership distributions, see Note 10 “Members’ Equity—KMP—Distributions.”

Chevron is the only shipper who was not a party to the Historical Cases Settlement. In December 2010, an agreement in principle was reached with Chevron, and in February 2011, an uncontested settlement was filed at the FERC which the chief judge certified to the FERC. The FERC has not yet acted on the certified settlement. Upon approval by the FERC, the settlement will resolve the following dockets now pending only as to Chevron:

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FERC Docket Nos. OR92-8, et al. (West and East Line Rates)—Chevron protests of compliance filings pending with FERC and appeals pending at the D.C. Circuit;

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FERC Docket Nos. OR96-2, et al. (All SFPP Rates)—Chevron (as a successor-in-interest to Texaco) protests of compliance filings pending with FERC;

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FERC Docket No. OR02-4 (All SFPP Rates)—Chevron appeal of complaint dismissal pending at the D.C. Circuit;

▪

FERC Docket No. OR03-5 (West, East, North, and Oregon Line Rates)—Chevron exceptions to initial decision pending at FERC;

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FERC Docket No. OR07-4 (All SFPP Rates)—Chevron complaint held in abeyance;

▪

FERC Docket No. OR09-8 (consolidated) (2008 Index Increases)—Hearing regarding Chevron complaint held in abeyance pending settlement discussions;

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FERC Docket No. IS98-1 (Sepulveda Line Rates)—Chevron protests to compliance filing pending at FERC;

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FERC Docket No. IS05-230 (North Line Rates)—Chevron exceptions to initial decision pending at FERC;

▪

FERC Docket No. IS07-116 (Sepulveda Line Rates)—Chevron protest subject to resolution of IS98-1 proceeding;

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FERC Docket No. IS08-137 (West and East Line Rates)—Chevron protest subject to resolution of the OR92-8/OR96-2 proceeding;

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▪

FERC Docket No. IS08-302 (2008 Index Rate Increases)—Chevron protest subject to the resolution of proceedings regarding the West, North and Sepulveda Lines; and

▪

FERC Docket No. IS09-375 (2009 Index Rate Increases)—Chevron protest subject to resolution of proceedings regarding the North, West and Sepulveda Lines.

The following dockets, which pertain to all protesting shippers, are either pending or recently resolved, as noted below:

▪

FERC Docket No. IS08-390 (West Line Rates)—Protestants: BP, ExxonMobil, ConocoPhillips, Valero Marketing, Chevron, the Airlines—Status: FERC order issued on February 17, 2011. While the order made certain findings that were adverse to SFPP, it ruled in favor of SFPP on many significant issues. SFPP will file a rehearing request on certain adverse findings. It is not possible to predict the outcome of FERC review of the rehearing request or appellate review of this order; and

▪

FERC Docket No. IS09-437 (East Line Rates)—Protestants: BP, ExxonMobil, ConocoPhillips, Valero, Chevron, Western Refining, and Southwest Airlines—Status: Initial decision issued on February 10, 2011. A FERC administrative law judge generally made findings adverse to SFPP, found that East Line rates should have been lower, and recommended that SFPP pay refunds for alleged over-collections. SFPP will file a brief with the FERC taking exception to these and other portions of the initial decision. The FERC will review the initial decision and while the initial decision is inconsistent with a number of the issues ruled on in FERC’s February 17, 2011 Order IS08-390, it is not possible to predict the outcome of FERC or appellate review.

Calnev

▪

FERC Docket Nos. OR07-7, OR07-18, OR07-19 & OR07-22 (not consolidated) (Calnev Rates)—Complainants: Tesoro, Airlines, BP, Chevron, ConocoPhillips and Valero Marketing—Status: Complaint amendments pending before FERC;

▪

FERC Docket No. IS09-377 (2009 Index Rate Increases)—Protestants: BP, Chevron, and Tesoro—Status: Requests for rehearing of FERC dismissal pending before FERC;

▪

FERC Docket Nos. OR09-11/OR09-14 (not consolidated) (2007 and 2008 Page 700 Audit Request)—Complainants: BP/Tesoro—Status: BP petition for review at D.C. Circuit dismissed, mandate issued in June 2010;

▪

FERC Docket Nos. OR09-15/OR09-20 (not consolidated) (Calnev Rates)—Complainants: Tesoro/BP—Status: Complaints pending at FERC; and

▪

FERC Docket Nos. OR09-18/OR09-22 (not consolidated) (2009 Index Increases)—Complainants: Tesoro/BP—Status: BP petition for review at D.C. Circuit dismissed, mandate issued in June 2010.

Natural Gas Pipeline Company of America LLC Section 5 Proceeding

On November 19, 2009, the FERC initiated an investigation, pursuant to Section 5 of the Natural Gas Act, into the justness and reasonableness of the transportation and storage rates as well as the fuel and natural gas lost percentages of NGPL PipeCo LLC’s subsidiary, Natural Gas Pipeline Company of America LLC (NGPL). NGPL reached a settlement in principal with the FERC on April 22, 2010. On June 11, 2010, NGPL filed an offer of settlement, which was approved without modification by the FERC on July 29, 2010. The order approving the settlement has become final and nonappealable. The settlement resolved all issues in the proceeding. The settlement provides that NGPL will reduce its fuel costs and gas lost and unaccounted for, or ‘& #8216;GL&U,’’ retention factors as of July 1, 2010. The settlement further provides a timeline for additional prospective fuel and GL&U reductions and prospective reductions in the maximum recourse reservation rates that it bills firm transportation and storage shippers. Also, see Note 6 “Investments.”

Trailblazer Pipeline Company LLC

On July 7, 2010, KMP’s subsidiary Trailblazer Pipeline Company LLC (Trailblazer) refunded a total of approximately $0.7 million to natural gas shippers covering the period January 1, 2010 through May 31, 2010 as part of a settlement reached with shippers to eliminate the December 1, 2009 rate filing obligation contained in its Docket No. RP03-162 rate case settlement. As part of the agreement with shippers, Trailblazer commenced billing reduced tariff rates as of June 1, 2010 with an additional reduction in tariff rates to take effect January 1, 2011.

Kinder Morgan Interstate Gas Transmission LLC Section 5 Proceeding

On November 18, 2010, KMP’s subsidiary Kinder Morgan Interstate Gas Transmission LLC (KMIGT) was notified by the FERC of a proceeding against it pursuant to Section 5 of the Natural Gas Act. The proceeding will set the matter

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for hearing and determine whether KMIGT’s current rates, which were approved by the FERC in KMIGT’s last transportation rate case settlement, remain just and reasonable. The FERC made no findings in its order as to what would constitute just and reasonable rates or a reasonable return for KMIGT. A proceeding under Section 5 of the Natural Gas Act is prospective in nature and any potential change in rates charged customers by KMIGT can only occur after the FERC has issued a final order. Prior to that, an Administrative Law Judge will preside over an evidentiary hearing and make an initial decision (which the FERC has directed to be issued within 47 weeks). The final FERC decision will be based on the record developed before the Administrative Law Judge. We do not believe that this investigation will have a material adverse impact on us.

California Public Utilities Commission Proceedings

SFPP has previously reported ratemaking and complaint proceedings pending with the CPUC. The ratemaking and complaint cases generally involve challenges to rates charged by SFPP for intrastate transportation of refined petroleum products through its pipeline system in the state of California and request prospective rate adjustments and refunds with respect to tariffed and previously untariffed charges for certain pipeline transportation and related services. These matters have been consolidated and assigned to two administrative law judges.

On April 6, 2010, a CPUC administrative law judge issued a proposed decision in several intrastate rate cases involving SFPP and a number of its shippers. The proposed decision includes determinations on issues, such as SFPP’s entitlement to an income tax allowance and allocation of environmental expenses that KMP’s believes are contrary both to CPUC policy and precedent and to established federal regulatory policies for pipelines. Moreover, the proposed decision orders refunds relating to these issues where the underlying rates were previously deemed reasonable by the CPUC, which KMP believes to be contrary to California law. Based on KMP’s review of these CPUC proceedings, KMP estimates that its maximum exposure is approximately $220 million in reparation and refund payments and if the determinat ions made in the proposed decision were applied prospectively in two pending cases this could result in approximately $30 million in annual rate reductions.

The proposed decision is advisory in nature and can be rejected, accepted or modified by the CPUC. SFPP filed comments on May 3, 2010 outlining what it believes to be the errors in law and fact within the proposed decision and on May 5, 2010, SFPP made oral arguments before the full CPUC. The matter remains pending before the CPUC, which may act at any time at its scheduled bimonthly meetings. Further procedural steps, including motions for rehearing and writ of review to California’s Court of Appeals, will be taken if warranted. KMP does not expect the final resolution of this matter to have an impact on its expected distributions to its limited partners for 2011.

Carbon Dioxide Litigation

Gerald O. Bailey et al. v. Shell Oil Co. et al, Southern District of Texas Lawsuit

Kinder Morgan CO2, KMP and Cortez Pipeline Company are among the defendants in a proceeding in the federal courts for the Southern District of Texas, Gerald O. Bailey et al. v. Shell Oil Company et al. (Civil Action Nos. 05-1029 and 05-1829 in the U.S. District Court for the Southern District of Texas—consolidated by Order dated July 18, 2005). The plaintiffs assert claims for the underpayment of royalties on carbon dioxide produced from the McElmo Dome unit, located in southwestern Colorado. The plaintiffs assert claims for fraud/fraudulent inducement, real estate fraud, negligent misrepresentation, breach of fiduciary and agency duties, breach of contract and covenants, violation of the Colorado Unfair Practices Act, civil theft under Colorado law, conspiracy, unjust enrichment, and open account. Plaintiffs Gerald O. Bailey, Harry Ptasynski, and W.L. Gray & Co. also assert claims as private relators under the False Claims Act, claims on behalf of the State of Colorado and Montezuma County, Colorado, and claims for violation of federal and Colorado antitrust laws. The plaintiffs seek actual damages, treble damages, punitive damages, a constructive trust and accounting, and declaratory relief. The defendants filed motions for summary judgment on all claims.

On April 22, 2008, the federal district court granted defendants’ motions for summary judgment and ruled that plaintiffs Bailey and Ptasynski take nothing on their claims, and that the claims of Gray be dismissed with prejudice. The court entered final judgment in favor of the defendants on April 30, 2008. The plaintiffs appealed to the United States Fifth Circuit Court of Appeals. On June 16, 2010, the Fifth Circuit Court of Appeals affirmed the trial court’s summary judgment decision. On October 18, 2010, the U.S. Supreme Court denied Gerald Bailey’s petition for writ of certiorari to the U.S. Supreme Court seeking further appellate review of the Fifth Circuit Court of Appeals’ decision.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

CO2 Claims Arbitration

Kinder Morgan CO2 and Cortez Pipeline Company were among the named defendants in CO2 Committee, Inc. v. Shell Oil Co., et al., an arbitration initiated on November 28, 2005. The arbitration arose from a dispute over a class action settlement agreement which became final on July 7, 2003 and disposed of five lawsuits formerly pending in the U.S. District Court, District of Colorado. The plaintiffs in such lawsuits primarily included overriding royalty interest owners, royalty interest owners, and small share working interest owners who alleged underpayment of royalties and other payments on carbon dioxide produced from the McElmo Dome unit.

The settlement imposed certain future obligations on the defendants in the underlying litigation. The plaintiffs in the arbitration alleged that, in calculating royalty and other payments, defendants used a transportation expense in excess of what is allowed by the settlement agreement, thereby causing alleged underpayments of approximately $12 million. The plaintiffs also alleged that Cortez Pipeline Company should have used certain funds to further reduce its debt, which, in turn, would have allegedly increased the value of royalty and other payments by approximately $0.5 million. On August 7, 2006, the arbitration panel issued its opinion finding that defendants did not breach the settlement agreement. On June 21, 2007, the New Mexico federal district court entered final judgment confirming the August 7, 2006 arb itration decision.

On October 2, 2007, the plaintiffs initiated a second arbitration (CO2 Committee, Inc. v. Shell CO2 Company, Ltd., aka Kinder Morgan CO2 Company, L.P., et al.) against Cortez Pipeline Company, Kinder Morgan CO2 and an ExxonMobil entity. The second arbitration asserts claims similar to those asserted in the first arbitration. A second arbitration panel has convened and a final hearing on the parties’ claims and defenses is expected to occur in 2011.

MMS Notice of Noncompliance and Civil Penalty

On December 20, 2006, Kinder Morgan CO2 received from the MMS a “Notice of Noncompliance and Civil Penalty: Knowing or Willful Submission of False, Inaccurate, or Misleading Information—Kinder Morgan CO2 Company, L.P., case no. CP07-001.” This Notice, and the MMS’s position that Kinder Morgan CO2 has violated certain reporting obligations, relates to a disagreement between the MMS and Kinder Morgan CO2 concerning the approved transportation allowance to be used in valuing McElmo Dome carbon dioxide for purposes of calculating federal royalties.

The Notice of Noncompliance and Civil Penalty assessed a civil penalty of approximately $2.2 million as of December 15, 2006 (based on a penalty of $500.00 per day for each of 17 alleged violations) for Kinder Morgan CO2’s alleged submission of false, inaccurate, or misleading information relating to the transportation allowance, and federal royalties for CO2 produced at McElmo Dome, during the period from June 2005 through October 2006. The MMS stated that civil penalties would continue to accrue at the same rate until the alleged violations are corrected.

On January 3, 2007, Kinder Morgan CO2 appealed the Notice of Noncompliance and Civil Penalty to the Office of Hearings and Appeals of the Department of the Interior. In July 2008, the parties reached a settlement in principle of the Notice of Noncompliance and Civil Penalty, subject to final approval by the MMS and the Department of the Interior. On September 8, 2010, the United States Department of the Interior, Bureau of Ocean Energy Management, Regulation, and Enforcement (formerly known as the MMS) approved the settlement, which is now final.

MMS Orders to Report and Pay

On March 20, 2007, Kinder Morgan CO2 received an Order to Report and Pay from the MMS. The MMS contends that Kinder Morgan CO2 over-reported transportation allowances and underpaid royalties in the amount of approximately $4.6 million for the period from January 1, 2005 through December 31, 2006 as a result of its use of the Cortez Pipeline tariff as the transportation allowance in calculating federal royalties. The MMS claims that the Cortez Pipeline tariff is not the proper transportation allowance and that Kinder Morgan CO2 must use its “reasonable ac tual costs” calculated in accordance with certain federal product valuation regulations.

Kinder Morgan CO2 submitted a notice of appeal in response to the Order to Report and Pay, challenging the Order and appealing it to the Director of the MMS in accordance with 30 C.F.R. sec. 290.100, et seq.

In addition to the March 2007 Order to Report and Pay, the MMS issued a second Order to Report and Pay in August 2007, in which the MMS claims that Kinder Morgan CO2 over-reported transportation allowances and underpaid royalties (due to the use of the Cortez Pipeline tariff as the transportation allowance for purposes of federal royalties) in the amount of approximately $8.5 million for the period from April 2000 through December 2004. Kinder Morgan CO2 filed its

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notice of appeal and statement of reasons in response to the second Order in September 2007, challenging the Order and appealing it to the Director of the MMS.

In July 2008, the parties reached a settlement in principle of the March 2007 and August 2007 Orders to Report and Pay, subject to final approval by the MMS and the Department of the Interior. On September 8, 2010, the United States Department of the Interior, Bureau of Ocean Energy Management, Regulation, and Enforcement (formerly known as the MMS) approved the settlement, which is now final.

Colorado Severance Tax Assessment

On September 16, 2009, the Colorado Department of Revenue issued three Notices of Deficiency to Kinder Morgan CO2. The Notices of Deficiency assessed additional state severance tax against Kinder Morgan CO2 with respect to carbon dioxide produced from the McElmo Dome unit for tax years 2005, 2006, and 2007. The total amount of tax assessed was $5.7 million, plus interest of $1.0 million, plus penalties of $1.7 million. Kinder Morgan CO2 protested the Notices of Deficiency and paid the tax and interest under protest. Kinder Morgan CO2 is now awaiting the Colorado Department of Revenue’s response to the protest.

Montezuma County, Colorado Property Tax Assessment

In November of 2009, the County Treasurer of Montezuma County, Colorado, issued to Kinder Morgan CO2, as operator of the McElmo Dome unit, retroactive tax bills for tax year 2008, in the amount of $2 million. Of this amount, 37.2% is attributable to Kinder Morgan CO2’s interest. The retroactive tax bills were based on the assertion that a portion of the actual value of the carbon dioxide produced from the McElmo Dome unit was omitted from the 2008 tax roll due to an alleged over statement of transportation and other expenses used to calculate the net taxable value. Kinder Morgan CO2 paid the retroactive tax bills under protest and will file petitions for refunds of the taxes paid under protest and will vigorously contest Montezuma County’s position.

Other

In addition to the matters listed above, audits and administrative inquiries concerning Kinder Morgan CO2’s payments on carbon dioxide produced from the McElmo Dome and Bravo Dome units are currently ongoing. These audits and inquiries involve federal agencies, the states of Colorado and New Mexico, and county taxing authorities in the state of Colorado.

Commercial Litigation Matters

Union Pacific Railroad Company Easements

SFPP and UPRR are engaged in a proceeding to determine the extent, if any, to which the rent payable by SFPP for the use of pipeline easements on rights-of-way held by UPRR should be adjusted pursuant to existing contractual arrangements for the ten year period beginning January 1, 2004 (Union Pacific Railroad Company vs. Santa Fe Pacific Pipelines, Inc., SFPP, L.P., Kinder Morgan Operating L.P. “D”, Kinder Morgan G.P., Inc., et al., Superior Court of the State of California for the County of Los Angeles, filed July 28, 2004). In February 2007, a trial began to determine the amount payable for easements on UPRR rights-of-way. The trial is ongoing and is expected to conclude by the end of the first quarter of 2011.

SFPP and UPRR are also engaged in multiple disputes over the circumstances under which SFPP must pay for a relocation of its pipeline within the UPRR right-of-way and the safety standards that govern relocations. In July 2006, a trial before a judge regarding the circumstances under which SFPP must pay for relocations concluded, and the judge determined that SFPP must pay for any relocations resulting from any legitimate business purpose of the UPRR. SFPP appealed this decision, and in December 2008, the appellate court affirmed the decision. In addition, UPRR contends that SFPP must comply with the more expensive American Railway Engineering and Maintenance-of-Way standards in determining when relocations are necessary and in completing relocations. Each party is seeking declaratory relief with respect to its positions regarding the application of these standards with respect to relocations.

Since SFPP does not know UPRR’s plans for projects or other activities that would cause pipeline relocations, it is difficult to quantify the effects of the outcome of these cases on SFPP. Even if SFPP is successful in advancing its positions, significant relocations for which SFPP must nonetheless bear the expense (i.e., for railroad purposes, with the standards in the federal Pipeline Safety Act applying) would have an adverse effect on our financial position and results of operations. These effects would be even greater in the event SFPP is unsuccessful in one or more of these litigations.

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Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

Severstal Sparrows Point Crane Collapse

On June 4, 2008, a bridge crane owned by Severstal Sparrows Point, LLC and located in Sparrows Point, Maryland collapsed while being operated by KMBT. According to KMP’s investigation, the collapse was caused by unexpected, sudden and extreme winds. On June 24, 2009, Severstal filed suit against KMBT in the United States District Court for the District of Maryland, cause no. WMN 09CV1668. Severstal alleges that KMBT was contractually obligated to replace the collapsed crane and that its employees were negligent in failing to properly secure the crane prior to the collapse. Severstal seeks unspecified damages for value of the crane and lost profits. KMBT denies each of Severstal’s allegations.

JR Nicholls Tug Incident

On February 10, 2010, the JR Nicholls, a tugboat operated by one of KMP’s subsidiaries overturned and sank in the Houston Ship Channel. Five employees were on board and four were rescued, treated and released from a local hospital. The fifth employee died in the incident. The U.S. Coast Guard shut down a section of the ship channel for approximately 60 hours. Approximately 2,200 gallons of diesel fuel was released from the tugboat. Emergency response crews deployed booms and contained the product, which is substantially cleaned up. Salvage operations were commenced and the tugboat has been recovered. A full investigation of the incident is underway. Our subsidiary, J.R. Nichol ls LLC filed a limitations action entitled In the Matter of the Complaint of J.R. Nicholls LLC as Owner of the M/V J.R. NICHOLLS For Exoneration From or Limitation of Liability, CA No. 4:10-CV-00449, U.S. District Court, S.D. Tex. To date, three surviving crew members have filed claims in that action for personal injuries and emotional distress. On September 15, 2010, KMP’s subsidiary KM Ship Channel Services LLC, agreed to pay a civil penalty of $7,500 to the U.S. Coast Guard for the unintentional discharge of diesel fuel which occurred when the vessel sank.

The Premcor Refining Group, Inc. v. Kinder Morgan Energy Partners, L.P. and Kinder Morgan Petcoke, L.P.; Arbitration in Houston, Texas

On August 12, 2010, Premcor filed a demand for arbitration against KMP and its subsidiary Kinder Morgan Petcoke, L.P., collectively referred to as Kinder Morgan, asserting claims for breach of contract. Kinder Morgan performs certain petroleum coke handling operations at the Port Arthur, Texas refinery that is the subject of the claim. The arbitration is being administered by the American Arbitration Association in Dallas, Texas. Premcor alleges that Kinder Morgan breached its contract with Premcor by failing to name Premcor as an additional insured, and failing to indemnify Premcor for claims brought against Premcor by PACC. PACC and Premcor are affiliated companies. PACC brought its claims against Premcor in a previous separate arbitration seeking to recover d amages allegedly suffered by PACC when a pit wall of a coker unit collapsed at a refinery owned by Premcor. PACC obtained an arbitration award against Premcor in the amount of $50.3 million, plus post-judgment interest. Premcor is seeking to hold Kinder Morgan liable for the award. Premcor’s claim against Kinder Morgan is based in part upon Premcor’s allegation that Kinder Morgan is responsible to the extent of Kinder Morgan’s alleged proportionate fault in causing the pit wall collapse. Kinder Morgan denies and is vigorously defending against all claims asserted by Premcor. The final arbitration hearing is scheduled to begin on August 29, 2011.

Employee Matters

James Lugliani vs. Kinder Morgan G.P., Inc. et al. in the Superior Court of California, Orange County

James Lugliani, a former Kinder Morgan employee, filed suit in January 2010 against various Kinder Morgan affiliates. On behalf of himself and other similarly situated current and former employees, Mr. Lugliani claims that the Kinder Morgan defendants have violated the wage and hour provisions of the California Labor Code and Business & Professions Code by failing to provide meal and rest periods; failing to pay meal and rest period premiums; failing to pay all overtime wages due; failing to timely pay wages; failing to pay wages for vacation, holidays and other paid time off; and failing to keep proper payroll records. KMP intends to vigorously defend the case.

Pipeline Integrity and Releases

From time to time, despite our best efforts, our pipelines experience leaks and ruptures. These leaks and ruptures may cause explosions, fire and damage to the environment, damage to property and/or personal injury or death. In connection with these incidents, we may be sued for damages caused by an alleged failure to properly mark the locations of our pipelines and/or to properly maintain our pipelines. Depending upon the facts and circumstances of a particular incident, state and federal regulatory authorities may seek civil and/or criminal fines and penalties.

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Pasadena Terminal Fire

On September 23, 2008, a fire occurred in the pit 3 manifold area of our Pasadena, Texas liquids terminal facility. On January 8, 2010, a civil lawsuit was filed on behalf of the People of Texas and the TCEQ for alleged violations of the Texas Clean Air Act. The lawsuit was filed in the 53rd Judicial District Court, Travis County, Texas and is entitled State of Texas v. Kinder Morgan Liquids Terminals, case no. D1GV10000017. Specifically, the TCEQ alleges that KMLT had an unauthorized emission event relating to the pit 3 fire at the Pasadena terminal in September 2008. KMP reached an agreement with the TCEQ to settle this matter for $40,000 plus $4,000 in attorneys’ fees to be paid to the State of Texas. The settlement was finalized and entered in court on December 20, 2010.

Charlotte, North Carolina

On January 17, 2010, KMP’s subsidiary Kinder Morgan Southeast Terminal LLC’s Charlotte #2 Terminal experienced an issue with a pollution control device known as the Vapor Recovery Unit, which led to a fire and release of gasoline from the facility to adjacent property and a small creek. There were no injuries. KMP is cooperating fully with state and federal agencies on the response and remediation.

Barstow, California

The United States Department of the Navy has alleged that historic releases of methyl tertiary-butyl ether, or MTBE from Calnev’s Barstow terminal (i) have migrated underneath the Navy’s Marine Corps Logistics Base in Barstow; (ii) have impacted the Navy’s existing groundwater treatment system for unrelated groundwater contamination not alleged to have been caused by Calnev and (iii) could affect the Barstow, California Marine Corps Logistic Base’s water supply system. Although Calnev believes that it has meritorious defenses to the Navy’s claims, it is working with the Navy to agree upon an Administrative Settlement Agreement and Order on Consent for federal Comprehensive Environmental Response, Compensation and Liability Act (referred to as CERCLA) Removal Action to reimburse the Navy for $0.5 million in past response actions.

Westridge Release, Burnaby, British Columbia

On July 24, 2007, a third-party contractor installing a sewer line for the City of Burnaby struck a crude oil pipeline segment included within KMP’s Trans Mountain pipeline system near its Westridge terminal in Burnaby, British Columbia, resulting in a release of approximately 1,400 barrels of crude oil. The release impacted the surrounding neighborhood, several homes and nearby Burrard Inlet. No injuries were reported. To address the release, KMP initiated a comprehensive emergency response in collaboration with, among others, the City of Burnaby, the British Columbia Ministry of Environment, the National Energy Board (Canada), and the National Transportation Safety Board (Canada). Cleanup and environmental remediation is complete and KMP has received a British Columbia Ministry of Environment Certificate of Compliance confirming complete remediation.

The National Transportation Safety Board released its investigation report on the incident on March 18, 2009. The report confirmed that an absence of pipeline location marking in advance of excavation and inadequate communication between the contractor and KMP’s subsidiary Kinder Morgan Canada Inc., the operator of the line, were the primary causes of the accident. No directives, penalties or actions of Kinder Morgan Canada Inc. were required as a result of the report.

Kinder Morgan Canada, Inc. commenced a lawsuit against the parties it believes were responsible for the third party strike, and a number of other parties have commenced related actions. The parties are currently involved in structured mediation.

On July, 22, 2009, the British Columbia Ministry of Environment issued regulatory charges against the third-party contractor, the engineering consultant to the sewer line project, Kinder Morgan Canada Inc., and KMP subsidiary Trans Mountain L.P. The British Columbia Ministry of Environment claims that the parties charged caused the release of crude oil, and in doing so were in violation of various sections of the Environmental, Fisheries and Migratory Bird Act. A trial has been scheduled to commence in October of 2011. KMP is of the view that the charges have been improperly laid against it, and it intends to vigorously defend against them.

Rockies Express Pipeline LLC Indiana Construction Incident

In April 2009, Randy Gardner, an employee of Sheehan Pipeline Construction Company (a third-party contractor to Rockies Express and referred to in this note as Sheehan Construction) was fatally injured during construction activities

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being conducted under the supervision and control of Sheehan Construction. The cause of the incident was investigated by Indiana OSHA, which issued a citation to Sheehan Construction. Rockies Express was not cited in connection with the incident.

In August 2010, the estate of Mr. Gardner filed a wrongful death action against Rockies Express and several other parties in the Superior Court of Marion County, Indiana, at case number 49D111008CT036870. The plaintiff alleges that the defendants were negligent in allegedly failing to provide a safe worksite, and seeks unspecified compensatory damages. Rockies Express denies that it was in any way negligent or otherwise responsible for this incident, and intends to assert contractual claims for complete indemnification for any and all costs arising from this incident, including any costs related to this lawsuit, against third parties and their insurers.

Litigation Relating to the “Going Private” Transaction

Beginning on May 29, 2006, the day after the proposal for the Going Private Transaction was announced, and in the days following, eight putative Class Action lawsuits were filed in Harris County (Houston), Texas and seven putative Class Action lawsuits were filed in Shawnee County (Topeka), Kansas against, among others, Kinder Morgan, Inc., its Board of Directors, the Special Committee of the Board of Directors, and several corporate officers.

The eight Harris County cases were consolidated into the Crescente v. Kinder Morgan, Inc. et al case, Cause No. 2006-33011, in the 164th Judicial District Court, Harris County, Texas. The seven Kansas cases were consolidated into the Consol. Case No. 06 C 801; In Re Kinder Morgan, Inc. Shareholder Litigation; in the District Court of Shawnee County, Kansas, Division 12. The Consolidated Petitions filed by the plaintiffs challenged the proposed transaction as inadequate and unfair to Kinder Morgan, Inc.’s public stockholders. They alleged that Kinder Morgan, Inc.’s Board of Directors and certain members of senior ma nagement breached their fiduciary duties and the Sponsor Investors aided and abetted the alleged breaches of fiduciary duty in entering into the merger agreement. They sought, among other things, to enjoin the merger, rescission of the merger agreement, disgorgement of any improper profits received by the defendants, and attorneys’ fees. Defendants answered the Consolidated Petitions, denying the plaintiffs’ substantive allegations and denying that the plaintiffs are entitled to relief.

In August, September and October 2008, the Plaintiffs in both consolidated cases voluntarily dismissed without prejudice the claims against those Kinder Morgan, Inc. directors who did not participate in the buyout (including the dismissal of the members of the special committee of the board of directors), Kinder Morgan, Inc. and Knight Acquisition, Inc. In addition, on November 19, 2008, by agreement of the parties, the Texas trial court issued an order staying all proceedings in the Texas actions until such time as a final judgment shall be issued in the Kansas actions. The effect of this stay is that the consolidated matters will proceed only in the Kansas trial court.

On September 8, 2010, the parties entered into a $200 million settlement agreement to resolve the consolidated class action cases that were pending before the Kansas trial court. On November 19, 2010, the settlement was approved by the Kansas trial court and in December 2010 the $200 million settlement amount was paid into an escrow account that is subject to the jurisdiction of the court. For the year ended December 31, 2010, we recognized a $200 million, pre-tax charge in the caption “General and administrative expense” in our accompanying consolidated statement of income.

On December 2, 2010 a Notice of Appeal of the Kansas trial court’s approval of the settlement was filed by Ernest Browne, Jr., a former owner of 185 shares of Kinder Morgan Kansas, Inc., in the Court of Appeals for the State of Kansas at Case No. 11-105562-A. Browne filed an amended Notice of Appeal on January 7, 2011. Browne had previously filed an objection in the Kansas trial court to the amount of attorneys’ fees sought by the plaintiffs’ class counsel in the underlying settlement, which objection was stricken as late-filed. It appears that Browne’s appeal is related to the issues of whether his late-filed objection regarding attorneys’ fees was properly stricken, and whether the Kansas trial court’s award of attorneys’ fees to plaintiffs ’ class counsel was reasonable and proper. We do not expect the appeal to impact the effectiveness of the underlying settlement.

General

Although no assurance can be given, we believe that we have meritorious defenses to the actions set forth in this note and, to the extent an assessment of the matter is possible, if it is probable that a liability has been incurred and the amount of loss can be reasonably estimated, we believe that we have established an adequate reserve to cover potential liability.

Additionally, although it is not possible to predict the ultimate outcomes, we also believe, based on our experiences to date and the reserves we have established, that the ultimate resolution of these matters will not have a material adverse impact on our business, financial position, results of operations or dividends to shareholders. As of December 31, 2010

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and 2009, we have recorded a total reserve for legal fees, transportation rate cases and other litigation liabilities in the amount of $169.8 million and $220.9 million, respectively. The reserve is primarily related to various claims from regulatory proceedings arising from KMP’s West Coast products pipeline transportation rates, and the contingent amount is based on both the circumstances of probability and reasonability of dollar estimates. The reserve included increases in 2010 for a $172.0 million increase in expense associated with various rate case liability adjustments that increased KMP’s overall rate case liability and a $200.0 million increase in expense associated with the Going Private Transaction litigation that increased our legal reserve. The reserve included decreases for 2010 payments of $206.3 million associated with the various rate cases discussed preceding and the $200.0 million Going Private Transaction litigation settlement payment in December 2010. We regularly assess the likelihood of adverse outcomes resulting from these claims in order to determine the adequacy of our liability provision.

Environmental Matters

The City of Los Angeles v. Kinder Morgan Liquids Terminals, LLC, Shell Oil Company, Equilon Enterprises LLC; California Superior Court, County of Los Angeles, Case No. NC041463.

KMLT is a defendant in a lawsuit filed in 2005 alleging claims for environmental cleanup costs at the former Los Angeles Marine Terminal in the Port of Los Angeles. The lawsuit was stayed beginning in 2009 and remained stayed through the end of 2010. A hearing was held on December 13, 2010 to hear the City’s motion to remove the litigation stay. At the hearing, the judge denied the motion to lift the stay without prejudice. A full litigation stay is in effect until the next case management conference set for June 13, 2011. During the stay, the parties deemed responsible by the local regulatory agency have worked with that agency concerning the scope of the required cleanup and are now starting a sampling and testing program at the site. The local regulatory agency issued specif ic cleanup goals in early 2010, and two of those parties, including KMLT, have appealed those cleanup goals to the state agency.

Plaintiff’s Third Amended Complaint alleges that future environmental cleanup costs at the former terminal will exceed $10 million, and that the plaintiff’s past damages exceed $2 million. No trial date has yet been set.

Exxon Mobil Corporation v. GATX Corporation, Kinder Morgan Liquids Terminals, LLC and ST Services, Inc.

On April 23, 2003, Exxon Mobil Corporation filed a complaint in the Superior Court of New Jersey, Gloucester County. The lawsuit relates to environmental remediation obligations at a Paulsboro, New Jersey liquids terminal owned by ExxonMobil from the mid-1950s through November 1989, by GATX Terminals Corp. from 1989 through September 2000, and later owned by Support Terminals and Pacific Atlantic Terminals, LLC. The terminal is now owned by Plains Products, and it too is a party to the lawsuit.

The complaint seeks any and all damages related to remediating all environmental contamination at the terminal, and, according to the New Jersey Spill Compensation and Control Act, treble damages may be available for actual dollars incorrectly spent by the successful party in the lawsuit. The parties engaged in court ordered mediation in 2008 through 2009, which did not result in settlement. The trial judge has issued a Case Management Order and the parties are actively engaged in discovery.

On June 25, 2007, the New Jersey Department of Environmental Protection, the Commissioner of the New Jersey Department of Environmental Protection and the Administrator of the New Jersey Spill Compensation Fund, referred to collectively as the plaintiffs, filed a complaint against ExxonMobil Corporation and KMLT, formerly known as GATX Terminals Corporation, alleging natural resource damages related to historic contamination at the Paulsboro terminal. The complaint was filed in Gloucester County, New Jersey. Both ExxonMobil and KMLT filed third party complaints against Support Terminals/Plains seeking to bring Support Terminals/Plains into the case. Support Terminals/Plains filed motions to dismiss the third party complaints, which were denied. Support Terminals/Plains is now joined in the case, and it filed an Answer denying all claims. The court has consolidated the two cases. All private parties and the state participated in two mediation conferences in 2010.

In December, 2010, KMLT and Plains Products entered into an agreement in principle with the New Jersey Department of Environmental Protection for settlement of the state’s alleged natural resource damages claim. Currently, a Consent Judgment is being finalized subject to public notice and comment and court approval. The tentative natural resource damage settlement includes a monetary award of $1.1 million and a series of remediation and restoration activities at the terminal site. KMLT and Plains Products have joint responsibility for this settlement. We anticipate a final Consent Judgment during second quarter 2011. The settlement with the state does not resolve the original complaint brought by Exxon Mobil. There is no trial date set.

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Mission Valley Terminal Lawsuit

In August 2007, the City of San Diego, on its own behalf and purporting to act on behalf of the People of the State of California, filed a lawsuit against KMP and several affiliates seeking injunctive relief and unspecified damages allegedly resulting from hydrocarbon and MTBE impacted soils and groundwater beneath the City’s stadium property in San Diego arising from historic operations at the Mission Valley terminal facility. The case was filed in the Superior Court of California, San Diego County, case number 37-2007-00073033-CU-OR-CTL. On September 26, 2007, KMP removed the case to the United States District Court, Southern District of California, case number 07CV1883WCAB. The City disclosed in discovery that it is seeking approximately $170 million in damages for alleged lost value/lost profit from t he redevelopment of the City’s property and alleged lost use of the water resources underlying the property. Later, in 2010, the City amended its initial disclosures to add claims for restoration of the site as well as a number of other claims that increased their claim for damages to approximately $365 million.

According to the Court’s most recent Case Management Order of January 6, 2011, the parties must complete all fact discovery by June 24, 2011 and all expert witness discovery by August 29, 2011. A mandatory settlement conference is set for July 6, 2011 and the trial is now set for March 13, 2012. KMP has been and will continue to aggressively defend this action. This site has been, and currently is, under the regulatory oversight and order of the California Regional Water Quality Control Board. KMP continues to be in compliance with this agency order as it conducts an extensive remediation effort at the City’s stadium property site.

Kinder Morgan, EPA Section 114 Information Request

On January 8, 2010, Kinder Morgan, Inc., on behalf of Natural Gas Pipeline Company of America LLC, Horizon Pipeline Company and Rockies Express Pipeline LLC, received a Clean Air Act Section 114 information request from the U.S. Environmental Protection Agency, Region V. This information request requires that the three affiliated companies provide the EPA with air permit and various other information related to their natural gas pipeline compressor station operations in Illinois, Indiana, and Ohio. The affiliated companies have responded to the request and believe the relevant natural gas compressor station operations are in substantial compliance with applicable air quality laws and regulations.

Other Environmental

We are subject to environmental cleanup and enforcement actions from time to time. In particular, the CERCLA generally imposes joint and several liability for cleanup and enforcement costs on current and predecessor owners and operators of a site, among others, without regard to fault or the legality of the original conduct, subject to the right of a liable party to establish a “reasonable basis” for apportionment of costs. Our operations are also subject to federal, state and local laws and regulations relating to protection of the environment. Although we believe our operations are in substantial compliance with applicable environmental law and regulations, risks of additional costs and liabilities are inherent in pipeline, terminal and carbon dioxide field and oil field operations, and there can be no assurance that we will not incur significant costs and liabilities. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies under the terms of authority of those laws, and claims for damages to property or persons resulting from our operations, could result in substantial costs and liabilities to us.

We are currently involved in several governmental proceedings involving alleged violations of environmental and safety regulations. As we receive notices of non-compliance, we negotiate and settle these matters. We do not believe that these alleged violations will have a material adverse effect on our business.

We are also currently involved in several governmental proceedings involving groundwater and soil remediation efforts under administrative orders or related state remediation programs. We have established a reserve to address the costs associated with the cleanup.

In addition, we are involved with and have been identified as a potentially responsible party in several federal and state superfund sites. Environmental reserves have been established for those sites where our contribution is probable and reasonably estimable. In addition, we are from time to time involved in civil proceedings relating to damages alleged to have occurred as a result of accidental leaks or spills of refined petroleum products, natural gas liquids, natural gas and carbon dioxide. See “—Pipeline Integrity and Releases” above for additional information with respect to ruptures and leaks from our pipelines.

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General

Although it is not possible to predict the ultimate outcomes, we believe that the resolution of the environmental matters set forth in this note will not have a material adverse effect on our business, financial position, results of operations or cash flows. However, we are not able to reasonably estimate when the eventual settlements of these claims will occur and changing circumstances could cause these matters to have a material adverse impact. As of December 31, 2010, we have accrued an environmental reserve of $79.8 million, and we believe the establishment of this environmental reserve is adequate such that the resolution of pending environmental matters will not have a material adverse impact on our business, cash flows, financial position or results of operations. In addition, as of December 31, 2010, we hav e recorded a receivable of $8.6 million for expected cost recoveries that have been deemed probable. As of December 31, 2009, our environmental reserve totaled $86.3 million and our estimated receivable for environmental cost recoveries totaled $4.3 million. Additionally, many factors may change in the future affecting our reserve estimates, such as (i) regulatory changes; (ii) groundwater and land use near our sites and (iii) changes in cleanup technology.

Other

We are a defendant in various lawsuits arising from the day-to-day operations of our businesses. Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves, that the ultimate resolution of such items will not have a material adverse impact on our business, financial position, results of operations or cash flows.

17. Regulatory Matters

The tariffs we charge for transportation on our interstate common carrier pipelines are subject to rate regulation by the FERC, under the Interstate Commerce Act. The Interstate Commerce Act requires, among other things, that interstate petroleum products pipeline rates be just and reasonable and nondiscriminatory. Pursuant to FERC Order No. 561, effective January 1, 1995, interstate petroleum products pipelines are able to change their rates within prescribed ceiling levels that are tied to an inflation index. FERC Order No. 561-A, affirming and clarifying Order No. 561, expanded the circumstances under which interstate petroleum products pipelines may employ cost-of-service ratemaking in lieu of the indexing methodology, effective January 1, 1995. For each of the years e nded December 31, 2010, 2009 and 2008, the application of the indexing methodology did not significantly affect tariff rates on our interstate petroleum products pipelines.

Below is a brief description of our ongoing regulatory matters, including any material developments that occurred during 2010.

Natural Gas Pipeline Expansion Filings

Rockies Express Pipeline LLC Meeker to Cheyenne Expansion Project

Pursuant to certain rights exercised by EnCana Gas Marketing USA as a result of its foundation shipper status on the former Entrega Gas Pipeline LLC facilities (now part of the Rockies Express Pipeline), Rockies Express Pipeline LLC requested authorization to construct and operate certain facilities that will comprise its Meeker, Colorado to Cheyenne Hub expansion project. The proposed expansion would add natural gas compression at its Big Hole compressor station located in Moffat County, Colorado, and its Arlington compressor station located in Carbon County, Wyoming. Furthermore, the additional compression would permit the transportation of an additional 200 million cubic feet per day of natural gas from (i) the Meeker Hub located in Rio Blanco County, Colorado northward to the Wamsutter Hub located in Sweetwater County, Wyoming and (ii) the Wamsutter Hub eastward to the Cheyenne Hub located in Weld County, Colorado.

By FERC order issued July 16, 2009, Rockies Express Pipeline LLC was granted authorization to construct and operate this project, and it commenced construction on August 4, 2009. The additional compression at the Big Hole compressor station was made available as of December 9, 2009, and the additional compression at the Arlington compressor station was made available as of October 5, 2010. The expansion is fully contracted. The total FERC authorized cost for the proposed project was approximately $78 million; however, total costs for the project were approximately $50.5 million.

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Kinder Morgan Interstate Gas Transmission Pipeline - Huntsman 2009 Expansion Project

KMIGT filed an application with the FERC for authorization to construct and operate certain storage facilities necessary to increase the storage capability of the existing Huntsman Storage Facility, located near Sidney, Nebraska. KMIGT also requested approval of new incremental rates for the project facilities under its currently effective Cheyenne Market Center Service Rate Schedule CMC-2. By FERC order issued September 30, 2009, KMIGT was granted authorization to construct and operate the project, and construction of the project commenced on October 12, 2009. KMIGT received FERC approval to commence service on the expanded storage project effective February 1, 2010, and KMIGT placed all remaining facilities into service on August 13, 2010. Total costs for the project wer e approximately $10.1 million, significantly under the original budget.

Kinder Morgan Interstate Gas Transmission Pipeline – Franklin to Hastings Expansion Project

KMIGT has filed a prior notice request to expand and replace certain mainline pipeline facilities to create up to 10,000 dekatherms per day of firm transportation capacity to serve an ethanol plant located near Aurora, Nebraska. The estimated cost of the proposed facilities is $18.6 million. On September 24, 2010 Seminole Energy Services, LLC filed a protest to the construction of this project, and the protest was subsequently denied by the FERC in an order issued October 15, 2010. KMIGT is proceeding with the construction of this project which is expected to be completed in early spring 2011.

Fayetteville Express Pipeline LLC – Docket No.CP09-433-000

In January 2011, construction was fully completed on the previously announced Fayetteville Express Pipeline project. The Fayetteville Express Pipeline is owned by Fayetteville Express Pipeline LLC, a 50/50 joint venture between KMP and Energy Transfer Partners, L.P. The Fayetteville Express Pipeline is a 187-mile, 42-inch diameter natural gas pipeline that begins in Conway County, Arkansas, continues eastward through White County, Arkansas, and terminates at an interconnection with Trunkline Gas Company’s pipeline in Panola County, Mississippi. The pipeline will have an initial capacity of two billion cubic feet per day, and has currently secured binding commitments for approximately ten years totaling 1.85 billion cubic feet per day of capacity.

On December 17, 2009, the FERC approved the pipeline’s certificate application authorizing pipeline construction, and initial construction on the project began in January 2010. The pipeline began interim transportation service on October 12, 2010, and began firm contract transportation for all shippers on January 1, 2011. KMP’s current estimate of total construction costs on the project is slightly less than $1.0 billion (versus the original budget of $1.3 billion).

Products Pipelines and Natural Gas Pipelines Regulatory Proceedings

For information on our pipeline regulatory proceedings, see Note 16 “Litigation, Environmental and Other Contingencies—Federal Energy Regulatory Commission Proceedings” and “—California Public Utilities Commission Proceedings.”

18. Recent Accounting Pronouncements

Accounting Standards Updates

In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2009-16, “Accounting for Transfers of Financial Assets” and ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-16 amended the Codification’s “Transfers and Servicing” Topic to include the provisions included within the FASB’s previous Statement of Financial Accounting Standards (SFAS) No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140,” issued June 12, 2009. ASU No. 2009-17 amended the Codification’s “Consolidations” Topic to include the provisions included within the FASB’s previou s SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” also issued June 12, 2009. These two Updates changed the way entities must account for securitizations and special-purpose entities. ASU No. 2009-16 requires more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. ASU No. 2009-17 changes how a company determines whether an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.

For us, both ASUs were effective January 1, 2010; however, the adoption of these ASUs did not have a material impact on our consolidated financial statements. The principal impact of ASU No. 2009-17 is that, effective January 1, 2010 we no longer consolidate Triton Power Company LLC in our consolidated financial statements. There is no impact

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to “Net Income Attributable to Kinder Morgan, Inc.” relating to the exclusion of Triton Power Company LLC, however, we have shown the excluded Triton Power Company LLC’s (i) $17.5 million cash and cash equivalent balance at December 31, 2009 as a “Deconsolidation of variable interest entity due to the implementation of ASU 2009-17” in our accompanying consolidated statement of cash flows for the year ended December 31, 2010 and (ii) $45.9 million noncontrolling interest balance at December 31, 2009 as a reduction to our noncontrolling interests in our accompanying consolidated statements of members’ equity for the year ended December 31, 2010. In addition, as a result of the implementation of ASU 2009-17, effective January 1, 2010, we (i) include the transactions and bal ances of our business trusts, K N Capital Trust I and K N Capital Trust III, in our consolidated financial statements and (ii) no longer include our Junior Subordinated Deferrable Interest Debentures issued to the Capital Trusts.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements.” This ASU requires both the gross presentation of activity within the Level 3 fair value measurement roll forward and the details of transfers in and out of Levels 1 and 2 fair value measurements. It also clarifies certain disclosure requirements on the level of disaggregation of fair value measurements and disclosures on inputs and valuation techniques. For us, this ASU was effective January 1, 2010 (except for the Level 3 roll forward which was effective for us January 1, 2011); however, because this ASU pertains to disclosure requirements only, the adoption of this ASU did not have a material impact on our consolidated financial statements. Fu rthermore, during each of the years ended December 31, 2010 and 2009, we made no transfers in and out of Level 1, Level 2 or Level 3 of the fair value hierarchy.

In July 2010, the FASB issued Accounting Standards Update No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU No. 2010-20 requires companies that hold financing receivables, which include loans, lease receivables, and the other long-term receivables to provide more information in their disclosures about the credit quality of their financing receivables and the credit reserves held against them. On December 31, 2010, we adopted all amendments that require disclosures as of the end of a reporting period, and on January 1, 2011, we adopted all amendments that require disclosures about activity that occurs during a reporting period (the remainder of this ASU). The adoption of this ASU did not have a material im pact on our consolidated financial statements.

19. Quarterly Financial Data (Unaudited)

	Operating Revenues		Operating Income		Net Income (Loss)
	(In millions)
2010
First Quarter(a)	$	2,157.6	$	244.4	$	(179.9	)
Second Quarter		1,990.9		405.4		260.3
Third Quarter(b)		2,088.2		181.1		52.6
Fourth Quarter		1,953.9		449.8		166.6
2009
First Quarter	$	1,828.9	$	309.9	$	144.9
Second Quarter		1,693.3		346.7		209.1
Third Quarter		1,712.3		391.2		229.4
Fourth Quarter		1,950.7		359.4		189.7

____________

(a)	First quarter 2010 includes a $158.0 million increase in expense associated with rate case liability adjustments and a $430.0 million impairment on our investment in NGPL.
(b)	Third quarter 2010 includes $200.0 million in expense associated with the Going Private Transaction litigation settlement.

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20. Supplemental Information on Oil and Gas Producing Activities (Unaudited)

Operating Statistics

Operating statistics from KMP’s oil and gas producing activities for each of the years 2010, 2009 and 2008 are shown in the following table:

Results of Operations for Oil and Gas Producing Activities – Unit Prices and Costs

	Year Ended December 31,
	2010		2009		2008
Consolidated Companies(a)
Production costs per barrel of oil equivalent(b)(c)(d)	$	12.58	$	11.44	$	15.70
Crude oil production (MBbl/d)		35.5		37.4		36.2
SACROC crude oil production (MBbl/d)		24.3		25.1		23.3
Yates crude oil production (MBbl/d)		10.7		11.8		12.3

Natural gas liquids production (MBbl/d)(d)		5.8		5.4		4.8
Natural gas liquids production from gas plants(MBbl/d)(e)		4.2		4.0		3.5
Total natural gas liquids production(MBbl/d)		10.0		9.4		8.3
SACROC natural gas liquids production (MBbl/d)(d)		5.5		5.3		4.6
Yates natural gas liquids production (MBbl/d)(d)		0.2		0.1		0.2

Natural gas production (MMcf/d)(d)(f)		1.4		0.9		1.4
Natural gas production from gas plants(MMcf/d)(e)(f)		1.9		0.7		0.2
Total natural gas production(MMcf/d)(f)		3.3		1.6		1.6
Yates natural gas production (MMcf/d)(d)(f)		1.3		0.8		1.3

Average sales prices including hedge gains/losses:
Crude oil price per Bbl(g)	$	59.96	$	49.55	$	49.42
Natural gas liquids price per Bbl(g)	$	50.34	$	37.70	$	63.48
Natural gas price per Mcf(h)	$	4.08	$	3.45	$	7.73
Total natural gas liquids price per Bbl(e)	$	51.03	$	37.96	$	63.00
Total natural gas price per Mcf(e)	$	4.10	$	3.53	$	7.63
Average sales prices excluding hedge gains/losses:
Crude oil price per Bbl(g)	$	76.93	$	59.03	$	97.70
Natural gas liquids price per Bbl(g)	$	50.34	$	37.70	$	63.48
Natural gas price per Mcf(h)	$	4.08	$	3.45	$	7.73

____________

(a)	Amounts relate to Kinder Morgan CO2 Company, L.P. and its consolidated subsidaries.
(b)	Computed using production costs, excluding transportation costs, as defined by the SEC. Natural gas volumes were converted to barrels of oil equivalent using a conversion factor of six mcf of natural gas to one barrel of oil.
(c)	Production costs include labor, repairs and maintenance, materials, supplies, fuel and power, and general and administrative expenses directly related to oil and gas producing activities.
(d)	Includes only production attributable to leasehold ownership.
(e)	Includes production attributable to KMP’s ownership in processing plants and third party processing agreements.
(f)	Excludes natural gas production used as fuel.
(g)	Hedge gains/losses for crude oil and natural gas liquids are included with crude oil.
(h)	Natural gas sales were not hedged.

214

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

The following three tables provide supplemental information on oil and gas producing activities, including (i) capitalized costs related to oil and gas producing activities; (ii) costs incurred for the acquisition of oil and gas producing properties and for exploration and development activities and (iii) the results of operations from oil and gas producing activities.

Capitalized costs consisted of the following (in millions):

Capitalized Costs Related to Oil and Gas Producing Activities

	As of December 31,
	2010			2009			2008
Consolidated Companies(a)
Wells and equipment, facilities and other	$	3,158.8		$	2,920.7		$	2,595.4
Leasehold		433.1			433.5			429.8
Total proved oil and gas properties		3,591.9			3,354.2			3,025.2
Unproved property(b)		88.3			10.2			-
Accumulated depreciation and depletion		(2,235.4	)		(1,764.0	)		(1,155.6	)
Net capitalized costs	$	1,444.8		$	1,600.4		$	1,869.6

____________

(a)	Amounts relate to Kinder Morgan CO2 Company, L.P. and its consolidated subsidaries. Includes capitalized asset retirement costs and associated accumulated depreciation.
(b)	The unproved amounts consist of capitalized costs related to the Katz Strawn Unit, which is in the initial stages of the carbon dioxide floding operation.

For each of the years 2010, 2009 and 2008, KMP’s costs incurred for property acquisition, exploration and development were as follows (in millions):

Costs Incurred in Exploration, Property Acquisitions and Development

	Year Ended December 31,
	2010			2009			2008
Consolidated Companies(a)
Property acquisition – proved oil and gas properties		$	-		$	5.3		$	-
Development			326.0			330.3			495.2

____________

(a)

Amounts relate to Kinder Morgan CO2 Company, L.P. and its consolidated subsidaries. During 2010, KMP spent $78.2 million on unproved properties development costs related to the Katz Strawn Unit, which is in the initial stages of the carbon dioxide flooding operation. No exploration costs were incurred for the periods reported.

KMP’s results of operations from oil and gas producing activities for each of the years 2010, 2009 and 2008 are shown in the following table (in millions):

Results of Operations for Oil and Gas Producing Activities

	Year Ended December 31,
	2010		2009		2008
Consolidated Companies(a)
Revenues(b)	$	903.2	$	767.0	$	785.5
Expenses:
Production costs(c)		229.5		188.8		308.4
Other operating expenses(d)		62.7		53.3		99.0
Depreciation, depletion and amortization expenses		406.3		441.4		342.2
Total expenses		698.5		683.5		749.6
Results of operations for oil and gas producing activities	$	204.7	$	83.5	$	35.9

____________

(a)	Amounts relate to Kinder Morgan CO2 Company, L.P. and its consolidated subsidaries.

215

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

(b)	Revenues include losses attributable to KMP’s hedging contracts of $219.9 million, $129.5 million and $693.3 million for the years ended December 31, 2010, 2009 and 2008, respectively.
(c)	The decrease in operating expenses in 2009 compared to 2008 was primarily due to (i) lower prices charged by the industry’s material and service providers (for items such as outside services, maintenance, and well workover services), which impacted rig costs, other materials and services, and capital and exploratory costs; (ii) lower fuel and utility rates and (iii) the successful renewal of lower priced service and supply contracts negotiated since the end of 2008.
(d)	Consists primarily of carbon dioxide expense.

Supplemental information is also provided for the following three items (i) estimated quantities of proved oil and gas reserves; (ii) the standardized measure of discounted future net cash flows associated with proved oil and gas reserves; and (iii) a summary of the changes in the standardized measure of discounted future net cash flows associated with proved oil and gas reserves.

The technical persons responsible for preparing the reserves estimates presented in this Note meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the standards pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. They are independent petroleum engineers, geologists, geophysicists, and petrophysicists; they do not own an interest in KMP’s oil and gas properties; and we do not employ them on a contingent basis. Our employee who is primarily responsible for overseeing Netherland, Sewell and Associate, Inc.’s preparation of the reserves estimates is a registered Professional Engineer in the states of Texas and Kansas with a Doctorate of Engineering from the University of Kansas. He is a member of the Society of Petroleum Engineers and has over 25 years of professional engineering experience.

We believe the geologic and engineering data examined provides reasonable assurance that the proved reserves are recoverable in future years from known reservoirs under existing economic and operating conditions. Estimates of proved reserves are subject to change, either positively or negatively, as additional information becomes available and contractual and economic conditions change.

Furthermore, our management is responsible for establishing and maintaining adequate internal control over financial reporting, which includes the estimation of our oil and gas reserves. We maintain internal controls and guidance to ensure the reliability of our crude oil, natural gas liquids and natural gas reserves estimations, as follows:

▪

no employee’s compensation is tied to the amount of recorded reserves;

▪

we follow comprehensive SEC compliant internal policies to determine and report proved reserves, and its reserve estimates are made by experienced oil and gas reservoir engineers or under their direct supervision;

▪

we review our reported proved reserves at each year-end, and at each year-end, the CO2—KMP business segment managers and the Vice President (President, CO2—KMP) reviews all significant reserves changes and all new proved developed and undeveloped reserves additions; and

▪

the CO2—KMP business segment reports independently of our other six remaining reportable business segments.

For more information on our controls and procedures, see Item 9A “Controls and Procedures—Management’s Report on Internal Control Over Financial Reporting” included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, that is, current prices and costs calculated as of the date the estimate is made. Beginning in 2009, pricing is applied based upon the twelve month unweighted arithmetic average of the first day of the month price for the year. For prior years, pricing was based on the price as of year end. Future development and production costs are determined based upon actual cost at year-end. Proved developed reserves are the quantities of crude oil, natural gas liquids and natural gas expected to be r ecovered through existing investments in wells and field infrastructure under current operating conditions. Proved undeveloped reserves require additional investments in wells and related infrastructure in order to recover the production.

As of December 31, 2008, KMP had 53.4 million barrels of crude oil and 4.3 million barrels of natural gas liquids classified as proved developed reserves. Also as of year end 2008, KMP had 25.2 million barrels of crude oil and 2.6 million barrels of natural gas liquids classified as proved undeveloped reserves.

216

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

During 2009 production from the fields totaled 13.7 million barrels of oil and 2.0 million barrels of natural gas liquids. In addition, KMP incurred $330.3 million in capital costs which resulted in the development of 7.4 million barrels of oil and 0.4 million barrels of natural gas liquids and their transfer from the proved undeveloped category. These reclassifications reflect the transfer of 29.2% of crude oil and 13.7% of natural gas liquids from the proved undeveloped reserves reported as of December 31, 2008 to the proved developed classification of reserves reported as of December 31, 2009.

Also during 2009, previous estimates of proved undeveloped reserves were revised upwards by 15.9 million barrels of crude oil and 1.1 million barrels of natural gas liquids. These revisions were due primarily to utilizing a higher prescribed oil price basis for year end 2009 ($57.65 per barrel) than year end 2008 ($41.00 per barrel). The higher oil price basis resulted in 75 patterns being added to KMP’s SACROC carbon dioxide flood project; also, the SACROC carbon dioxide flood project life was extended from 2014 to 2018. These revisions to our previous estimates, as well as the transfer of proved undeveloped reserves to the proved developed category, as discussed above, resulted in the percentage of proved undeveloped reserves increasing from 32.4% at year end 2008 to 42.6% at year end 2009.

After giving effect to production, revisions to previous estimates and minor purchases of reserves in place, during 2009 total proved reserves of crude oil increased by 2.2 million barrels and total proved reserves of natural gas liquids decreased by 0.9 million barrels. As of December 31, 2009, KMP had 47.0 million barrels of crude oil and 2.7 million barrels of natural gas liquids classified as proved developed reserves. Also as of year end 2009, KMP had 33.8 million barrels of crude oil and 3.2 million barrels of natural gas liquids classified as proved undeveloped reserves. Total proved reserves as of December 31, 2009 were 80.8 million barrels of oil and 5.9 million barrels of natural gas liquids.

During 2010, production from the fields totaled 13.0 million barrels of crude oil and 2.1 million barrels of natural gas liquids. In addition, KMP incurred $248.0 million in capital costs which resulted in the development of 10.0 million barrels of crude oil and 1.3 million barrels of natural gas liquids and their transfer from the proved undeveloped category to the proved developed category. These reclassifications reflect the transfer of 29.6% of crude oil and 39.9% of natural gas liquids from the proved undeveloped reserves reported as of December 31, 2009 to the proved developed classification of reserves reported as of December 31, 2010.

Also during 2010, previous estimates of proved developed reserves were revised upwards by 12.3 million barrels of crude oil and 0.4 million barrels of natural gas liquids and proved undeveloped reserves were revised upward by 4.0 million barrels of crude oil and 0.7 million barrels of natural gas liquids. Almost 90 percent of the revisions were associated with our third party oil and gas consultants revising the methodology used to estimate reserves for KMP’s Yates Field Unit in order to take greater account of the reservoir mechanisms associated with carbon dioxide injection, for which there are now seven years of history. The revised methodology used to forecast the Yates Field Unit future performance utilizes a volume balance based on a correlation of historical production to observed oil saturations and reservoir volume factors during the life of the Yates Field with emphasis on the period from 1996 through 2010. A portion of these revisions is attributed to utilizing a higher prescribed oil price basis to calculate reserves ($75.96 per barrel for year end 2010 versus $57.65 per barrel for year end 2009).

These revisions to the previous estimates, as well as the transfer of proved undeveloped reservers to the proved developed category as discussed above, resulted in the percentage of proved undeveloped reserves decreasing from 42.6% at year end 2009 to 33.9% at year end 2010. After giving effect to production and revisions to previous estimates during 2010, total proved reserves of crude oil increased by 3.3 million barrels and total proved reserves of natural gas liquids decreased by 1.1 million barrels.

As of December 31, 2010 we had 56.4 million barrels of crude oil and 2.2 million barrels of natural gas liquids classified as proved developed reserves. Also, as of year end 2010, we had 27.8 million barrels of crude oil and 2.6 million barrels of natural gas liquids classified as proved undeveloped reserves. Total proved reserves as of December 31, 2010 were 84.2 million barrels of crude oil and 4.9 million barrels of natural gas liquids. We currently expect that the proved undeveloped reserves reported as of December 31, 2010 will be developed within the next five years.

During 2010, we filed estimates of KMP’s oil and gas reserves for the year 2009 with the Energy Information Administration of the U. S. Department of Energy on Form EIA-23. The data on Form EIA-23 was presented on a different basis, and included 100% of the oil and gas volumes from KMP’s operated properties only, regardless of its net interest. The difference between the oil and gas reserves reported on Form EIA-23 and those reported in this Note exceeds 5%.

The following Reserve Quantity Information table discloses estimates, as of December 31, 2010, of proved crude oil, natural gas liquids and natural gas reserves, prepared by Netherland, Sewell and Associates, Inc. (independent oil and gas

217

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

consultants), of Kinder Morgan CO2 Company, L.P. and its consolidated subsidiaries’ interests in oil and gas properties, all of which are located in the state of Texas. This data has been prepared using current prices and costs, as discussed above, and the estimates of reserves and future revenues in this Note conform to the guidelines of the U.S. Securities and Exchange Commission (SEC).

Reserve Quantity Information

	Consolidated Companies(a)
	Crude Oil (MBbls)			NGLs (MBbls)			Natural Gas (MMcf)(b)
Proved developed and undeveloped reserves:
As of December 31, 2007		121,355			11,112			1,078
Revisions of previous estimates(c)		(29,536	)		(2,490	)		695
Production		(13,240	)		(1,762	)		(499	)
As of December 31, 2008		78,579			6,860			1,274
Revisions of previous estimates(d)		15,900			1,018			(293	)
Production		(13,688	)		(1,995	)		(298	)
Purchases of reserves in place		53			37			15
As of December 31, 2009		80,844			5,920			698
Revisions of previous estimates(e)		16,294			1,059			2,923
Production		(12,962	)		(2,116	)		(523	)
As of December 31, 2010		84,176			4,863			3,098

Proved developed reserves:
As of December 31, 2008		53,346			4,308			1,274
As of December 31, 2009		47,058			2,665			698
As of December 31, 2010		56,423			2,221			3,098

Proved undeveloped reserves:
As of December 31, 2008		25,233			2,552			-
As of December 31, 2009		33,786			3,255			-
As of December 31, 2010		27,753			2,642			-

____________

(a)	Amounts relate to Kinder Morgan CO2 Company, L.P. and its consolidated subsidaries.
(b)	Natural gas reserves are computed at 14.65 pounds per square inch absolute and 60 degrees fahrenheit.
(c)	Predominantly due to lower product prices used to determine reserve volumes.
(d)	Predominantly due to higher product prices resulting in an expanded economic carbon dioxide project area.
(e)	Predominantly due to higher product prices used to determine reserve volumes and the change in methodology discussed above.

The standardized measure of discounted cash flows and summary of the changes in the standardized measure computation from year-to-year are prepared in accordance with the “Extractive Activities—Oil and Gas” Topic of the Codification. The assumptions that underly the computation of the standardized measure of discounted cash flows, presented in the table below, may be summarized as follows:

▪

the standardized measure includes our estimate of proved crude oil, natural gas liquids and natural gas reserves and projected future production volumes based upon year-end economic conditions;

▪

for 2010 and 2009, pricing is applied based upon the 12 month unweighted arithmetic average of the first day of the month price for the year, and for 2008, was based upon the price as of the end of the year;

▪

future development and production costs are determined based upon actual cost at year-end;

▪

the standardized measure includes projections of future abandonment costs based upon actual costs at year-end; and

▪

a discount factor of 10% per year is applied annually to the future net cash flows.

218

Item 15. Exhibits, Financial Statement Schedules. (continued)

Kinder Morgan, Inc. Form 10-K

The standardized measure of discounted future net cash flows from proved reserves were as follows (in millions):

Standardized Measure of Discounted Future Net Cash Flows From

Proved Oil and Gas Reserves

	As of December 31,
	2010			2009			2008
Consolidated Companies(a)
Future cash inflows from production	$	6,665.8		$	4,898.0		$	3,498.0
Future production costs		(2,387.9	)		(1,951.5	)		(1,671.6	)
Future development costs(b)		(1,433.7	)		(1,179.7	)		(910.3	)
Undiscounted future net cash flows		2,844.2			1,766.8			916.1
10% annual discount		(946.6	)		(503.5	)		(257.7	)
Standardized measure of discounted future net cash flows	$	1,897.6		$	1,263.3		$	658.4

____________

(a)	Amounts relate to Kinder Morgan CO2 Company, L.P. and its consolidated subsidaries.
(b)	Includes abandonment costs.

The following table represents our estimate of changes in the standardized measure of discounted future net cash flows from proved reserves (in millions):

Changes in the Standardized Measure of Discounted Future Net Cash Flows From

Proved Oil and Gas Reserves

	As of December 31,
	2010			2009			2008
Consolidated Companies(a)
Present value as of January 1	$	1,263.3		$	658.4		$	4,078.4
Changes during the year:
Revenues less production and other costs(b)		(828.2	)		(652.7	)		(1,012.4	)
Net changes in prices, production and other costs(b)		890.0			915.7			(3,076.9	)
Development costs incurred		248.0			330.3			495.2
Net changes in future development costs		(296.6	)		(445.4	)		231.1
Purchases of reserves in place		-			-			-
Revisions of previous quantity estimates(c)		494.2			391.1			(417.1	)
Accretion of discount		126.9			65.9			392.9
Timing differences and other		-			-			(32.8	)
Net change for the year		634.3			604.9			(3,420.0	)
Present value as of December 31	$	1,897.6		$	1,263.3		$	658.4

____________

(a)	Amounts relate to Kinder Morgan CO2 Company, L.P. and its consolidated subsidaries.
(b)	Excludes the effect of losses attributable to KMP’s hedging contracts of $219.9 million, $129.5 million and $639.3 million for the years ended December 31, 2010, 2009 and 2008, respectively.
(c)	2010 revisions were primarily due to higher product prices used to determine reserve volumes and the change in methodology discussed above. 2009 revisions were primarily due to higher product prices resulting in an expanded economic carbon dioxide project area. 2008 revisions were predominately due to lower product prices used to determine reserve volumes.

219

Kinder Morgan, Inc. Form 10-K

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KINDER MORGAN, INC. Registrant

	By: /s/ KIMBERLY A. DANG
	Kimberly A. Dang Vice President and Chief Financial Officer (principal financial and accounting officer)
Date: March 1, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date

/s/ KIMBERLY A. DANG	Vice President and Chief Financial Officer	March 1, 2011
Kimberly A. Dang	(principal financial officer and principal
	accounting officer)

/s/ RICHARD D. KINDER	Director, Chairman and Chief Executive Officer	March 1, 2011
Richard D. Kinder	(principal executive officer)

	Director	March 1, 2011
Henry Cornell

/s/ STEVEN J. KEAN	Director	March 1, 2011
Steven J. Kean

/s/ MICHAEL MILLER	Director	March 1, 2011
Michael Miller

/s/ MICHAEL C. MORGAN	Director	March 1, 2011
Michael C. Morgan

/s/ KENNETH A. PONTARELLI	Director	March 1, 2011
Kenneth A. Pontarelli

	Director	March 1, 2011
Fayez Sarofim

/s/ C. PARK SHAPER	Director	March 1, 2011
C. Park Shaper

	Director	March 1, 2011
John Stokes

/s/ R. BARAN TEKKORA	Director	March 1, 2011
R. Baran Tekkora

	Director	March 1, 2011
Glenn A. Youngkin

Representing a majority of the Board of Directors of Kinder Morgan, Inc.

220

Exhibit 10.1

ANNUAL INCENTIVE PLAN

KINDER MORGAN, INC.

ARTICLE 1.

GENERAL

1.1 Purpose

The Annual Incentive Plan (the "Plan") of Kinder Morgan, Inc. (the "Company") is intended to advance the best interests of the Company and its subsidiaries by providing certain employees with additional incentives through the discretionary payment of bonuses based on the performance of the Company and/or the employees relating to specified objective financial and business criteria, thereby increasing the personal stake of such employees in the continued success and growth of the Company and encouraging them to remain in the employ of the Company. The Plan shall provide for Awards (as defined below) to executives (the "Executive Plan") and non-executives (the "Non-Executive Plan").

1.2 Administration Of The Plan

Except as otherwise provided herein, the Plan shall be administered by the Chief Manager (as defined in the Amended and Restated Limited Liability Company Agreement of Kinder Morgan Holdco LLC (“Holdco”), dated as of May 30, 2007, as amended (the "LLC Agreement")) of Holdco; provided, however that if there is no Chief Manager as a result of the occurrence of a “Management Rights Termination Event” (as defined in the LLC Agreement), the Board of Managers (as defined in the LLC Agreement) of Holdco (or the Compensation Committee thereof, if the Compensation Committee has been given such authority by the Board of Managers) shall administer the Plan and the matters contemplated under it. As applicable, the Chief Manager, the Board of Man agers or the Compensation Committee, as administrator, shall be referred to herein as the "Committee." The Committee shall have authority, subject to the provisions of the Plan, in its discretion, to grant awards ("Awards") under the Plan, to interpret conclusively the provisions of the Plan, to adopt such rules and regulations for carrying out the Plan as it may deem advisable, to decide conclusively all questions of fact arising in the application of the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. All decisions and acts of the Committee shall be final and binding upon all Eligible Employees, Plan Participants and beneficiaries. No member of the Committee shall be liable for any action taken, or determination made, in good faith.

1.3 Eligibility

"Eligible Employee" means any employee of the Company or its subsidiaries, except (i) an employee who is included in a unit of employees covered by a collective bargaining agreement unless such agreement expressly provides for eligibility under this Plan, and (ii) a director who is not an employee of the Company or its subsidiaries. The Chairman and Chief Executive Officer of the Company ("Chairman") and all employees identified by the Chairman who report directly to the

-1-

office of the Chairman shall be eligible to participate in the Executive Plan. All other Eligible Employees shall be eligible to participate in the Non-Executive Plan.

1.4 Awards Under The Plan

The Committee shall designate the Eligible Employees, if any, to be granted Awards under the Plan. Each Eligible Employee to whom an Award is granted shall be a "Participant." No employee shall be a Participant or be entitled to any payment hereunder unless such employee is designated as a Participant and granted an Award by the Committee. All Awards granted under the Plan shall be on the terms and subject to the conditions hereinafter provided.

1.5 Other Compensation Programs

The existence and terms of the Plan shall not limit the authority of the Board of Directors or the Committee in compensating employees of the Company or its subsidiaries in such other forms and amounts, including compensation pursuant to any other plans as may be in effect currently or adopted in the future, as the Board of Directors or the Committee may determine from time to time.

ARTICLE 2.

TERMS AND CONDITIONS OF AWARDS

2.1 Executive Plan

(a) Establishment Of Performance Goals And Bonus Opportunity

Prior to or within 90 days after the commencement of each Performance Year, the Committee shall establish written Performance Goals and a Bonus Opportunity for each Award granted to a Participant in the Executive Plan for such Performance Year. The Performance Goals shall be based on criteria established by the Committee, including but not limited to one or more of the following:

(1)

Company earnings per share;

(2)

Company or subsidiary cash distributions to shareholders or common unitholders;

(3)

Company or subsidiary earnings before interest and taxes or earnings before interest, taxes and corporate charges;

(4)

Company or subsidiary net income;

(5)

Company or subsidiary revenues;

(6)

Company or subsidiary unit revenues minus unit variable costs;

-2-

(7)

Company or subsidiary return on capital, return on equity, return on assets, or return on invested capital;

(8)

Company or subsidiary cash flow, return on assets or cash flows from operating activities;

(9)

Company or subsidiary capital expenditures;

(10)

Company or subsidiary operations and maintenance expense or general and administrative expense;

(11)

Company or subsidiary debt-equity ratios and key profitability ratios; and

(12)

Company stock price.

At the time of establishing the Performance Goals, the Committee shall specify (i) the formula to be used in calculating the compensation payable to a Participant if the Performance Goals are obtained, and (ii) the individual employee or class of employees to which the formula applies. The Bonus Opportunity shall be expressed as an amount of cash. The Committee may also specify a minimum acceptable level of achievement of the relevant Performance Goals, as well as one or more additional levels of achievement, and a formula to determine the percentage of the Bonus Opportunity deemed to have been earned by the Participant upon attainment of each such level of achievement, which percentage may exceed 100%. The Performance Goals and Bonus Opportunity relating to any particular Award need not be the same as th ose relating to any other Award, whether made at the same or a different time. Notwithstanding the terms of any Award, the maximum payout under this Plan to any individual for any Performance Year shall not exceed $3,000,000.

(b) Performance Year

The Performance Year with respect to an Executive Plan Award shall be the calendar year within which the Performance Goals relating to that Award are to be achieved.

Promptly after the date on which the necessary information for a particular Performance Year becomes available, the Committee shall determine the extent to which the Bonus Opportunity for such Performance Year has been earned, through the achievement of the relevant Performance Goals, by each Participant for such Performance Year.

2.2 Non-Executive Plan

(a) Performance Year

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The Performance Year for the Non-Executive Plan shall be the calendar year applicable to the Executive Plan except that, for non-exempt Eligible Employees, the Performance Year shall be the period containing all time worked and used to determine pay beginning November 1 of the prior calendar year and ending October 31 of the calendar year applicable for the Executive Plan.

(b) Determination of Award

For each Performance Year, the Committee may grant Awards to Participants in the Non-Executive Plan. The Awards shall be determined by the Committee, in its sole discretion, based on recommendations made by the Company's management. Such recommendations may be based on a number of factors, or any combination of them, including, but not limited to, market data, Company performance, and the performance of individual Participants. The Committee shall have the sole discretion to determine whether any Eligible Employee will be designated a Participant and granted an Award.

2.3 Discretionary Downward Adjustments

At any time after an Award has been granted but before the Award has been paid, the Committee, in its sole and absolute discretion, may reduce or eliminate the Award granted to any Participant for any reason or for no reason, including, but without limitation, the Committee's judgment that the Performance Goals have become an inappropriate measure of achievement, a change in the employment status, position or duties of the Participant, unsatisfactory performance of the Participant, or the Participant's service for less than the entire Performance Year, for example. The reduction or elimination of an Award for a Participant may not increase the amount of an Award to another Participant.

2.4 Distributions

As soon as administratively feasible after the Committee has (i) determined the extent to which the Bonus Opportunity relating to an Award under the Executive Plan has been earned pursuant to Section 2.1(c), or (ii) granted an Award under the Non-Executive Plan, such Award shall be distributed in one lump sum either in cash or in such other form of payment (for example, equity) that the Committee, in its discretion, may determine, provided that no such other form shall result in a deferral of compensation to which Section 409A of the Internal Revenue Code of 1986, as amended, applies.

2.5 Change In Control

Notwithstanding any other provision of this Plan (other than in the last sentence of this Section 2.5) or contained in any Award granted hereunder (including any provision for deferred payment thereof), upon the occurrence of a Change in Control (as defined in Section 3.6), the Committee, in its discretion, may take any action with respect to outstanding Awards that it deems appropriate, which action may vary among Awards granted to individual Participants. In the event that such action is to distribute an Award, the Award shall be distributed in a lump sum no

-4-

later than 30 days after the Change in Control. If a Change in Control occurs and, in connection with or as a result of such Change in Control, Richard D. Kinder no longer holds or does not continue to hold the office of Chairman of the Company, each Participant under the (i) Executive Plan shall be deemed to have earned 100% of the Bonus Opportunities contained in any outstanding Awards for which the determination described in Section 2.1(c) has not been made, or, if such determination described in Section 2.1(c) has been made, the full amount of the portion of the Bonus Opportunity which was determined to have been earned, (ii) Non-Executive Plan shall be deemed to have earned an Award equal to the Award most recently paid to such Participant under the Plan (or, if no Awards have yet been paid under the Plan, an A ward equal to the award paid to such Participant for 2009 under the prior Annual Incentive Plan), and (iii) the amount of such Bonus Opportunities or Awards under (i) or (ii), as applicable, shall be paid promptly (and no later than 30 days after the Change in Control) in a cash lump sum.

2.6 Termination of Employment

Except in the case of a payment made in connection with a Change in Control under Section 2.5, a Participant shall forfeit all rights to a distribution of an Award if the Participant ceases to be employed by the Company or a subsidiary for any reason prior to the date the Award is distributed. For greater certainty, the Participant ceases to be employed by the Company or a subsidiary on the later of the date on which the Participant receives written notice of termination or the last date on which the Participant provides services to the Company or subsidiary.

ARTICLE 3.

ADDITIONAL PROVISIONS

3.1 Amendments

The Board of Directors may, in its sole discretion, amend the Plan from time to time or terminate the Plan at any time. Any such amendment may be made without stockholder approval unless required to satisfy any applicable laws or securities exchange rules. Notwithstanding this or any other provision of this Plan to the contrary, in connection with a Change in Control (a) neither the Committee nor the Board of Directors may adjust any Award in effect immediately prior to such Change in Control in a manner adverse to the Participant, and (b) the Board of Directors may not amend the provisions of this Plan relating to such Change in Control or any such Award in a manner adverse to a Participant, in either case without the consent of the affected Participant.

3.2 Withholding

Payments under the Plan shall be net of an amount sufficient to satisfy any federal, state, local or provincial withholding tax obligations of the Company.

3.3 Non-Assignability; Death Of Participant

No Award under the Plan shall be assignable or transferable by the holder thereof except by will or by the laws of descent and distribution. In the event of the death of a Participant, any

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payments due to such Participant shall be paid to his beneficiary designated in writing to the Committee, or, if none has been designated, to his estate.

3.4 Non-Uniform Determinations

Determinations by the Committee under the Plan (including, without limitation, determinations of the persons to receive Awards; the terms and provisions of such Awards; the relevant Performance Goals; the amount of Bonus Opportunity; and the amount of any downward adjustment) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.

3.5 No Guarantee Of Employment

The grant of an Award under the Plan shall not constitute an assurance of continued employment for any period.

3.6 Change In Control

(a) "Change in Control" means:

(i) after January 1, 2010, any natural person, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and including any group acting for the purpose of acquiring, holding, voting or disposing of securities of an issuer within the meaning of Rule 13d-5(b)(1) under the Exchange Act (each of the foregoing, a "Group"))(any such natural person, entity or Group being referred to herein as a "Person"), other than a Permitted Person (hereinafter defined), becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, by way of merger, amalgamation, consolidation or other business combination, purchase, formation of a group, recapitalization, reclas sification or otherwise, of securities of the Company, Holdco or any entity through which Holdco, directly or indirectly, owns voting securities of the Company (an "Intermediate Entity") representing fifty percent (50%) or more of the voting power of the Company, Holdco or such Intermediate Entity (or the surviving or resulting entity), as the case may be, after giving effect to the transaction;

(ii) a sale, merger, amalgamation, consolidation or other business combination, purchase, recapitalization, reclassification or transaction or series of related transactions involving the Company, any Intermediate Entity or Holdco as a result of which the voting securities of the Company, such Intermediate Entity or Holdco, as the case may be, outstanding immediately before such transaction or series of related transactions do not continue to represent (either by remaining outstanding by being converted into the voting securities of the surviving or resulting entity) at least 50% of the voting power of the Company, such Intermediate Entity, Holdco or such surviving or resulting entity, as the case may be, after giving effect to such transaction or series of related transactions;

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(iii) the sale or transfer of, or the approval by the relevant security holders of an agreement for the sale or transfer of, all or substantially all of the assets of the Company, of any Intermediate Entity or of Holdco, in a single transaction or series of related transactions, in any case other than to an entity of which more than 50% of the voting power is held by Permitted Persons; or

(iv) the shareholders or relevant security holders of the Company, any Intermediate Entity or Holdco approve a plan of complete liquidation of the Company, any Intermediate Entity or Holdco, unless all of the assets of the affected entity will be distributed in such liquidation to a Permitted Person.

(b) “Permitted Person” means (i) with respect to Holdco, Richard D. Kinder or any Group controlled by Richard D. Kinder (for purposes of this Plan, Richard D. Kinder shall not be on the date of this Plan deemed to control Holdco or any investors in Holdco), (ii) with respect to any particular Intermediate Entity, (x) Richard D. Kinder or any Group controlled by Richard D. Kinder, (y) Holdco, if no Change of Control has occurred with respect to Holdco, or (z) a second Intermediate Entity through which Holdco owns voting securities of the particular Intermediate Entity, if no Change of Control has occurred with respect to (A) such second Intermediate Entity, (B) any third Intermediate Entity through which Holdco owns voting securities of such second Intermediate Entity, o r (C) Holdco, and (iii) with respect to the Company, (x) Richard D. Kinder or any Group controlled by Richard D. Kinder, (y) Holdco, if no Change of Control has occurred with respect to Holdco, or (z) any Intermediate Entity, if no Change of Control has occurred with respect to (A) such Intermediate Entity, (B) any other Intermediate Entity through which Holdco owns voting securities of such Intermediate Entity, or (C) Holdco.

3.7 Limitation on Certain Payments

Notwithstanding any other provision of this Plan, the Company shall not make or be obligated to make any payment hereunder which would require the approval of the majority of the Board of Managers of Holdco under the Holdco LLC Agreement unless such approval has been given.

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3.8 Unfunded Status Of Awards; Creation Of Trusts

The Plan is intended to constitute an "unfunded" plan. With respect to any amounts payable to a Participant pursuant to an Award, nothing contained in the Plan (or in any documents related thereto), nor the creation or adoption of the Plan, the grant of any Award, or the taking of any other action pursuant to the Plan, shall give any such Participant any rights that are greater than those of a general creditor of the Company. The Committee may authorize the creation of trusts or make other arrangements to meet the Company's obligations under the Plan; however, such trusts or other arrangements shall be consistent with the "unfunded" status of the Plan.

3.9 Effective Date Of Plan

The Plan shall become effective on January 1, 2010.

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Exhibit 12.1

KINDER MORGAN, INC. AND SUBSIDIARIES

STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in millions except ratio amounts)

The Ratio of earnings to fixed charges for the periods ended May 31, 2007 and December 31, 2006 reflect the operations of the Company prior to the Going Private transaction, which was accounted for as a business combination, requiring that we record the assets acquired and liabilities assumed at their values as of the date of the Going Private transaction, resulting in a new basis of accounting. Hence, there is a blackline division on the Ratio of earnings to fixed charges shown below, which is intended to signify that the amounts shown for periods prior to (Predecessor Company) and subsequent to (Successor Company) the Going Private transaction are not comparable. See Note 2 to our consolidated financial statements included in our Form 10-K for the year ended December 31 , 2010 for additional information on the Going Private transaction. For accounting purposes, Kinder Morgan Kansas, Inc. is considered our Predecessor Company for all periods ended on or before May 31, 2007.

	Successor Company												Predecessor Company
	(In millions, except ratios)												(In millions, except ratios)
	Year Ended December 31,									Seven Months Ended December 31,			Five Months Ended May 31,			Year Ended December 31,
	2010			2009			2008			2007			2007			2006
Earnings:
Pre-tax income from continuing operations before cumulative effect of a change in accounting principle and before adjustment for noncontrolling interests and equity earnings (including amortization of excess cost of equity investments) per statements of income	$	659.9		$	883.3		$	(3,093.4	)	$	460.6		$	(44.8	)	$	1,161.9
Add:
Fixed charges		703.8			656.5			751.4			642.5			285.4			630.5
Amortization of capitalized interest		4.0			3.8			3.0			1.0			1.0			1.3
Distributed income of equity investees		219.8			277.0			241.2			84.6			47.6			73.2
Less:
Interest capitalized from continuing operations		(12.5	)		(32.9	)		(49.5	)		(25.4	)		(12.4	)		(25.2	)
Noncontrolling interests in pre-tax income of subsidiaries with no fixed charges		(107.4	)		(82.7	)		(126.2	)		(55.2	)		(27.0	)		(103.3	)
Income as adjusted	$	1,467.6		$	1,705.0		$	(2,273.5	)	$	1,108.1		$	249.8		$	1,738.4


Fixed charges:
Interest and debt expense, net per statements of income (includes amortization of debt discount, premium, and debt issuance costs; excludes capitalized interest)	$	680.8		$	632.0		$	725.3		$	628.9		$	275.7		$	606.1
Add:
Portion of rents representative of the interest factor		23.0			24.5			26.1			13.6			9.7			24.4
Fixed charges	$	703.8		$	656.5		$	751.4		$	642.5		$	285.4		$	630.5

Ratio of earnings to fixed charges		2.09			2.60		(a)				1.72		(a)				2.76

____________

(a)

For the year ended December 31, 2008 and the five months ended May 31, 2007, fixed charges exceeded earnings by $3,024.9 million and $35.6 million, respectively. In 2008, Kinder Morgan, Inc. recognized a $4,033.3 million non-cash goodwill impairment charge associated with its investment in Kinder Morgan Energy Partners, L.P. During the five months ended May 31, 2007, Kinder Morgan Kansas, Inc. recognized a $377.1 million non-cash goodwill impairment charge associated with its investment in Trans Mountain.

Exhibit 21.1

KINDER MORGAN, INC.

Subsidiaries of the Registrant

1108437 Alberta Ltd.

3071978 Nova Scotia Company

6043445 Canada Inc.

6048935 Canada Inc.

Agnes B Crane, LLC

Arrow Terminals B.V.

Arrow Terminals Canada B. V.

Arrow Terminals Canada Company

Audrey Tug LLC

Betty Lou LLC

Calnev Pipe Line LLC

Carbon Exchange LLC

Central Florida Pipeline LLC

CIG Trailblazer Gas Company, L.L.C.

Colton Processing Facility

Cortez Capital Corporation

Cortez Pipeline Company (50%)

Coyote Gas Treating Limited Liability Company

Cypress Interstate Pipeline LLC formerly Kinder Morgan
Cypress Pipeline LLC

Dakota Bulk Terminal, Inc.

Deeprock Development, LLC

Deeprock North, LLC

Delta Terminal Services LLC

Devco USA, L.L.C.

Dietze Products LLC (20%)

Eagle Ford Crossover LLC (50%)

Eagle Ford Gathering LLC (50%)

Elizabeth River Terminals LLC

Emory B Crane, LLC

Endeavor Gathering LLC (40%)

ExPlatte Holdings Inc.

Express GP Holdings Ltd.

Express Holdings (Canada) Limited Partnership

Express Holdings (USA) Inc.

Express Pipeline Limited Partnership

Express Pipeline LLC

Express Pipeline Ltd.

Express US Holdings LP

Fayetteville Express Pipeline LLC (50%)

Fernandina Marine Construction Management LLC

Frank L. Crane, LLC

General Stevedores GP, LLC

General Stevedores Holdings LLC

Global American Terminals LLC

Globalplex Partners, Joint Venture (50%)

Guilford County Terminal Company, LLC (65%)

Gulf Energy Gas, LLC

Gulf Energy Gathering & Processing, LLC

Gulf Energy Marketing, LLC

Hampshire LLC

HBM Environmental, Inc.

Horizon Pipeline Company, L.L.C. (50%)

Hydrocarbon Development, LLC

I.M.T. Land Corp.

ICPT, L.L.C.

Interenergy Corporation

International Marine Terminals (66.66%)

J.R. Nicholls LLC

Javelina Tug LLC

Jeannie Brewer LLC

Johnston County Terminal, LLC (50%)

K N Gas Gathering, Inc.

K N Natural Gas, Inc.

K N TransColorado, Inc.

Kellogg Terminal, LLC (50%)

Kinder Morgan (Delaware), Inc.

Kinder Morgan 2-Mile LLC

Kinder Morgan Amory LLC

Kinder Morgan Arrow Terminals Holdings, Inc.

Kinder Morgan Arrow Terminals, L.P.

Kinder Morgan Baltimore Transload Terminal LLC

Kinder Morgan Bison ULC

Kinder Morgan Border Pipeline LLC

Kinder Morgan Bulk Terminals, Inc.

Kinder Morgan Cameron Prairie Pipeline LLC

Kinder Morgan Canada CO2 ULC

Kinder Morgan Canada Company

Kinder Morgan Canada Inc.

Kinder Morgan Canada Terminals Limited Liability
Partnership

Kinder Morgan Carbon Dioxide Transportation Company

Kinder Morgan CO2 Company, L.P.

Kinder Morgan Cochin LLC

Kinder Morgan Cochin ULC

Kinder Morgan Columbus LLC

Kinder Morgan Commercial Services LLC

Kinder Morgan Crude Oil Pipelines LLC

Kinder Morgan Cushing LLC

Kinder Morgan Dallas Fort Worth Rail Terminal LLC

Kinder Morgan Eagle Ford LLC

Kinder Morgan Edmonton Terminals ULC

Kinder Morgan Endeavor LLC

Kinder Morgan Energy Partners, L.P.

Kinder Morgan Finance Company LLC

Kinder Morgan Fleeting LLC

Kinder Morgan Foundation (nonprofit)

Kinder Morgan G. P., Inc.

Kinder Morgan Gas Natural de Mexico S. de R.L. de C.V.

Kinder Morgan Heartland ULC

Kinder Morgan Holdco DE Inc.

Kinder Morgan Illinois Pipeline LLC

Kinder Morgan Interstate Gas Transmission LLC

Kinder Morgan Kansas, Inc.

Kinder Morgan KMAP LLC

Kinder Morgan Las Vegas LLC

Kinder Morgan Linden Transload Terminal LLC

Kinder Morgan Liquids Terminals LLC

KINDER MORGAN, INC.

Subsidiaries of the Registrant (continued)

Kinder Morgan Liquids Terminals St. Gabriel LLC

Kinder Morgan Louisiana Pipeline Holding LLC

Kinder Morgan Louisiana Pipeline LLC

Kinder Morgan Marine Services LLC

Kinder Morgan Materials Services, LLC

Kinder Morgan Mid Atlantic Marine Services LLC

Kinder Morgan NatGas Operator LLC

Kinder Morgan North Texas Pipeline LLC

Kinder Morgan Operating L.P. “A”

Kinder Morgan Operating L.P. “B”

Kinder Morgan Operating L.P. “C”

Kinder Morgan Operating L.P. “D”

Kinder Morgan Pecos LLC

Kinder Morgan Petcoke GP LLC

Kinder Morgan Petcoke LP LLC

Kinder Morgan Petcoke, L.P.

Kinder Morgan Pipeline LLC

Kinder Morgan Pipeline Services of Mexico S. de R.L. de
C.V.

Kinder Morgan Pipelines (USA) Inc.

Kinder Morgan Port Manatee Terminal LLC

Kinder Morgan Port Sutton Terminal LLC

Kinder Morgan Port Terminals USA LLC

Kinder Morgan Production Company LLC

Kinder Morgan Rail Services LLC

Kinder Morgan River Terminals LLC

Kinder Morgan Seven Oaks LLC

Kinder Morgan Southeast Terminals LLC

Kinder Morgan Tank Storage Terminals LLC

Kinder Morgan Tejas Pipeline LLC

Kinder Morgan Terminals, Inc.

Kinder Morgan Texas Gas Services LLC

Kinder Morgan Texas Pipeline LLC

Kinder Morgan Texas Terminals, L.P.

Kinder Morgan TransColorado LLC

Kinder Morgan TransColorado, Inc.

Kinder Morgan Transmix Company, LLC

Kinder Morgan Treating LP

Kinder Morgan Urban Renewal, L.L.C.

Kinder Morgan W2E Pipeline LLC

Kinder Morgan Wink Pipeline LLC

KinderHawk Field Services LLC (50%)

KM Crane LLC

KM Decatur, Inc.

KM Express LLC

KM Gathering LLC

KM Insurance Ltd.

KM International Services, Inc.

KM Kaskaskia Dock LLC

KM Liquids Terminals LLC

KM North Cahokia Land LLC

KM North Cahokia Special Project LLC

KM North Cahokia Terminal Project LLC

KM Ship Channel Services LLC

KM Treating GP LLC

KM Upstream LLC

KMBT LLC

KMEP Canada ULC

KN Telecommunications, Inc.

Knight Power Company LLC

Lomita Rail Terminal LLC

Midcontinent Express Pipeline LLC (50%)

Mid-Ship Group LLC (25%)

Milwaukee Bulk Terminals LLC

MJR Operating LLC

Mr. Bennett LLC

Mr. Vance LLC

Nassau Terminals LLC

Natural Gas Pipeline Company of America LLC

NGPL Canyon Compression Co. LLC

NGPL HoldCo Inc.

NGPL PipeCo LLC (20%)

North Cahokia Industrial, LLC (50%)

North Cahokia Real Estate, LLC (17.46%)

North Cahokia Terminal, LLC (50%)

Northeast Express Pipeline LLC (66.66%)

NS 307 Holdings Inc.

Paddy Ryan Crane, LLC

Pecos Carbon Dioxide Transportation Company (69.27%)

Pinney Dock & Transport LLC

Plantation Pipe Line Company (51%)

Plantation Services, LLC (51%)

Platte Pipe Line Company

Queen City Terminals, Inc.

Rahway River Land LLC

Razorback Tug LLC

RCI Holdings, Inc.

Red Cedar Gathering Company (49%)

River Consulting, LLC

River Terminals Properties GP LLC

River Terminals Properties, LP

Rockies Express Pipeline LLC (50%)

SFPP, L.P. (99.5%)

Silver Canyon Pipeline LLC

Sonoran Pipeline LLC (50%)

Southwest Florida Pipeline LLC

SRT Vessels LLC

Stellman Transportation, LLC

Stevedore Holdings, L.P.

Tajon Holdings, Inc.

Tejas Gas Systems, LLC

Tejas Gas, LLC

Tejas Natural Gas, LLC

Tejas-Gulf, LLC

Texan Tug LLC

Trailblazer Pipeline Company LLC

Trans Mountain (Jet Fuel) Inc.

Trans Mountain Pipeline (Puget Sound) LLC

Trans Mountain Pipeline L.P.

Trans Mountain Pipeline ULC

KINDER MORGAN, INC.

Subsidiaries of the Registrant (continued)

TransColorado Gas Transmission Company LLC

Transload Services, LLC

Valley Gas Transmission, LLC

Valley Operating, Inc.

Western Plant Services, Inc.

Wildhorse Energy Partners, LLC (55%)

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-172170) of Kinder Morgan, Inc. (formerly known as Kinder Morgan Holdco LLC) of our report dated March 1, 2011 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 1, 2011

Exhibit 23.2

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

As oil and gas consultants, we hereby consent to the use of our name and our report dated January 7, 2011, in this Form 10-K, incorporated by reference into Kinder Morgan Energy Partners, L.P.'s previously filed Registration Statement File Nos. 333-122424, 333-25995, 333-62155, 333-33726, 333-54616, 333-60912-01, 333-55866-01, 333-91316-01, 333-102961, 333-102962-01 333-124471, 333-141491, 333-142584, 333-153598, 333-164408, and 333-171864 on Form S-3, 333-167562 on Form S-3ASR, and 333-122168 and 333-56343 on Form S-8.

	NETHERLAND, SEWELL & ASSOCIATES, INC.
	By:
		Danny D. Simmons, P.E. President and Chief Operating Officer

Houston, Texas

February 9, 2011

Exhibit 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-172170) of Kinder Morgan, Inc. (formerly known as Kinder Morgan Holdco LLC) of our reports dated September 28, 2010 and October 16, 2009 relating to the consolidated financial statements of NGPL PipeCo LLC, which appear in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 1, 2011

Exhibit 31.1

KINDER MORGAN, INC.

CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

	I, Richard D. Kinder, certify that:
1.	I have reviewed this annual report on Form 10-K of Kinder Morgan, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2011
	/s/ Richard D. Kinder
	Richard D. Kinder Chairman and Chief Executive Officer

Exhibit 31.2

KINDER MORGAN, INC.

CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

	I, Kimberly A. Dang, certify that:
1.	I have reviewed this annual report on Form 10-K of Kinder Morgan, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2011
	/s/ Kimberly A. Dang
	Kimberly A. Dang Vice President and Chief Financial Officer

Exhibit 32.1

KINDER MORGAN, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906

OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Kinder Morgan, Inc. (the “Company”) for the period ended December 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Knight Inc. and will be retained by Kinder Morgan, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: March 1, 2011		/s/ Richard D. Kinder
		Richard D. Kinder Chairman and Chief Executive Officer

Exhibit 32.2

KINDER MORGAN, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906

OF THE

SARBANES-OXLEY ACT OF 2002

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 1, 2011		/s/ Kimberly A. Dang
		Kimberly A. Dang Vice President and Chief Financial Officer

Exhibit 99.2

January 7, 2011

Mr. Charles E. Fox

Kinder Morgan CO2 Company, L.P.

500 Dallas Street, Suite 1000

Houston, Texas 77002

Dear Mr. Fox:

In accordance with your request, we have estimated the proved reserves and future revenue, as of December 31, 2010, to the Kinder Morgan CO2 Company, L.P. (Kinder Morgan) interest in certain oil and gas properties located in Texas. We completed our evaluation on January 7, 2011. It is our understanding that the proved reserves estimated in this report constitute all of the proved reserves owned by Kinder Morgan. The estimates in this report have been prepared in accordance with the definitions and guidelines of the U.S. Securities and Exchange Commission (SEC) and, with the exception of the exclusion of future income taxes, conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas.& #160; Definitions are presented immediately following this letter. This report has been prepared for Kinder Morgan's use in filing with the SEC; in our opinion the assumptions, data, methods, and procedures used in the preparation of this report are appropriate for such purpose.

We estimate the net reserves and future net revenue to the Kinder Morgan interest in these properties, as of December 31, 2010, to be:

	Net Reserves						Future Net Revenue (M$)
	Oil		NGL		Gas				Present Worth
Category	(MBBL)		(MBBL)		(MMCF)		Total		at 10%

Proved Developed Producing		50,650.7		1,591.4		3,097.8		2,292,173.9		1,536,760.1
Proved Developed Non-Producing		5,772.2		630.0		0.0		116,266.1		98,201.2
Proved Undeveloped		27,752.5		2,641.7		0.0		435,761.1		262,649.2

Total Proved		84,175.5		4,863.1		3,097.8		2,844,201.1		1,897,610.5

Totals may not add because of rounding.

The oil reserves shown include crude oil and condensate. Oil and natural gas liquids (NGL) volumes are expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United States gallons. Gas volumes are expressed in millions of cubic feet (MMCF) at standard temperature and pressure bases.

The estimates shown in this report are for proved reserves. No study was made to determine whether probable or possible reserves might be established for these properties. This report does not include any value that could be attributed to interests in undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated. Reserves categorization conveys the relative degree of certainty; reserves subcategorization is based on development and production status. The estimates of reserves and future revenue included herein have not been adjusted for risk.

Future gross revenue to the Kinder Morgan interest is prior to deducting state production taxes and ad valorem taxes. Future net revenue is after deductions for these taxes, future capital costs, operating expenses, and abandonment costs but before consideration of any income taxes. The future net revenue has been discounted at an annual rate of 10 percent to determine its present worth, which is shown to indicate the effect of time on the

value of money. Future net revenue presented in this report, whether discounted or undiscounted, should not be construed as being the fair market value of the properties.

For the purposes of this report, we did not perform any field inspection of the properties, nor did we examine the mechanical operation or condition of the wells and facilities. We have not investigated possible environmental liability related to the properties; therefore, our estimates do not include any costs due to such possible liability. Our estimates of future net revenue do not include any salvage value for the lease and well equipment but do include Kinder Morgan's estimates of the costs to abandon the wells and production facilities. Abandonment costs are included as capital costs.

Prices used in this report are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December 2010. For oil and NGL volumes, the average West Texas Intermediate posted price of $75.96 per barrel is adjusted by field for quality, transportation fees, and regional price differentials. For gas volumes, the average Henry Hub spot price of $4.376 per MMBTU is adjusted by field for energy content, transportation fees, and regional price differentials. All prices are held constant throughout the lives of the properties. The average adjusted product prices weighted by production over the remaining lives of the properties are $76.09 per barrel of oil, $50.73 per barrel of NGL, and $4.552 per MCF of gas.

Lease and well operating costs used in this report are based on operating expense records of Kinder Morgan. For nonoperated properties, these costs include the per-well overhead expenses allowed under joint operating agreements along with estimates of costs to be incurred at and below the district and field levels. As requested, lease and well operating costs for the operated properties are limited to direct lease- and field-level costs and Kinder Morgan's estimate of the portion of its headquarters general and administrative overhead expenses necessary to operate the properties. Lease and well operating costs are held constant throughout the lives of the properties. Capital costs are included as required for workovers, new development wells, and production equipment. The future capital costs are held constant to the date of expenditure.

We have made no investigation of potential gas volume and value imbalances resulting from overdelivery or underdelivery to the Kinder Morgan interest. Therefore, our estimates of reserves and future revenue do not include adjustments for the settlement of any such imbalances; our projections are based on Kinder Morgan receiving its net revenue interest share of estimated future gross gas production.

The reserves shown in this report are estimates only and should not be construed as exact quantities. Proved reserves are those quantities of oil and gas which, by analysis of engineering and geoscience data, can be estimated with reasonable certainty to be economically producible. Estimates of reserves may increase or decrease as a result of market conditions, future operations, changes in regulations, or actual reservoir performance. In addition to the primary economic assumptions discussed herein, our estimates are based on certain assumptions including, but not limited to, that the properties will be developed consistent with current development plans, that the properties will be operated in a prudent manner, that no governmental regulations or controls will be put in place that would impact the a bility of Kinder Morgan to recover the reserves, and that our projections of future production will prove consistent with actual performance. If the reserves are recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. Because of governmental policies and uncertainties of supply and demand, the sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions made while preparing this report.

For the purposes of this report, we used technical and economic data including, but not limited to, geologic maps, well test data, production data, historical price and cost information, and property ownership interests. The reserves in this report have been estimated using deterministic methods; these estimates have been prepared in accordance with the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers (SPE Standards). We used standard engineering and geoscience methods, or a combination of methods, such as performance analysis, volumetric analysis, analogy, and reservoir modeling, that we considered to be appropriate and necessary to categorize and estimate reserves

in accordance with SEC definitions and guidelines. A substantial portion of these reserves are for undeveloped locations and for properties that rely on continued CO2 injection. Therefore, these reserves are based on estimates of reservoir volumes and recovery efficiencies along with analogy to properties with similar geologic and reservoir characteristics. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, our conclusions necessarily represent only informed professional judgment.

The data used in our estimates were obtained from Kinder Morgan, public data sources, and the nonconfidential files of Netherland, Sewell & Associates, Inc. (NSAI) and were accepted as accurate. Supporting geoscience, performance, and work data are on file in our office. The titles to the properties have not been examined by NSAI, nor has the actual degree or type of interest owned been independently confirmed. The technical persons responsible for preparing the estimates presented herein meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the SPE Standards. We are independent petroleum engineers, geologists, geophysicists, and petrophysicists; we do not own an interest in these properties nor are we employed on a contingent basis.

		Sincerely,

		NETHERLAND, SEWELL & ASSOCIATES, INC. Texas Registered Engineering Firm F-002699


			/s/ C.H. (Scott) Rees III
		By:
			C.H. (Scott) Rees III, P.E. Chairman and Chief Executive Officer




	/s/ Derek F. Newton		/s/ Mike K. Norton
By:		By:
	Derek F. Newton, P.E. 97689 Vice President		Mike K. Norton, P.G. 441 Senior Vice President


Date Signed: January 7, 2011		Date Signed: January 7, 2011

DFN:JLM

Please be advised that the digital document you are viewing is provided by Netherland, Sewell & Associates, Inc. (NSAI) as a convenience to our clients. The digital document is intended to be substantively the same as the original signed document maintained by NSAI. The digital document is subject to the parameters, limitations, and conditions stated in the original document. In the event of any differences between the digital document and the original document, the original document shall control and supersede the digital document.

Exhibit 99.3

CONSOLIDATED FINANCIAL STATEMENTS

NGPL PIPECO LLC

And Subsidiaries

June 30, 2010 and 2009

Report of Independent Auditors

To the Boards of Directors of NGPL PipeCo LLC:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income, of members' equity and of cash flows present fairly, in all material respects, the financial position of NGPL PipeCo LLC and its subsidiaries (the "Company") at June 30, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opini on on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

September 28, 2010

Houston, Texas

June 2010 NGPL PipeCo LLC Financials

CONSOLIDATED STATEMENTS OF OPERATIONS

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2010			2009
	(In thousands)
Operating Revenues:
Transportation and Storage	$	852,463		$	1,020,659
Natural Gas Sales		189,450			301,188
Other		4,214			3,377
Total Operating Revenues		1,046,127			1,325,224

Operating Costs and Expenses:
Purchases and Other Costs of Sales		207,743			399,301
Operations and Maintenance		143,080			166,861
General and Administrative		46,519			45,163
Depreciation and Amortization		78,399			76,472
Taxes, Other Than Income Taxes		34,808			37,550
Goodwill Impairment (Note 2)		815,909			-
Other Expenses (Income)		21			(5,796	)
Total Operating Costs and Expenses		1,326,479			719,551

Operating Income (Loss)		(280,352	)		605,673

Other Income and (Expenses):
Interest Expense, Net		(212,020	)		(212,807	)
Interest Income		1,493			2,521
Equity in Earnings of Horizon		1,461			1,531
Other, Net		4,158			6,868
Total Other Income and (Expenses)		(204,908	)		(201,887	)

Income (Loss) Before Income Taxes		(485,260	)		403,786
Income Taxes		136,221			165,410
Income (Loss) From Continuing Operations		(621,481	)		238,376
Income (Loss) From Discontinued Operations		679			(824	)
Net Income (Loss)		(620,802	)		237,552
Net Loss Attributable to Noncontrolling Interests		(420	)		(314	)

Net Income (Loss) Attributable to NGPL PipeCo LLC	$	(620,382	)	$	237,866

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

June 2010 NGPL PipeCo LLC Financials

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2010			2009
	(In thousands)
Net Income (Loss)	$	(620,802	)	$	237,552

Other Comprehensive Income (Loss), Net of Tax:
Change in Fair Value of Derivatives Utilized for Hedging Purposes (Net of Tax Expense of $18,732 and $98,387)		25,090			151,916
Reclassification of Change in Fair Value of Derivatives to Net Income (Net of Tax Benefit of $29,393 and $26,145)		(41,952	)		(37,648	)
Total Other Comprehensive Income (Loss)		(16,862	)		114,268

Comprehensive Income (Loss)		(637,664	)		351,820
Comprehensive Loss Attributable to Noncontrolling Interests		(420	)		(314	)

Comprehensive Income (Loss) Attributable to NGPL PipeCo LLC	$	(637,244	)	$	352,134

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

June 2010 NGPL PipeCo LLC Financials

CONSOLIDATED BALANCE SHEETS

NGPL PipeCo LLC and Subsidiaries

	June 30, 2010			June 30, 2009
	(In thousands)
ASSETS:
Current Assets:
Cash and Cash Equivalents	$	259		$	236
Restricted Deposits		1,714			-
Accounts Receivable		62,203			67,394
Gas in Underground Storage		116,688			105,947
Materials and Supplies		31,776			11,145
Gas Imbalances		11,279			23,097
Fair Value of Derivatives		24,993			45,323
Prepaid Income Taxes		11,096			-
Other		12,148			11,323
		272,156			264,465

Investments		12,993			13,058

Goodwill (Note 2)		4,198,556			5,014,465

Property, Plant and Equipment, Net:
Property, Plant and Equipment		1,866,088			1,835,145
Accumulated Depreciation and Amortization		(174,872	)		(126,932	)
		1,691,216			1,708,213

Deferred Charges and Other Assets		36,105			38,754

Total Assets	$	6,211,026		$	7,038,955

LIABILITIES AND EQUITY:
Current Liabilities:
Notes Payable	$	24,300		$	28,300
Accounts Payable		17,051			16,482
Accrued Interest		9,372			9,303
Accrued Income and Other Taxes		31,183			60,075
Gas Imbalances		14,646			19,949
Fair Value of Derivatives		6,430			8,330
Other		11,815			22,128
		114,797			164,567

Other Liabilities and Deferred Credits:
Deferred Income Taxes		374,270			291,377
Other		20,651			24,471
		394,921			315,848

Long-term Debt		3,000,000			3,000,000

Commitments and Contingent Liabilities (Notes 5 and 11)

Equity:
NGPL PipeCo LLC Members’ Equity:
Members’ Capital		2,690,848			3,530,721
Accumulated Other Comprehensive Income		10,460			27,322
Total NGPL PipeCo LLC Members’ Equity		2,701,308			3,558,043
Noncontrolling Interests		-			497
Total Equity		2,701,308			3,558,540

Total Liabilities and Equity	$	6,211,026		$	7,038,955

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

June 2010 NGPL PipeCo LLC Financials

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2010			2009
	(In thousands)
NGPL PipeCo LLC Members’ Equity:
Members’ Capital:
Beginning Balance	$	3,530,721		$	3,615,388
Net Income (Loss) Attributable to NGPL PipeCo LLC		(620,382	)		237,866
Distributions to Members		(219,491	)		(322,533	)
Ending Balance		2,690,848			3,530,721
Accumulated Other Comprehensive Income (Loss), Net of Tax:
Beginning Balance		27,322			(86,946	)
Change in Fair Value of Derivatives Utilized for Hedging Purposes		25,090			151,916
Reclassification of Change in Fair Value of Derivatives to Net Income		(41,952	)		(37,648	)
Ending Balance		10,460			27,322

Total NGPL PipeCo LLC Members’ Equity		2,701,308			3,558,043

Noncontrolling Interests:
Beginning Balance		497			811
Net Loss Attributable to Noncontrolling Interests		(420	)		(314	)
Distributions		(77	)		-
Ending Balance		-			497

Total Equity	$	2,701,308		$	3,558,540

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

June 2010 NGPL PipeCo LLC Financials

CONSOLIDATED STATEMENTS OF CASH FLOWS

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2010			2009
	(In thousands)
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
Net Income (Loss)	$	(620,802	)	$	237,552
Adjustments to Reconcile Net Income (Loss) to Net Cash Flows Provided by Operating Activities:
Goodwill Impairment (Note 2)		815,909			-
Depreciation and Amortization		76,993			77,020
Deferred Income Taxes		90,931			28,323
Carrying Value Adjustments to Inventories (Note 3(E))		6,831			20,627
Gains From Sales of Assets		(9,188	)		(5,796	)
Changes in Components of Working Capital:
Gas in Underground Storage		(17,572	)		43,722
Accounts Receivable		7,805			(11,402	)
Materials and Supplies Inventories		(63	)		(5,030	)
Other Current Assets		(4,184	)		43,029
Accounts Payable		805			(23,967	)
Other Current Liabilities		(44,819	)		46,727
Other, Net		(6,051	)		(7,166	)
Net Cash Flows Provided by Operating Activities		296,595			443,639

Cash Flows From Investing Activities:
Capital Expenditures		(76,782	)		(94,518	)
Proceeds From Sales of Assets, Net of Disposal Costs		5,427			8,072
Return of Equity Investment in Horizon		65			769
(Investments In) Proceeds From Restricted Deposits		(1,714	)		90,906
Net Cash Flows Provided by (Used in) Investing Activities		(73,004	)		5,229

Cash Flows From Financing Activities:
Short-term Debt, Net		(4,000	)		(143,700	)
Distributions to Noncontrolling Interests		(77	)		-
Distributions to Members		(219,491	)		(322,533	)
Net Cash Flows Used in Financing Activities		(223,568	)		(466,233	)

Net Increase (Decrease) in Cash and Cash Equivalents		23			(17,365	)
Cash and Cash Equivalents at Beginning of Period		236			17,601
Cash and Cash Equivalents at End of Period	$	259		$	236

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

June 2010 NGPL PipeCo LLC Financials

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

NGPL PipeCo LLC (“NGPL PipeCo”) engages in interstate natural gas transportation and storage. NGPL PipeCo is 80% owned by Myria Acquisition LLC (“Myria”), a wholly owned subsidiary of Myria Holdings Inc. and 20% owned by NGPL Holdco Inc., a wholly owned subsidiary of Kinder Morgan, Inc. (“Kinder Morgan”). Unless the context requires otherwise, references to “we,” “us,” “our,” or the “Company” are intended to mean NGPL PipeCo.

On February 15, 2008, Kinder Morgan sold an 80% ownership interest in NGPL PipeCo to Myria. Pursuant to the purchase agreement, Myria acquired all 800 of our Class B shares and Kinder Morgan retained all 200 of our Class A shares. Kinder Morgan continues to operate our assets pursuant to the 15-year Operations and Reimbursement Agreement for Natural Gas Pipeline Company of America LLC dated as of February 15, 2008 (“Operating Agreement”).

The principal wholly owned subsidiary of NGPL PipeCo is Natural Gas Pipeline Company of America LLC (“Natural”), which owns and operates a major interstate natural gas pipeline transmission and storage system, consisting primarily of two major interconnected transmission pipelines terminating in the Chicago, Illinois metropolitan area. Natural’s Amarillo Line originates in the West Texas and New Mexico producing areas and is comprised of approximately 4,400 miles of mainline and various small-diameter pipelines. The other major pipeline, the Gulf Coast Line, originates in the Gulf Coast areas of Texas and Louisiana and consists of approximately 4,100 miles of mainline and various small-diameter pipelines. These two main pipelines are connected at points in Texas and Oklahoma by Natural’s 800-mile Amarillo/Gu lf Coast pipeline. Natural also operates an approximate 3-mile natural gas pipeline in northern Illinois, which is owned by Kinder Morgan Illinois Pipeline LLC, our wholly owned subsidiary. Natural provides 360,000 Dth per day of capacity to Kinder Morgan Illinois Pipeline LLC under a long-term operating lease. Natural owns a 50% investment in Horizon Pipeline Company, L.L.C. (“Horizon”), which is accounted for under the equity method, reflecting our ability to exercise significant influence over its operating and financial policies. In December 2009, we sold Canyon Creek Compression Company for approximately $255,000.

Natural’s interstate natural gas pipeline and storage operations, as well as those of its joint venture investee, are subject to regulation by the Federal Energy Regulatory Commission (the “FERC”). The FERC regulates, among other things, rates and charges for transportation and storage of natural gas in interstate commerce, the construction and operation of interstate pipeline and storage facilities and the accounts and records of interstate pipelines. On November 19, 2009, the FERC issued an order instituting an investigation of Natural’s rates pursuant to Section 5 of the Natural Gas Act. On June 11, 2010, Natural filed an Offer of Settlement (the "Settlement"), which was approved without modification by the FERC on July 29, 2010. The Settlement resolved all issues in the proceeding. The Settlement provide s that Natural will reduce its fuel and gas lost and unaccounted for fuel retention factors (“Fuel Retention Factors”) as of July 1, 2010. The Settlement further provides a timeline for additional prospective Fuel Retention Factor reductions and prospective reductions in the maximum recourse reservation rates that it bills firm transportation and storage shippers. See Notes 2 and 4 for additional information.

On June 3, 2009, the Financial Accounting Standards Board (“FASB”) voted to approve its Accounting Standards Codification (“ASC”) as the single source of authoritative nongovernmental generally accepted accounting principles in the United States of America (“U.S. GAAP”). The move was officially effected by the June 29, 2009 issuance of Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. On the effective date of this Statement, the ASC superseded all then-existing non-SEC accounting and reporting standards. All other nongrandfathered, non-SEC accounting litera ture not included in the ASC became nonauthoritative. In other words, the U.S. GAAP hierarchy has been modified to include only two levels of GAAP: authoritative and nonauthoritative. While the ASC does not change U.S. GAAP, it introduces a new structure—reorganizing the thousands of pre-ASC U.S. GAAP pronouncements into approximately 90 accounting topics and displaying all topics consistently. All guidance contained in the ASC carries an equal level of authority. The ASC became effective for interim and annual periods ending after September 15, 2009. The adoption of the ASC affects the way we reference U.S. GAAP in our consolidated financial statements and in our accounting policies; however, the adoption did not have any direct effect on our consolidated financial statements.

Effective July 1, 2009, we adopted accounting standard changes applicable to ASC Topic 810, Consolidation, which require us to present our noncontrolling interests (previously referred to as minority interests) that have the characteristics of permanent equity (related to Canyon Creek Compression Company, our consolidated subsidiary prior to its sale in December 2009) as a separate component of equity rather than as a “mezzanine” item between liabilities and equity on our Consolidated Balance Sheets. Additionally, we are also required to present our noncontrolling interests as a separate caption in our Consolidated Statements of Operations. Our financial statements for all periods presented have been adjusted to retrospectively apply these changes to the presentat ion and disclosures related to noncontrolling interests. These accounting standard changes also require that all transactions with noncontrolling interest holders after adoption, including the issuance

June 2010 NGPL PipeCo LLC Financials

and repurchase of noncontrolling interests, be accounted for as equity transactions unless a change in control of the subsidiary occurs.

These consolidated financial statements include the accounts of NGPL PipeCo LLC and our majority-owned subsidiaries. Investments in jointly owned operations in which we hold a 50% or less interest and have the ability to exercise significant influence over their operating and financial policies are accounted for under the equity method. All material intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates. Subsequent events have been evaluated through September 28 , 2010, the date these financial statements were available to be issued. Certain prior year amounts have been reclassified to conform to the current year presentation.

2. Goodwill Impairment

On November 19, 2009, Natural was notified by the FERC of a proceeding against it pursuant to Section 5 of the Natural Gas Act. The proceeding instituted an investigation into the justness and reasonableness of Natural’s transportation and storage rates as well as its Fuel Retention Factors. On June 11, 2010, Natural filed an Offer of Settlement, which was approved without modification by the FERC on July 29, 2010. The Settlement resolved all issues in the proceeding. The Settlement provides shippers on Natural’s system with reductions in Fuel Retention Factors effective July 1, 2010, reductions in maximum recourse reservation rates effective November 1, 2010, and future additional reductions to both Fuel Retention Factors and maximum recourse reservation rates during the term of the Settlement. In particular, the Settl ement provides that for the period July 1, 2010 through June 30, 2011, the Fuel Retention Factors will be the Fuel Retention Factors that were in effect April 1, 2010, reduced by thirty percent. The Settlement also provides that effective July 1, 2011, the Fuel Retention Factors will be the Fuel Retention Factors that were in effect April 1, 2010, reduced by forty-five percent. In regard to maximum recourse rates, the Settlement provides that from November 1, 2010 through March 31, 2011, the maximum recourse reservation rates for all firm transportation rate schedules will be the rates that were in effect April 1, 2010, reduced by three percent. For the period April 1, 2011 through June 30, 2011, the maximum recourse reservation rates for all firm transportation rate schedules will be the rates that were in effect April 1, 2010, reduced by five percent. Effective July 1, 2011, the Settlement provides that the maximum recourse reservation rates for all firm transportation rate schedules will be the rates that were in effect April 1, 2010, reduced by eight percent. For firm storage services, the maximum reservation rates will be reduced by three percent, effective November 1, 2010.

The Offer of Settlement caused Natural to evaluate for impairment the carrying value of its goodwill. An assessment was performed to determine whether the carrying value of Natural exceeded its fair value and the amount, if any, of goodwill impairment to record. The assessment utilized a weighted income approach and market approach to estimate the fair value of Natural. The income approach is a valuation technique that provides an estimation of the value of an asset or business based on the benefit stream that an asset or business can be expected to generate over its remaining useful life and is typically applied using a discounted cash flow (“DCF”) analysis. The DCF analysis involves discounting the asset’s or business’s projected future cash flows at an appropriately derived rate, which considers the time value of money, inflation, and the risk inherent in ownership of the asset or business being valued. The market approach is a valuation technique that provides an estimation of the value an asset or business using one or more methods that compare the subject asset or business to similar assets or businesses that have been historically transacted in a marketplace. Step one of the assessment indicated that the carrying value of Natural was greater than its fair value. Step two of the assessment resulted in a goodwill impairment charge of $815.9 million, recorded in the caption “Goodwill Impairment” on the accompanying Consolidated Statements of Operations. Goodwill was also tested for impairment as of our regular annual impairment testing date of May 31, 2010 and no additional impairment was indicated. In prior years, we utilized the income approach to estimate the fair value of Natural when assessing our goodwill for potential impairment . The assessments performed during the current year utilized a weighted income approach and market approach to estimate the fair value of Natural.

The following table summarizes the change in our Goodwill balance:

	Historical Goodwill		Accumulated Impairment Losses			Total
	(in thousands)
Historical Goodwill	$	5,014,465	$	-		$	5,014,465
Accumulated Impairment Losses		-		-			-
Balance at June 30, 2009		5,014,465		-			5,014,465
Impairment Charges		-		(815,909	)		(815,909	)
Balance at June 30, 2010	$	5,014,465	$	(815,909	)	$	4,198,556

June 2010 NGPL PipeCo LLC Financials

3. Summary of Significant Accounting Policies

(A) Accounting for Regulatory Activities

Our regulated utility operations are accounted for in accordance with the provisions of ASC Topic 980, Regulated Operations, which prescribes the circumstances in which the application of generally accepted accounting principles is affected by the economic effects of regulation. Regulatory assets and liabilities represent probable future revenues or expenses associated with certain charges and credits that will be recovered from or refunded to customers through the ratemaking process.

The following regulatory assets and liabilities are reflected in the accompanying Consolidated Balance Sheets in the captions “Deferred Charges and Other Assets” and “Other Liabilities and Deferred Credits: Other.”

	June 30, 2010		June 30, 2009
	(In thousands)
Regulatory Assets:
Employee Benefit Costs	$	927	$	1,216
Deferred Income Taxes		15,015		15,059
Rate Regulation and Application Costs		3,812		769
Total Regulatory Assets		19,754		17,044

Regulatory Liabilities:
Deferred Income Taxes		2,506		4,876
Total Regulatory Liabilities		2,506		4,876

Net Regulatory Assets	$	17,248	$	12,168

As of June 30, 2010 and 2009, $18.8 million and $15.8 million of our regulatory assets, respectively, and $2.5 million and $4.9 million of our regulatory liabilities, respectively, were being recovered from or refunded to customers through rates over periods ranging from 1 to 16 years. The regulatory asset of $0.9 million at June 30, 2010 related to employee benefit costs is not currently being recovered from customers through rates. We believe, however, that eventual recovery through future ratemaking procedures is probable.

In addition, we record an allowance for funds used during construction (“AFUDC”), which is recorded as part of property, plant and equipment. During each of the years ended June 30, 2010 and 2009, we recorded $1.3 million of AFUDC, including both debt and equity components of AFUDC.

(B) Revenue Recognition Policies

We recognize revenues as services are rendered or goods are delivered and, if applicable, title has passed.

We provide various types of natural gas transportation and storage services to our customers in which the natural gas remains the property of these customers at all times. In many cases (generally described as “firm service”), the customer pays a two-part rate that includes (i) a fixed fee reserving the right to transport or store natural gas in our facilities and (ii) a per-unit rate for volumes actually transported or injected into/withdrawn from storage. The fixed-fee component of the overall rate is recognized as revenue in the period the service is provided. The per-unit charge is recognized as revenue when the volumes are delivered to the customers’ agreed upon delivery point, or when the volumes are injected into/withdrawn from our storage facilities. In other cases (generally described as “interrupti ble service”), there is no fixed fee associated with the services because the customer accepts the possibility that service may be interrupted at our discretion in order to serve customers who have purchased firm service. In the case of interruptible service, revenue is recognized in the same manner utilized for the per-unit rate for volumes actually transported or injected into/withdrawn from storage under firm service agreements. In addition to our “firm” and “interruptible” services, we also provide a natural gas “park and loan” service to assist customers in managing short-term gas surpluses or deficits. Revenues are recognized based on the terms negotiated under these contracts.

June 2010 NGPL PipeCo LLC Financials

“Restricted Deposits” consist principally of restricted funds on deposit with brokers in support of our risk management activities (see Note 9).

(D) Accounts Receivable

The caption “Accounts Receivable, Net” in the accompanying Consolidated Balance Sheets is presented net of allowances for doubtful accounts. Our policy for determining an appropriate allowance for doubtful accounts varies according to the type of service being provided and the customers being served. The allowance for doubtful accounts is adjusted as necessary for changed circumstances and customer-specific information. When specific receivables are determined to be uncollectible, the reserve and receivable are relieved. We had no allowances for doubtful accounts at June 30, 2010 and 2009.

(E) Inventories

Our inventories consist of the following:

	June 30, 2010		June 30, 2009
	(In thousands)
Gas in Underground Storage	$	116,688	$	105,947
Materials and Supplies		31,776		11,145
	$	148,464	$	117,092

In accordance with our transportation tariffs, we collect natural gas in-kind from shippers on our systems. Certain of this gas is used by us as fuel in our operations. Fuel collected in excess of our operational needs typically is either sold by us or injected into storage for sale at a later date. Consequently, in the normal course of business, we both sell natural gas and maintain natural gas inventories. Our inventories are accounted for using the following methods, with the percent of the total value reported under each method shown in parentheses: last-in, first-out (79% and 90%) for gas in underground storage and average cost (21% and 10%) for materials and supplies at June 30, 2010 and 2009, respectively. The excess of current cost over the reported last-in, first-out value of gas in underground storage was $0.5 million and $0.7 million at June 30, 2010 and 2009, respectively.

We enter into derivative contracts for the purpose of hedging exposures that accompany our operational gas sales and we utilize this risk management activity to formulate a gas sales plan. Natural gas placed in inventory is valued at our forecasted realizable value, net of hedge gains and losses (the “net realizable value”), based on our operational gas sales plan. We evaluate our natural gas inventory on a quarterly basis and if the carrying value of our inventory is greater than the latest estimate of our net realizable value, we reduce the carrying value of the natural gas inventory to our estimated net realizable value. We recorded $6.8 million and $20.6 million of reductions in the carrying value of our natural gas storage inventories during the twelve months ended June 30, 2010 and 2009, respectively. Only the fue l gas that we take title to under our transportation tariffs is recorded in the accompanying Consolidated Balance Sheets. We receive fees from our storage service customers but do not reflect the value of their gas stored in our facilities in the accompanying Consolidated Balance Sheets.

(F) Investments

We have a 50% ownership in Horizon, which we account for using the equity method. The balance of our investment in Horizon was $13.0 million and $13.1 million at June 30, 2010 and 2009, respectively. Earnings from our equity investment in Horizon were $1.5 million for both years ended June 30, 2010 and 2009. We received distributions from Horizon of $1.5 million and $2.3 million during the years ended June 30, 2010 and 2009, respectively.

(G) Property, Plant and Equipment

We report property, plant and equipment at its acquisition cost. We expense costs for maintenance and repairs in the period incurred. When we sell or retire property, plant and equipment, we charge the original cost of property sold or retired to accumulated depreciation and amortization, net of salvage and cost of removal. Generally, we do not include retirement gain or loss in income except in cases of sales of operating systems or land. Gains and losses on minor system sales, excluding land, are recorded to the appropriate accumulated depreciation reserve. Gains and losses for operating systems sales and land sales are booked to income or expense accounts in accordance with regulatory accounting guidelines.

June 2010 NGPL PipeCo LLC Financials

Depreciation estimates are based on various factors, including age (in the case of acquired assets), manufacturing specifications, technological advances and historical data concerning useful lives of similar assets. Uncertainties that impact these estimates include changes in laws and regulations relating to restoration and abandonment requirements, economic conditions, and supply and demand in the area. When assets are put into service, we make estimates with respect to useful lives (and salvage values where appropriate) that we believe are reasonable. However, subsequent events could cause us to change our estimates, thus impacting the future calculation of depreciation and amortization expense. Historically, adjustments to useful lives have not had a material impact on our aggregate depreciation levels from year to year.

We maintain natural gas in underground storage as part of our inventory, which is recorded in the caption “Current Assets: Gas in Underground Storage” on the accompanying Consolidated Balance Sheets. This component of our inventory represents the portion of gas stored in an underground storage facility generally known as “working gas,” and represents an estimate of the portion of gas in these facilities available for routine injection and withdrawal to meet current demand. In addition to this working gas, underground gas storage reservoirs contain injected gas, which is not routinely cycled but, instead, serves the function of maintaining the necessary pressure to allow efficient operation of the facility. This gas, generally known as “cushion gas,” is recorded in the caption “Property, Pla nt and Equipment” on the accompanying Consolidated Balance Sheets. Cushion gas is divided into the categories of “recoverable cushion gas” and “unrecoverable cushion gas,” based on an engineering analysis of whether the gas can be economically removed from the storage facility at any point during its life. The portion of cushion gas that is determined to be unrecoverable is considered to be a permanent part of the facility itself and is depreciated over the facility’s estimated useful life. The portion of cushion gas that is determined to be recoverable is also considered a component of the facility but is not depreciated because it is expected to ultimately be recovered and sold.

We review the carrying values of our long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. We recognize an impairment loss when estimated future cash flows expected to result from our use of the asset and its eventual disposition are less than its carrying amount. We did not record any impairments to property, plant and equipment during the years ended June 30, 2010 and 2009.

(H) Asset Retirement Obligations

We recognize a liability for the fair value of an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. A reconciliation of the changes in our accumulated asset retirement obligations, which are included in the caption “Other Liabilities and Deferred Credits: Other” on the accompanying Consolidated Balance Sheets, is as follows:

	Year Ended June 30,
	2010			2009
	(In thousands)
Balance at Beginning of Period	$	2,919		$	2,834
Liabilities Incurred		-			-
Liabilities Settled		(1,000	)		-
Accretion Expense		39			85
Balance at End of Period	$	1,958		$	2,919

In general, our system is composed of underground piping, compressor stations and associated facilities, natural gas storage facilities and certain other facilities and equipment. Except as discussed following, we are not required to and have no plans to abandon any of these facilities, the majority of which have been providing utility service for many years, making it impossible to determine the timing of any potential retirement expenditures. Notwithstanding our current intentions, in general, if we were to cease utility operations in total or in any particular area, we would be permitted to abandon the underground piping in place, but we would have to remove our surface facilities from land belonging to our customers or others. We would generally have no obligations for removal or remediation with respect to equipment and facili ties, such as compressor stations, located on land we own.

In addition, we have various condensate drip tanks located throughout the system, storage wells located within the storage fields, laterals no longer integral to the overall mainline transmission system, compressor stations which are no longer active, and other miscellaneous facilities, all of which have been officially abandoned. For these facilities, it is possible to reasonably estimate the timing of the payment of obligations associated with their retirement. The recognition of these obligations has resulted in a combined liability of approximately $2.0 million and $2.9 million at June 30, 2010 and 2009, respectively, which represents the present value of those future obligations for which we are able to make reasonable estimations of the current fair value due to, as discussed above, our ability to estimate the timing of the i ncurrence of the expenditures. The remainder of our asset retirement obligations have not been recorded due to our inability, as discussed above, to reasonably estimate when they will be settled in cash.

June 2010 NGPL PipeCo LLC Financials

(I) Gas Imbalances

Gas imbalances receivable and payable reflect gas volumes owed to us from interconnecting pipelines or by us to interconnecting pipelines and are valued at the lower of cost or market if they are receivables and at the higher of cost or market if they are payables. Gas imbalances represent the difference between customer nominated versus actual gas receipts from and gas deliveries to interconnecting pipelines under various operational balancing agreements. Gas imbalances are settled in cash (“cash-outs”) or made up in-kind subject to the terms of the various agreements. We had net cash-outs on operational balancing agreements of $4.0 million and $3.8 million for the years ended June 30, 2010 and 2009, respectively.

(J) Interest Expense

“Interest Expense, Net” as presented in the accompanying Consolidated Statements of Operations principally consists of interest expense on (i) our $3.0 billion of outstanding long-term debt and (ii) our short-term revolving credit facility, net of amounts capitalized representing the debt component of the allowance for funds used during construction (“AFUDC — Interest”), as shown following.

	Year Ended June 30,
	2010			2009
	(In thousands)
Interest Expense	$	(212,451	)	$	(213,041	)
AFUDC – Interest		431			234
Interest Expense, Net	$	(212,020	)	$	(212,807	)

(K) Cash Flow Information

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. “Other, Net,” presented as a component of “Net Cash Flows Provided by Operating Activities” in the accompanying Consolidated Statements of Cash Flows includes, among other things, non-cash charges and credits to income.

During the years ended June 30, 2010 and 2009, we made cash payments for interest of approximately $210.6 million and $211.5 million, respectively.

During the years ended June 30, 2010 and 2009, we made cash payments for income taxes of approximately $83.0 million and $103.8 million, respectively.

(L) Transactions with Related Parties

On February 15, 2008, Natural entered into the Operating Agreement (see Note 1) with Kinder Morgan. The Operating Agreement provides for Kinder Morgan to be reimbursed, at cost, for pre-approved operations and maintenance costs, plus a fixed annual general and administration fee charge for services provided under the Operating Agreement. The annual fixed fee escalates at 3% each year until 2011 and is billed monthly. Fixed fee charges totaled $46.5 million and $45.2 million for the years ended June 30, 2010 and 2009, respectively.

During the years ended June 30, 2010 and 2009, we made cash distributions to members totaling $219.5 million and $322.5 million, respectively. The distributions were made on a pro rata basis of our ownership of 80% to Myria ($175.6 million and $258.0 million) and 20% to Kinder Morgan ($43.9 million and $64.5 million).

From time to time in the ordinary course of business, we buy and sell pipeline services and related services from/to (i) Kinder Morgan Energy Partners, L.P. and its subsidiaries, affiliates of Kinder Morgan, and (ii) Horizon, our equity-method investee. Such transactions are conducted in accordance with all applicable laws and regulations and on an arm’s-length basis consistent with our policies governing such transactions.

Totals of significant transactions with related parties are as follows:

	Year Ended June 30,
	2010		2009
	(In thousands)
Sales, Transportation and Storage of Natural Gas and Other Revenues	$	10,363	$	14,538
Purchases and Transportation of Natural Gas	$	961	$	4,289
Charges for General and Administrative Costs	$	46,519	$	45,163

June 2010 NGPL PipeCo LLC Financials

Totals of significant receivable (payable) balances with related parties are as follows:

	June 30, 2010			June 30, 2009
	(In thousands)
Accounts Receivable – Myria	$	716		$	830
Accounts Receivable – Other Affiliates	$	56		$	20
Accounts Payable – Kinder Morgan Energy Partners, L.P.	$	(1,250	)	$	(975	)
Accounts Payable – Kinder Morgan.	$	(1,298	)	$	(683	)
Accounts Payable – Other Affiliates	$	(55	)	$	(2	)
Gas Imbalances Receivable – Kinder Morgan Energy Partners, L.P.	$	1,261		$	3,716
Gas Imbalances Receivable – Midcontinent Express Pipeline LLC	$	5,287		$	-
Gas Imbalances Receivable – Rockies Express Pipeline LLC	$	-		$	6,446
Gas Imbalances Payable – Kinder Morgan Energy Partners, L.P.	$	(717	)	$	(8,460	)
Gas Imbalances Payable – Rockies Express Pipeline LLC.	$	(2,039	)	$	-
Gas Imbalances Payable – Midcontinent Express Pipeline LLC.	$	-		$	(2,785	)
Gas Imbalances Payable – Horizon Pipeline Company, L.L.C.	$	(294	)	$	(298	)

(M) Income Taxes

Income tax expense is recorded based on an estimate of the effective tax rate in effect or to be in effect during the relevant periods. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of assets and liabilities for financial reporting and tax purposes. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. Deferred tax assets are reduced by a valuation allowance for the amount of any tax benefit we do not expect to be realized. Note 7 contains information about our income taxes, including the components of our income tax provision and the composition of our deferred income tax assets and liabilities.

(N) Risk Management Activities

We enter into derivative contracts for the purpose of hedging exposures that accompany our normal business activities. We designate our derivative instruments as hedges of various exposures and test the effectiveness of changes in the value of these hedging instruments with the risk being hedged. Hedge ineffectiveness is recognized in income in the period in which it occurs. See Note 9 for a detailed discussion of our hedging activities.

(O) Legal Costs

In general, we expense legal costs as incurred. When we identify significant specific litigation that is expected to continue for a significant period of time and require substantial expenditures, we identify a range of probable costs expected to be required to litigate the matter to a conclusion or reach an acceptable settlement. If no amount within this range is a better estimate than any other amount, we record a liability equal to the low end of the range. Any such liability recorded is revised as better information becomes available (see Note 5(B)).

(P) Environmental Costs

We expense or capitalize, as appropriate, environmental expenditures that relate to current operations. We expense amounts that relate to an existing condition caused by past operations that do not contribute to current or future revenue generation. We do not discount environmental liabilities to a net present value. We record environmental liabilities when environmental assessments and/or remedial efforts are probable and costs can be reasonably estimated. Generally, recording of these accruals coincides with the completion of a feasibility study or a commitment to a formal plan of action.

We utilize both internal staff and external experts to assist in identifying environmental issues and in estimating the costs and timing of remediation efforts. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in income in the period in which they are reasonably determinable (see Note 5(A)).

June 2010 NGPL PipeCo LLC Financials

(Q) Goodwill

On May 30, 2007, a group of investors, including Kinder Morgan CEO Richard D. Kinder and other members of Kinder Morgan senior management, completed a “Going Private transaction” in which all of the outstanding shares of Kinder Morgan were purchased for $107.50 per share. Prior to the Going Private transaction, there was no goodwill recorded on our Consolidated Balance Sheet. The Going Private transaction was accounted for as a purchase and, accordingly, the difference between the fair value of our assets and liabilities at the time of the Going Private transaction, approximately $5.0 billion, was recorded as Goodwill.

We evaluate goodwill for potential impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The events associated with the Section 5 rate proceeding caused us to record an $815.9 million impairment of our goodwill (see Notes 2 and 4).

4. Regulatory Matters

Section 5 Rate Proceeding

On November 19, 2009, Natural was notified by the FERC of a proceeding against it pursuant to Section 5 of the Natural Gas Act. The proceeding instituted an investigation into the justness and reasonableness of Natural’s transportation and storage rates as well as its Fuel Retention Factors. On June 11, 2010 Natural filed an Offer of Settlement, which was approved without modification by the FERC on July 29, 2010. The Settlement resolved all issues in the proceeding. The Settlement provides shippers on Natural’s system with reductions in Fuel Retention Factors effective July 1, 2010, reductions in maximum recourse reservation rates effective November 1, 2010, and future additional reductions to both Fuel Retention Factors and maximum recourse reservation rates during the term of the Settlement. In particular, the Settle ment provides that for the period July 1, 2010 through June 30, 2011, the Fuel Retention Factors will be the Fuel Retention Factors that were in effect April 1, 2010, reduced by thirty percent. The Settlement also provides that effective July 1, 2011, the Fuel Retention Factors will be the Fuel Retention Factors that were in effect April 1, 2010, reduced by forty-five percent. In regard to maximum recourse rates, the Settlement provides that from November 1, 2010 through March 31, 2011, the maximum recourse reservation rates for all firm transportation rate schedules will be the rates that were in effect April 1, 2010, reduced by three percent. For the period April 1, 2011 through June 30, 2011, the maximum recourse reservation rates for all firm transportation rate schedules will be the rates that were in effect April 1, 2010, reduced by five percent. Effective July 1, 2011, the Settlement provides that the maximum recourse reservation rates for all firm transportation rate schedules will be the rates that were in effect April 1, 2010, reduced by eight percent. For firm storage service, the maximum reservation rates will be reduced by three percent, effective November 1, 2010. See Note 2 for additional information.

FERC Order No. 2004/717

On October 15, 2009, the FERC issued Order No. 717-A, an order on rehearing and clarification regarding FERC’s Affiliate Rule - Standards of Conduct. The FERC clarified a lengthy list of issues relating to: the applicability, the definition of transmission function and transmission function employees, the definition of marketing function and marketing function employees, the definition of transmission function information, independent functioning, transparency, training, and North American Energy Standards Board business practice standards. The FERC generally reaffirmed its determinations in Order No. 717, but granted rehearing on and clarified certain provisions. Order No. 717-A aims to make the Standards of Conduct clearer and to refocus the rules on the areas where there is the greatest potential for abuse. Order No. 717-A addresses requests for rehearing and clarification of the following issues: (i) applicability of the Standards of Conduct to transmission owners with no marketing affiliate transactions, (ii) whether the Independent Functioning Rule applies to balancing authority employees, (iii) which activities of transmission function employees or marketing function employees are subject to the Independent Functioning Rule, (iv) whether local distribution companies making off-system sales on nonaffiliated pipelines are subject to the Standards of Conduct, (v) whether the Standards of Conduct apply to a pipeline’s sale of its own production, (vi) applicability of the Standards of Conduct to asset management agreements, (vii) whether incidental purchases to remain in balance or sales of unneeded gas supply subject the company to the Standards of Conduct, (viii) applicability of the No Conduit Rule to certain situations and (ix) applicability of the Transparency Rule to certain situations. The rehearing and clarificat ion granted are not anticipated to have a material impact on the operation of Natural’s interstate pipeline.

Notice of Proposed Rulemaking – Natural Gas Price Transparency

On November 20, 2008, the FERC issued Order No. 720, establishing new reporting requirements for interstate and major non-interstate natural gas pipelines. Interstate pipelines are required to post no-notice activity at each receipt and delivery point three days after the day of gas flow. Major non-interstate pipelines are required to post daily the design capacity, scheduled volumes and available capacity at each receipt or delivery point with a design capacity of 15,000 MMBtus of

June 2010 NGPL PipeCo LLC Financials

natural gas per day or greater. The final rule became effective January 27, 2009 for interstate pipelines. On January 15, 2009, the FERC issued an order granting an extension of time for major non-interstate pipelines to comply until 150 days following the issuance of an order addressing the pending requests for rehearing. On January 16, 2009, the FERC granted rehearing of Order No. 720. On July 16, 2009, the FERC issued a request for supplemental comments on revisions to the posting requirements. On January 21, 2010, the FERC issued an Order on Rehearing and Clarification that affirmed its order issued in Order No. 720. Natural does not expect this Order to have a material impact on its financial statements.

Order on Flow-Through of Discounted or Negotiated Usage and Fuel Charges

On October 15, 2009, the FERC issued this Order to address the issue of whether asset manager replacement shippers are entitled to the same discounts as their releasing shippers under the Commission’s capacity release program as revised by Order No. 712. The FERC decided not to establish a blanket requirement that pipelines must always provide the same discounted or negotiated usage or fuel charges to an asset manager replacement shipper that it has provided to the primary firm shipper. Instead, the FERC determined that pipelines should apply the Commission’s existing selective discounting policy on a case-by-case basis in deciding whether to grant a discounted or negotiated usage or fuel charge to an asset manager replacement shipper, subject to a general requirement of no undue discrimination.

5. Environmental and Legal Matters

(A) Environmental Matters

We are subject to a variety of federal, state and local laws that regulate permitted activities relating to air and water quality, waste disposal, and other environmental matters.

Natural had established environmental reserves of approximately $3.1 million and $3.3 million as of June 30, 2010 and 2009, respectively, to address remediation issues associated with four projects, which are recorded in the caption “Other Liabilities and Deferred Credits: Other” on the accompanying Consolidated Balance Sheets..

On January 8, 2010, we received a Clean Air Act Section 114 information request from the United States Environmental Protection Agency (“EPA”), Region 5. This information request requires that we provide the EPA with air permit and various other information related to our natural gas pipeline compressor station operations in Illinois. We have responded to this information request and we believe our natural gas compressor station operations are in substantial compliance with applicable air quality laws and regulations.

In August 2007, Natural and Kinder Morgan received an information request from the Illinois Attorney General’s Office regarding the presence of polychlorinated biphenyls (“PCBs”) in natural gas transmission lines. Thereafter, in October 2007, Natural received information requests regarding the presence of PCBs in its natural gas transmission lines in Missouri from the EPA, Region 7 and the Missouri Attorney General’s Office. Natural responded to these requests. No proceeding or enforcement actions have been initiated. However, in April 2010, the EPA issued an Advanced Notice of Proposed Rulemaking (“ANPRM”) proposing major changes in the way in which PCBs are regulated for all industries, including natural gas pipelines. There can be no assurance that Natural will not incur additional costs for P CB compliance in the future.

After consideration of reserves established, we believe that costs for environmental remediation and ongoing compliance with these laws will not have a material adverse impact on our business, cash flows, financial position or results of operations. However, there can be no assurances that future events, such as changes in existing laws, the promulgation of new laws, or the development of new facts or conditions will not cause us to incur significant costs.

(B) Litigation Matters

In a lawsuit styled William Roy Price, II vs. Kinder Morgan, Inc., in the District Court of Titus County, Texas, a group of nine homeowners filed suit, alleging that Natural’s No. 803 natural gas compressor station constitutes a private nuisance. They complain that the construction of the plant brought excessive travel, construction, people, noise and waste to the area. They further allege that after the plant became operational, the operations caused excess noise, heat, pollution (emissions) and vibrations. The alleged damages are loss of enjoyment of their property, personal discomfort, diminishment of the value of their respective properties, and mental anguish. In their depositions, each of the plaintiffs claimed that the value of their property is zero because of t he nuisance. The cumulative value of the properties is over $1 million. On March 8, 2010, Natural successfully settled the last of the nine claims for various amounts totaling approximately $253,000.

June 2010 NGPL PipeCo LLC Financials

nuisance in the form of noise and odor emitted from the station had existed since 1998 with respect to five of the seven properties in question and found that no nuisance existed for the remaining two properties.

On January 30, 2009, the trial court entered judgment in accordance with the verdict rendered. The total principal amount of all compensatory damages found by the jury was $1.2 million. The court also awarded $0.7 million in prejudgment interest and court costs. The total judgment amount is $1.9 million.

Natural appealed the trial court’s judgment. In connection with the appeal, Defendant Natural Gas Pipeline Company of America, as principal, and Safeco Insurance Company of America, as surety, posted a surety bond obligating themselves, jointly and severally, to pay Plaintiffs the amount of $2.0 million, which includes the amount of the compensatory damages, costs, and one year of post judgment interest at the rate of 5% per annum.

On April 30, 2010, the Court of Appeals for the Sixth Appellate District of Texas at Texarkana issued a memorandum opinion that affirmed the trial court’s judgment. On August 12, 2010, we filed a petition to the Texas Supreme Court seeking further appellate review. We have asserted a claim for insurance coverage against Aegis Insurance Services, Inc. under an excess liability policy with underlying limits and/or self insured retention of $0.3 million. Aegis has denied coverage, but has agreed to postpone any arbitration over coverage until we exhaust appellate review.

In addition, we are a defendant in various lawsuits arising from the day-to-day operations of our business. Although no assurance can be given, we believe, based on our experience to date, that the ultimate resolution of such matters, including the matters discussed in this Note, will not have a material adverse impact on our business, cash flows, financial position or results of operations.

6. Property, Plant and Equipment

Investments in property, plant and equipment, at cost, and accumulated depreciation and amortization are as follows:

	June 30, 2010			June 30, 2009
	(In thousands)
Natural Gas Transmission and Storage	$	1,746,586		$	1,680,829
General and Other		101,096			109,986
Construction Work in Process		18,406			44,330
Total Property, Plant and Equipment		1,866,088			1,835,145
Accumulated Depreciation and Amortization		(174,872	)		(126,932	)
Property, Plant and Equipment, Net	$	1,691,216		$	1,708,213

7. Income Taxes

Components of the income tax provision for federal and state income taxes are as follows :

	Year Ended June 30,
	2010		2009
	(In thousands)
Current Tax Expense:
U.S.
Federal	$	34,748	$	114,310
State		10,476		23,356
		45,224		137,666

Deferred Tax Expense:
U.S.
Federal		82,426		21,114
State		8,571		6,630
		90,997		27,744
Total Tax Expense	$	136,221	$	165,410

June 2010 NGPL PipeCo LLC Financials

The difference between the statutory federal income tax rate and our effective income tax rate is summarized as follows:

	Year Ended June 30,
	2010		2009
Federal Income Tax Rate		35.0 %		35.0%
Increase (Decrease) as a Result of:
Goodwill Impairment		(58.8)%		-
State Income Tax, Net of Federal Benefit		(3.3)%		4.4%
State Tax Rate Change		-		1.1%
Other		(1.0)%		0.5%
Effective Tax Rate		(28.1)%		41.0%

Income taxes included in the financial statements were composed of the following:

	Year Ended June 30,
	2010			2009
	(In thousands)
Continuing Operations	$	136,221		$	165,410
Discontinued Operations		677			(222	)
Equity Items		(10,661	)		72,242
Total	$	126,237		$	237,430

Deferred tax assets and liabilities result from the following:

	June 30, 2010		June 30, 2009
	(In thousands)
Deferred Tax Assets:
Amortization of Regulatory Liabilities	$	971	$	1,941
Postretirement Benefits Accrual		6,748		3,859
Environmental Costs		1,203		1,284
Contributions In Aid of Construction		8,613		5,575
Bad Debt Reserve		710		937
Hedge Ineffectiveness		-		1,418
Operations Reserve		1,501		-
Other		8,696		10,457
Total Deferred Tax Assets		28,442		25,471
Deferred Tax Liabilities:
Property, Plant and Equipment		368,153		278,473
Amortization of Regulatory Assets		5,815		5,805
Partnership Income		8,549		9,487
Operations Reserve		-		1,740
Hedge Ineffectiveness		2,980		-
Derivatives		7,315		17,975
Other		7,370		3,891
Total Deferred Tax Liabilities		400,182		317,371
Net Deferred Tax Liabilities	$	371,740	$	291,900

Current Deferred Tax Asset	$	2,530	$	-
Current Deferred Tax Liability		-		523
Non-current Deferred Tax Liability		374,270		291,377
Net Deferred Tax Liabilities	$	371,740	$	291,900

Unrecognized Tax Benefits

ASC Topic 740, Income Taxes, addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also the past administrative practices and precedents of the taxing authority. The tax benefits recognized in the financial statements from such a position

June 2010 NGPL PipeCo LLC Financials

are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. A reconciliation of the changes in our gross unrecognized tax benefits is as follows:

	Year Ended June 30,
	2010			2009
	(In millions)
Balance at Beginning of Period	$	7.3		$	1.1
Current Year Tax Positions		-			10.4
Prior Year Tax Positions		(3.0	)		(4.3	)
Settlements With Taxing Authorities		2.8			2.2
Lapse in Statute of Limitations		(0.1	)		(2.1	)
Balance at End of Period	$	7.0		$	7.3

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense, and as of June 30, 2009, we had $0.5 million of accrued interest and no accrued penalties. As of June 30, 2010 (i) we had $0.7 million of net accrued interest income and no accrued penalties; (ii) we believe it is reasonably possible that our liability for unrecognized tax benefits will decrease by $4.4 million during the next twelve months, and (iii) we believe $2.5 million of the unrecognized tax benefits on our Consolidated Balance Sheet at June 30, 2010 would affect our effective tax rate in future periods in the event those unrecognized tax benefits were recognized.

We are subject to taxation, and have tax years open to examination for the periods 2006 – 2009 in the United States and 2003 – 2009 in various states.

8. Financing

On December 21, 2007, we issued $1.25 billion aggregate principal amount of 6.514% senior notes due December 15, 2012, $1.25 billion aggregate principal amount of 7.119% senior notes due December 15, 2017 and $0.5 billion aggregate principal amount of 7.768% senior notes due December 15, 2037. The notes were sold in a private placement to a syndicate of investment banks led by Lehman Brothers Inc., Banc of America Securities LLC and Deutsche Bank Securities Inc., and resold by the initial purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. The notes are the senior unsecured obligati ons of NGPL PipeCo and rank equally in right of payment with any of NGPL PipeCo’s future unsecured senior debt. The senior notes are redeemable in whole or in part, at our option at any time, at a price equal to 100% of the principal amount of the notes plus accrued interest to the redemption date plus a make-whole premium. The indenture for the senior notes includes covenants that, among other things, limit our ability and the ability of our subsidiaries to (i) create liens that secure debt, (ii) enter into sale-leaseback transactions, (iii) incur debt, subject to a leverage test, (iv) enter into business outside our present business and (v) merge or consolidate with, or sell, lease or transfer our assets substantially as an entirety to another entity. In addition, if we experience certain kinds of changes of control coupled with a ratings downgrade such that the notes cease to have an investment grade rating, we must give the holders of the notes the opportunity to sell their senior notes to us at 10 1% of their principal amount, plus accrued and unpaid interest. Our senior notes had a carrying value of $3.0 billion at June 30, 2010 and 2009 and a fair value of approximately $2.9 billion and $3.2 billion at June 30, 2010 and 2009, respectively.

Maturities of long-term debt for the five years ended June 30, 2015 include the $1.25 billion of 6.514% senior notes, which mature on December 15, 2012.

On February 15, 2008, we entered into a five-year, $200 million credit facility with a syndicate of lenders and Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer. Borrowings under the credit facility can be used for general corporate purposes. The credit facility includes financial covenants and events of default that are common in such arrangements. Loans under the credit facility may be Base Rate Loans or Eurodollar Rate Loans. Interest rates on Base Rate Loans are based on an interest rate spread plus the higher of (1) the Federal Funds Rate plus one-half of one percent or (2) the publicly announced Bank of America “prime rate.” Interest rates on Eurodollar Rate Loans are based on an interest rate spread plus the British Bankers Association LIBOR Rate.

There were $24.3 million and $28.3 million of borrowings outstanding under this facility at June 30, 2010 and 2009, respectively. After deducting outstanding letters of credit, the remaining borrowing capacity under this facility was approximately $170.6 million and $156.6 million at June 30, 2010 and 2009, respectively. Average daily borrowings under this facility were $8.6 million and $28.9 million for the years ended June 30, 2010 and 2009, respectively. The weighted average interest rate on outstanding borrowings was 3.2% and 3.1% for the years ended June 30, 2010 and 2009, respectively. Due to the fact that borrowings under this facility are short-term in nature and that the interest rates applicable to borrowings under the facility float with current market rates, the carrying value of our borrowings under this facility appro ximate fair value.

June 2010 NGPL PipeCo LLC Financials

9. Risk Management

Effective July 1, 2009, we adopted accounting standard changes applicable to ASC Topic 815, Derivatives and Hedging, that required additional disclosures regarding derivative activities. The enhanced disclosures include, among other things, (i) a tabular summary of the fair value of derivative instruments and their gains and losses, (ii) disclosure of derivative features that are credit-risk related to provide more information regarding an entity’s liquidity, and (iii) cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments.

We enter into derivative contracts for the purpose of hedging exposures that accompany our normal business activities. We designate our derivative instruments as hedges of various exposures as discussed following, and test the effectiveness of changes in the value of these hedging instruments with the risk being hedged. Hedge ineffectiveness is recognized in income in the period in which it occurs. There was no component of our derivative instruments’ gain or loss excluded from the assessment of hedge effectiveness.

Our normal business activities expose us to risks associated with changes in the market price of natural gas. Specifically, these risks are associated with (i) pre-existing or anticipated physical natural gas sales, (ii) natural gas purchases and (iii) natural gas system use and storage. Price changes in natural gas are often caused by shifts in the supply and demand for this commodity, as well as its locations. All of our derivative activities relating to the mitigation of these risks were originally designated and qualified as cash flow hedges for all periods presented. However, as a result of the settlement of our Section 5 rate proceeding (see Note 4), certain of our derivative instruments no longer qualify for hedge accounting treatment because the forecasted hedged transactions are no longer probable of occurring. Since these derivatives no longer qualify for hedge accounting treatment, all realized and unrealized gains and losses on these derivatives are recognized in the Statement of Operations for the current period. We recorded a pre-tax gain of $5.2 million ($3.1 million after tax) in June 2010 as a result of the discontinuance of hedge accounting treatment for these derivatives. The proceeds or payments resulting from the settlement of cash flow hedges are reflected in the operating activities section of our Consolidated Statements of Cash Flows as net income and changes in components of working capital.

We have counterparty credit risk as a result of our use of financial derivative contracts. Our counterparties consist primarily of financial institutions, major energy companies and local distribution companies. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions.

We maintain credit policies with regard to our counterparties that we believe minimize our overall credit risk. These policies include (i) an evaluation of potential counterparties’ financial condition (including credit ratings), (ii) collateral requirements under certain circumstances and (iii) the use of standardized agreements which allow for netting of positive and negative exposure associated with a single counterparty. Based on our policies, exposure, credit and other reserves, we do not anticipate a material adverse effect on our financial position, results of operations or cash flows as a result of counterparty performance.

Our over-the-counter swaps and options are entered into with counterparties outside central trading organizations such as a futures, options or stock exchange. These contracts are with a number of parties, all of which have investment grade credit ratings. While we enter into derivative transactions principally with investment grade counterparties and actively monitor their ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk in the future.

In addition, in conjunction with the purchase of exchange-traded derivative contracts or when the market value of our derivative contracts with specific counterparties exceeds established limits, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. We had one outstanding letter of credit for $5.0 million and one outstanding letter of credit for $15.0 million at June 30, 2010 and 2009, respectively, in support of our hedging of commodity price risks associated with the sale of natural gas. Additionally, as of June 30, 2010, we had cash margin deposits associated with our energy commodity contract positions and over-the-counter swap partners totaling $1.7 million, reported in the caption “Restricted Deposits” on our accompanying Consol idated Balance Sheet. As of June 30, 2009, counterparties associated with our energy commodity contract positions and over-the-counter swap agreements had margin deposits with us totaling $15.8 million, reported within the caption “Current Liabilities: Other” on our accompanying Consolidated Balance Sheet. As of June 30, 2010, our maximum potential exposure to credit losses on derivative contracts was $24.1 million.

We expect to reclassify into earnings, during the next twelve months, all of our $10.5 million accumulated other comprehensive income balance at June 30, 2010, representing unrecognized net gains on derivative activities. As of June 30, 2010, the maximum length of time over which we have hedged our exposure to commodity price risk is through November 2010.

June 2010 NGPL PipeCo LLC Financials

As of June 30, 2010, we had entered into the following outstanding commodity forward contracts to hedge our forecasted energy commodity sales:

	Notional quantity
Derivatives designated as hedging contracts
Natural gas(a)	23.1 billion cubic feet
Derivatives not designated as hedging contracts
Natural gas(a)	6.1 billion cubic feet
(a) Notional quantities are shown net.

Fair Value of Derivative Contracts

The fair values of our current asset and current liability derivative contracts are reported in the captions “Current Assets: Fair Value of Derivatives” and “Current Liabilities: Fair Value of Derivatives,” respectively, on the accompanying Consolidated Balance Sheets. The fair values of our non-current asset and non-current liability derivative contracts are reported in the captions “Deferred Charges and Other Assets” and “Deferred Credits: Other,” respectively, on the accompanying Consolidated Balance Sheets. The following table summarizes the fair values of our derivative contracts included on the accompanying Consolidated Balance Sheets as of June 30, 2010 and 2009 (in thousands):

	Asset derivatives						Liability derivatives
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
	Balance sheet Location	Fair value		Balance sheet Location	Fair value		Balance sheet Location	Fair value		Balance sheet location	Fair value

Derivatives designated as hedging contracts
Energy commodity derivative contracts	Current	$	19,474	Current	$	45,323	Current	$	(6,121)	Current	$	(8,330)
	Non-current		-	Non-current		855	Non-current		-	Non-current		(702)
Total			19,474			46,178			(6,121)			(9,032)

Derivatives not designated as hedging contracts
Energy commodity derivative contracts	Current		5,519	Current		-	Current		(309)	Current		-

Total derivatives		$	24,993		$	46,178		$	(6,430)		$	(9,032)

Effect of Derivative Contracts on the Statement of Operations

The following tables summarize the pre-tax impact of our derivative contracts on the accompanying Consolidated Statements of Operations (in thousands):

Derivatives in cash flow hedging relationships	Amount of gain/(loss) recognized in OCI on derivative (effective portion)				Location of gain/(loss) reclassified from Accumulated OCI into income (effective portion)	Amount of gain/(loss) reclassified from Accumulated OCI into income (effective portion)				Location of gain/(loss) recognized in income on derivative (ineffective portion )	Amount of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
	Year Ended June 30,					Year Ended June 30,					Year Ended June 30,
	2010		2009			2010		2009			2010		2009
Energy commodity derivative contracts	$	43,822	$	250,303	Operating Revenues: Natural Gas Sales	$	66,135	$	63,793	Operating Revenues: Natural Gas Sales	$	-	$	2,285

Derivatives not designated as hedging contracts	Location of gain/(loss) recognized in income on derivative	Amount of gain/(loss) recognized in income on derivative
		Year Ended June 30,
		2010		2009
Energy commodity derivative contracts	Operating Revenues: Natural Gas Sales	$	5,210	$	-

June 2010 NGPL PipeCo LLC Financials

10. Fair Value Measurements

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and the characteristics specific to the transaction. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less (or no) pricing observability and a higher degree of judgment utilized in measuring fair value.

Accounting principles generally accepted in the United States include a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defines three levels of inputs to the fair value measurement process, and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the disclosure framework are as follows:

●

Level 1 Inputs - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

●

Level 2 Inputs - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and

●

Level 3 Inputs - unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).

Derivative contracts can be exchange-traded or over-the-counter (“OTC”). Exchange-traded derivative contracts typically fall within Level 1 of the fair value hierarchy if they are traded in an active market. We and our affiliated companies value exchange-traded derivative contracts using quoted market prices for identical securities.

OTC derivatives are valued using models utilizing a variety of inputs including contractual terms and commodity and interest rate curves. The selection of a particular model and particular inputs to value an OTC derivative contract depends upon the contractual terms of the instrument as well as the availability of pricing information in the market. We and our affiliated companies use similar models to value similar instruments. For OTC derivative contracts that trade in liquid markets, such as generic forwards and swaps, model inputs can generally be verified and model selection does not involve significant management judgment. Such contracts are typically classified within Level 2 of the fair value hierarchy.

Certain OTC derivative contracts trade in less liquid markets with limited pricing information, and the determination of fair value for these derivative contracts is inherently more difficult. Such contracts are classified within Level 3 of the fair value hierarchy. The valuations of these less liquid OTC derivatives are typically impacted by Level 1 and/or Level 2 inputs that can be observed in the market, as well as unobservable Level 3 inputs. Use of a different valuation model or different valuation input values could produce a significantly different estimate of fair value. However, derivative contracts valued using inputs unobservable in active markets are generally not material to our financial statements.

When appropriate, valuations are adjusted for various factors including credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

June 2010 NGPL PipeCo LLC Financials

The following two tables summarize the fair value measurements of our derivative contracts , based on the three levels established by the ASC and does not include cash margin deposits, which are reported as “Restricted Deposits” in the accompanying Consolidated Balance Sheets (in thousands):

	Asset fair value measurements using
	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of June 30, 2010
Energy commodity derivative contracts	$	24,993	$	-	$	24,106	$	887

As of June 30, 2009
Energy commodity derivative contracts	$	46,178	$	18,742	$	26,877	$	559

	Liability fair value measurements using
	Total			Quoted prices in active markets for identical liabilities (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
As of June 30, 2010
Energy commodity derivative contracts(c)	$	(6,430	)	$	-	$	(3,593	)	$	(2,837	)

As of June 30, 2009
Energy commodity derivative contracts(d)	$	(9,032	)	$	-	$	(1,351	)	$	(7,681	)

The following table provides a summary of changes in the fair value of our Level 3 derivative contracts (in thousands):

Energy Commodity Derivative Contracts – Level 3

	Year Ended June 30,
		2010			2009
Net Asset (Liability)
Beginning Balance	$	(7,122	)	$	15,774
Realized and Unrealized Net Gains (Losses)		(13,870	)		1,845
Settlements		19,042			(24,741	)
Transfers In (Out) of Level 3		-			-
Ending Balance	$	(1,950	)	$	(7,122	)
Change in Unrealized Net Gains (Losses) Relating
to Contracts Still Held at End of Period	$	(1,702	)	$	(6,286	)

Assets Measured at Fair Value on a Non-Recurring Basis

In accordance with the provisions of ASC Topic 350, Intangibles—Goodwill and Other, a goodwill impairment charge of $815.9 million was recorded to write down the carrying value of our goodwill from $5.0 billion to its implied fair value of $4.2 billion. The charge was included in the statement of operations for the year ended June 30, 2010. See Note 2 for additional information.

The Offer of Settlement caused Natural to evaluate for impairment the carrying value of its goodwill. The following table summarizes the fair value measurement of goodwill, which was initially measured at fair value and has been re-measured at fair value on a non-recurring basis based on the three levels established by the ASC (in thousands):

	Asset fair value measurements using
	Total			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)

Goodwill		$	4,198,556		$	-		$	-		$	4,198,556

June 2010 NGPL PipeCo LLC Financials

11. Commitments and Contingent Liabilities

(A) Leases

Expenses incurred under operating leases were $1.8 million and $1.5 million for the years ended June 30, 2010 and 2009, respectively. Future minimum commitments under major non-cancelable operating leases as of June 30, 2010 are as follows:

Fiscal Year	Operating Leases
	(In thousands)
2011	$	392
2012		403
2013		416
2014		428
2015		441
Thereafter		1,689
Total	$	3,769

(B) Capital Expenditures

Approximately $21.6 million had been committed for the purchase of property, plant and equipment at June 30, 2010.

12. Major Customers and Concentration of Credit Risk

Natural had no customers that accounted for more than 10% of total revenues for the year ended June 30, 2010.

Natural’s principal delivery market area encompasses the states of Illinois, Indiana and Iowa and secondary markets in portions of Wisconsin, Nebraska, Kansas, Missouri and Arkansas. Natural is the largest transporter of natural gas to the Chicago market. Natural delivers an average of 2.0 trillion Btus per day of natural gas to this market. Natural’s storage capacity is largely located near its transportation delivery markets, effectively serving the same customer base. Natural has a number of individually significant customers, including local natural gas distribution companies in the greater Chicago area and major natural gas marketers and approximately 57% of its operating revenues from tariff services are attributable to its ten largest customers. Natural mitigates credit risk by requiring collateral or financial g uarantees and letters of credit from customers with specific credit concerns. In support of credit extended to certain customers, Natural had received prepayments of $3.0 million and $1.8 million at June 30, 2010 and 2009, respectively, included in the caption “Current Liabilities: Other” in the accompanying Consolidated Balance Sheets.

13. Recent Accounting Pronouncements

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. This ASU requires both the gross presentation of activity within the Level 3 fair value measurement roll forward and the details of transfers in and out of Level 1 and 2 fair value measurements. It also clarifies certain disclosure requirements on the level of disaggregation of fair value measurements and disclosures on inputs and valuation techniques. For us, this ASU is effective for interim and annual reporting periods beginning on or after January 1, 2010 (except for the Level 3 roll forward information, which is effective for us July 1, 2011); however, because this ASU pertains to disclosure requirements only, the adoption of this ASU did not have a material impact on o ur consolidated financial statements.

On February 24, 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This ASU modifies the disclosure requirements related to subsequent events such that an entity that is an SEC filer is no longer required to disclose the date through which subsequent events have been evaluated. An entity that is either an SEC filer or a conduit bond obligor for conduit debt securities that are traded in a public market is required to evaluate subsequent events through the date that the financial statements are issued. An entity that meets neither of the above criteria must evaluate subsequent events through the date the financial statements are available to be issued or until the date the financial statements ar e issued and must disclose the date through which subsequent events have been evaluated. This ASU was effective immediately upon issuance and its adoption did not have a material impact on our consolidated financial statements.

June 2010 NGPL PipeCo LLC Financials

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

June 2010 NGPL PipeCo LLC Financials

General

In this report, unless the context requires otherwise, references to “we,” “us,” “our,” or the “Company” are intended to mean NGPL PipeCo LLC (“NGPL PipeCo”) and its consolidated subsidiaries. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes. NGPL PipeCo is 80% owned by Myria Acquisition LLC (“Myria”), a wholly owned subsidiary of Myria Holdings Inc. and 20% owned by NGPL Holdco Inc., a wholly owned subsidiary of Kinder Morgan, Inc. (“Kinder Morgan”). Kinder Morgan operates our assets pursuant to the 15-year Operations and Reimbursement Agreement for Natural Gas Pipeline Company of America LLC dated as of February 15, 2008 (the “Operating Agreement”).< /div>

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on our Consolidated Financial Statements, prepared in accordance with accounting principles generally accepted in the United States of America and contained within this report. Certain amounts included in or affecting our 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 the financial statements are prepared. The reported amounts of our assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts a nd other methods we consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates.

In preparing our financial statements and related disclosures, we must use estimates in determining the economic useful lives of our assets, the fair values and estimated future cash flows used to determine the recovery or possible impairment charges associated with long-lived assets, the effective income tax rate to apply to our pre-tax income, provisions for environmental reserves, provisions for uncollectible accounts receivable, and various other recorded or disclosed amounts. Certain of these accounting estimates are of more significance in our financial statement preparation process than others.

Intangible assets are those assets which provide future economic benefit but have no physical substance. We account for our intangible assets according to the provisions of Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other. This ASC Topic provides accounting guidance regarding the concept of indefinite life intangible assets and provides that all identifiable intangible assets having indefinite useful economic lives, including goodwill, will not be subject to periodic amortization. Such assets are not to be amortized unless and until their lives are determined to be finite. Instead, the carrying amount of a recognized intangible asset with an indefinite useful life must be tested for impairment annually or on an interim ba sis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. We use an annual impairment measurement date of May 31.

June 2010 NGPL PipeCo LLC Financials

Due to the nature of the natural gas pipeline and storage business, we are required to make estimates for services rendered but for which actual metered volumes are not available at reporting dates. We believe that our estimates, which are revised to the actual metered volumes in the next accounting month, provide acceptable approximations of the actual revenue earned during any period, especially given that the majority of our revenues in the pipeline business are derived from demand charges, which do not vary with the actual amount of gas transported.

With respect to our environmental exposure, we utilize both internal staff and external experts to assist us in identifying environmental issues and in estimating the costs and timing of remediation efforts. These estimates are affected by the choice of remediation methods as well as the expected timing and length of the effort. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in our income in the period in which they are reasonably determinable.

We are subject to litigation as a result of our business operations and transactions. We utilize both internal and external counsel in evaluating our potential exposure to adverse outcomes from judgments or settlements. To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise our estimates, our earnings will be affected.

We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. While we have considered future taxable income and prudent and feasible tax planning strategies in determining the amount of our valuation allowance, any change in the amount that we expect to ultimately realize will be included in income in the period in which such a determination is reached. In addition, we do business in a number of states with differing laws concerning how income subject to each state’s tax structure is measured and at what effective rate such income is taxed. Therefore, we must make estimates of how our income before income taxes will be apportioned among the various states in order to arrive at an overall effective tax rate. Changes in our effective rate, including any effect on pr eviously recorded deferred taxes, are recorded in the period in which the need for such change is identified.

We enter into derivative contracts (natural gas futures, swaps and options) solely for the purpose of mitigating risks that accompany our normal business activities, principally the price of natural gas and associated transportation. We account for these derivative transactions as hedges in accordance with authoritative accounting guidelines, marking the derivatives to market at each reporting date, with the unrealized gains and losses recognized as part of comprehensive income. Any inefficiency in the performance of the hedge is recognized in income currently and, ultimately, the financial results of the hedge are recognized concurrently with the financial results of the underlying hedged item. All but an insignificant amount of our natural gas related derivatives are for terms of 18 months or less, allowing us to utilize widely a vailable, published forward pricing curves in determining all of our appropriate market values. All of our derivative activities relating to the mitigation of these risks were originally designated and qualified as cash flow hedges for all periods presented. However, as a result of the Settlement, certain of our derivative instruments no longer qualify for hedge accounting treatment because the forecasted hedged transactions are no longer expected to occur. Since these derivatives no longer qualify for hedge accounting treatment, all realized and unrealized gains and losses on these derivatives are recognized in the Statement of Operations for the current period. We recorded a pre-tax gain of $5.2 million ($3.1 million after tax) in June 2010 as a result of the discontinuance of hedge treatment for these derivatives.

June 2010 NGPL PipeCo LLC Financials

Results of Operations

	Year Ended June 30,
	2010			2009
	(In thousands)
Operating Revenues	$	1,046,127		$	1,325,224
Purchases and Other Costs of Sales		(207,743	)		(399,301	)
Gross Profit		838,384			925,923
Other Operating Expenses, Excluding Depreciation,
Amortization and Goodwill Impairment		(224,428	)		(243,778	)
Operating Income Before Depreciation, Amortization and Goodwill Impairment		613,956			682,145
Other Income and (Expenses), Excluding Interest Expense		7,112			10,920
Earnings Before Interest, Taxes, Depreciation, Amortization and Goodwill Impairment		621,068			693,065
Goodwill Impairment		(815,909	)		-
Depreciation and Amortization Expense		(78,399	)		(76,472	)
Interest Expense, Net		(212,020	)		(212,807	)
Income (Loss) Before Income Taxes		(485,260	)		403,786
Income Taxes		136,221			165,410
Income (Loss) From Continuing Operations		(621,481	)		238,376
Income (Loss) From Discontinued Operations		679			(824	)
Net Income (Loss)		(620,802	)		237,552
Net Loss Attributable to Noncontrolling Interests		(420	)		(314	)
Net Income (Loss) Attributable to NGPL PipeCo LLC	$	(620,382	)	$	237,866

The largest discrete item affecting our 2010 operating results was an $815.9 million goodwill impairment charge. This charge resulted from a rate proceeding initiated by the FERC on November 19, 2009, which was concluded on July 29, 2010. This rate proceeding and the resulting goodwill impairment charge are discussed in more detail under the “General” and “Critical Accounting Policies and Estimates” subheadings above.

Gross profit (operating revenues less purchases and other costs of sales) decreased $87.5 million (9%) from the year ended June 30, 2009 to the year ended June 30, 2010. Gross profit for fiscal 2010 was negatively impacted, relative to 2009, by (i) a decrease of $44.3 million in gross profit from transportation and storage services due principally to reduced revenues from reservation charges and line pack services, (ii) a decrease of $56.4 million in gross profit from operational gas sales due to lower sales volumes from fuel recoveries and reduced natural gas prices, (iii) a $5.1 million decrease in gross profit due to expenses for storage services from other pipelines and (iv) a $1.2 million net reduction in other miscellaneous items affecting gross profit. These negative impacts were partially offset by (i) a $14.3 million reduc tion in charges to reduce the carrying value of our current storage gas inventories to reflect the reduced market price of natural gas and (ii) $5.2 million of gross profit in 2010 from the discontinuance of certain hedges resulting from the fact that the forecasted hedged transactions are no longer probable of occurring. Natural’s operational natural gas sales are primarily made possible by (i) its collection of fuel in-kind pursuant to its transportation tariffs and (ii) recovery of storage cushion gas volumes due to storage system expansion projects. Storage expansion projects often include the addition of compression facilities to storage reservoirs. This additional compression decreases the amount of cushion gas required to maintain the necessary pressure to allow efficient operation of the facility. Therefore, expansion projects can result in cushion gas being available for recovery and sale. See Note 3(G) of the accompanying Consolidated Financial Statements for additional information regarding storage cushion gas. Our future revenues from operational natural gas sales will be reduced as a result of the Settlement, as discussed in Critical Accounting Policies and Estimates above, and could also be affected by, among other things, the market price of natural gas and our future recoveries and sales of storage cushion gas.

Other operating expenses, excluding depreciation, amortization and goodwill impairment charges decreased by $19.4 million (8%) from the year ended June 30, 2009 to the year ended June 30, 2010. Other operating expenses were positively impacted in fiscal 2010, relative to 2009, principally by (i) a $14.1 million reduction in electric compression costs, (ii) $3.8 million of Hurricane Ike insurance proceeds received in 2010, (iii) a $2.9 million decrease in expenses for stress corrosion cracking rehabilitation projects and pipeline integrity management programs, (iv) a $2.7 million reduction in taxes other than income taxes (principally property taxes) and (v) a $3.1 million net decrease in other operating expenses. These positive impacts were partially offset by (i) the fact that 2009 results included $5.8 million of gains from sales of land and (ii) a $1.4 million increase in general and administrative expenses due to the 3% annual increase in the fixed fee component of the Operating Agreement (see Note 3(L) of the accompanying Consolidated Financial Statements).

June 2010 NGPL PipeCo LLC Financials

Other Income and (Expenses), Excluding Interest Expense was negatively impacted in 2010, relative to 2009, by (i) a $1.1 million reduction in interest income, (ii) a $0.1 million reduction in earnings from our investment in Horizon Pipeline and (iii) a $2.7 million net reduction in income from other miscellaneous items.

Interest expense, net was nearly unchanged period to period, due to the fixed interest rates of our long-term debt.

Income tax expense decreased by $29.2 million (18%) from the year ended June 30, 2009 to the year ended June 30, 2010 due principally to the reduction in our pre-tax income before the goodwill impairment charge, which had no impact on our income tax expense.

Substantially all of Natural’s pipeline capacity is committed under firm transportation contracts ranging from one to seven years. Under these contracts, over 90% of the revenues are derived from a demand charge and, therefore, are collected regardless of the volume of gas actually transported. The principal impact of the actual level of gas transported is on fuel recoveries, which are received in-kind as volumes move on the system. Approximately 72% of the total transportation volumes committed under Natural’s long-term firm transportation contracts in effect on June 30, 2010 had remaining terms of less than three years. Contracts representing approximately 10.4% of Natural’s total long-haul, contracted firm transport capacity as of June 30, 2010 are scheduled to expire during the following twelve months. Natural continues to pursue the renegotiation, extension and/or replacement of expiring contracts.

Our principal exposure to market variability is related to the variation in natural gas prices and basis differentials, which can affect our gross profit earned. “Basis differential” is a term that refers to the difference in natural gas prices between two locations or two points in time. These price differences can be affected by, among other things, natural gas supply and demand, available transportation capacity, storage inventories and deliverability, prices of alternative fuels and weather conditions. We have attempted to reduce our exposure to this form of market variability by pursuing long-term, fixed-rate type contract agreements to utilize the capacity on Natural’s system. In addition, we utilize a comprehensive risk management program to mitigate our exposure to changes in the market price of natural ga s and associated transportation.

Our interstate pipeline and storage systems are subject to rate regulation under the jurisdiction of the FERC. Shippers on our pipelines do have rights, under certain circumstances prescribed by applicable regulations, to challenge the rates we charge (which includes reservation, commodity, surcharges, fuel and gas lost and unaccounted for). According to the terms of the Settlement of our Section 5 proceeding, parties to the Settlement, in general, will not be able to challenge our rates prior to April 2016. There can be no assurance that we will not face future challenges to the rates we receive for services on our pipeline systems, including our recovery of fuel in-kind from shippers, which could have material impacts on our business, financial condition and results of operations.

Liquidity and Capital Resources

Primary Cash Requirements

Our primary cash requirements, in addition to normal operating, general and administrative expenses, are for debt service, capital expenditures to sustain our current pipeline and storage systems and for system expansions, cash payments to Myria for the purpose of making income tax payments and cash distributions to our members. Our capital expenditures, other than sustaining capital expenditures, and our cash distributions to our members are discretionary. Our capital expenditures for calendar 2010 are currently expected to be approximately $74.8 million, of which $18.6 had been expended as of June 30, 2010. We expect to fund these expenditures principally with existing cash and cash flows from operating activities. In addition to utilizing cash generated from operations, we could meet these cash requirements through borrowings un der our credit facilities or by issuing additional long-term debt.

Invested Capital

The following table illustrates the sources of our invested capital.

	June 30,
	2010			2009
	(Dollars in thousands)
Long-term Debt	$	3,000,000	52.6%	$	3,000,000	45.7%
NGPL PipeCo LL C Members’ Equity		2,701,308	47.4%		3,558,043	54.3%
Noncontrolling Interests		-	-		497	-
Total Invested Capital	$	5,701,308	100.0%	$	6,558,540	100.0%

June 2010 NGPL PipeCo LLC Financials

Short-term Liquidity

In addition to cash flows from operations, our principal source of short-term liquidity is our revolving credit facility. As of June 30, 2010, we had available a $200 million five-year credit facility dated February 15, 2008. We had $24.3 million and $28.3 million of borrowings outstanding under this facility at June 30, 2010 and 2009, respectively. After inclusion of applicable outstanding letters of credit that reduce our borrowing capacity under the credit facility, our remaining available borrowing capacity under the facility was $170.6 million and $156.6 million at June 30, 2010 and 2009, respectively.

Long-term Debt

Aggregate Contractual Obligations

			Amount of Commitment Expiration Per Period
	Total		Less than 1 year		2-3 years		4-5 years		After 5 years
	(In millions)
Contractual Obligations:
Long-term Debt:
Principal Payments	$	3,000.0	$	-	$	1,250.0	$	-	$	1,750.0
Interest Payments		1,939.1		209.3		377.8		255.7		1,096.3
Notes Payable		24.3		24.3		-		-		-
Operating Leases		3.8		0.4		0.8		0.9		1.7
Total Contractual Cash Obligations	$	4,967.2	$	234.0	$	1,628.6	$	256.6	$	2,848.0

Other Commercial Commitments:
Letters of Credit	$	5.2	$	5.2	$	-	$	-	$	-
Capital Expenditures	$	21.6	$	21.6	$	-	$	-	$	-

Cash Flows

The following discussion of cash flows should be read in conjunction with the accompanying Consolidated Statements of Cash Flows and related supplemental disclosures. All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

Net Cash Flows from Operating Activities

Net cash flows provided by operating activities decreased from $443.6 million for the year ended June 30, 2009 to $296.6 million for the year ended June 30, 2010, a decrease of $147.0 million (33.1%). The decrease in cash flows from operating activities in 2010, relative to 2009, principally resulted from (i) an $89.8 million decrease in net cash flows attributable to changes in other working capital items and (ii) a $61.3 million decrease in net cash flows attributable to changes in gas in underground storage due to (1) a $47.1 million decrease attributable to changes in natural gas volumes stored and (2) a $14.3 million decrease attributable to changes in natural gas prices. The change attributable to natural gas volumes resulted from a decrease in volumes held in storage during the year ended June 30, 2009, followed by an increa se in volumes held in storage during the year ended June 30, 2010. The change attributable to natural gas prices was principally due to the decrease of natural gas prices during the year ended June 30, 2009.

Net Cash Flows from Investing Activities

Net cash flows from investing activities decreased from a source of cash of $5.2 million for the year ended June 30, 2009 to a use of cash of $73.0 million for the year ended June 30, 2010, a decrease of $78.2 million. This decrease in net cash flows

June 2010 NGPL PipeCo LLC Financials

from investing activities in 2010, relative to 2009, principally resulted from (i) a $92.6 million decrease in net cash flows attributable to restricted deposits associated with our hedging activities and (ii) a $17.7 million decrease in cash outflows for capital expenditures.

Net Cash Flows from Financing Activities

Net cash flows used in financing activities decreased from $466.2 million for the year ended June 30, 2009 to $223.6 million for the year ended June 30, 2010, a decrease of $242.6 million. The decrease in net cash flows used in financing activities in 2010, relative to 2009, resulted principally from (i) a $139.7 million decrease in net cash flows used for short-term borrowings and (ii) a $103.0 million decrease in distributions to members.

Litigation and Environmental

Refer to Notes 5(A) and 5(B) of the accompanying Notes to Consolidated Financial Statements for information on our pending environmental and litigation matters, respectively. We believe we have established adequate environmental and legal reserves such that the resolution of pending environmental matters and litigation will not have a material adverse impact on our business, cash flows, financial position or results of operations. However, changing circumstances could cause these matters to have a material adverse impact.

Regulation

The Pipeline Safety Improvement Act of 2002 was signed into law on December 17, 2002, providing guidelines in the areas of testing, education, training and communication. The Act requires pipeline companies to perform integrity tests on natural gas transmission pipelines that exist in high population density areas that are designated as High Consequence Areas. Pipeline companies are required to perform the integrity tests within ten years of the date of enactment and must perform subsequent integrity tests on a seven year cycle. At least 50% of the highest risk segments must be tested within five years of the enactment date. The risk ratings are based on numerous factors, including the population density in the geographic regions served by a particular pipeline, as well as the age and condition of the pipeline and its protective co ating. Testing consists of hydrostatic testing, internal electronic testing, or direct assessment of the piping. In addition to the pipeline integrity tests, pipeline companies must implement a qualification program to make certain that employees are properly trained. The United States Department of Transportation has approved our qualification program. We believe that we are in substantial compliance with this law’s requirements and have integrated appropriate aspects of this pipeline safety law into our Operator Qualification Program, which is already in place and functioning.

See Note 4 of the accompanying Notes to Consolidated Financial Statements for additional information regarding regulatory matters.

Information Regarding Forward-looking Statements

This report 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 service our debt or pay distributions are forward-looking statements. Forward-looking statements ar e not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. 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 in the United States;

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

changes in our tariff rates, including our recovery of fuel in-kind from shippers on our pipeline systems;

our ability to expand our facilities;

changes in laws or regulations, third-party relations and approvals, decisions of courts, regulators and governmental bodies that may adversely affect our business or our ability to compete;

our indebtedness could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow

June 2010 NGPL PipeCo LLC Financials

additional funds and/or place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;

interruptions of electric power supply to our facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes;

our ability to obtain insurance coverage without a significant level of self-retention of risk;

acts of nature, sabotage, terrorism or other acts causing damage greater than our insurance coverage limits;

inflation;

interest rates; and

the timing and success of business development efforts.

You should not put undue reliance on any forward-looking statements. We disclaim any obligation to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

Exhibit 99.4

CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

NGPL PIPECO LLC

And Subsidiaries

June 30, 2009 and 2008

June 2009 NGPL PipeCo LLC Financials

Report of Independent Auditors

To the Boards of Directors of NGPL PipeCo LLC and

Kinder Morgan, Inc.:

In our opinion, the accompanying consolidated and combined balance sheets and the related consolidated and combined statements of operations, of comprehensive income, of members' equity and of cashflows present fairly, in all material respects, the financial position of NGPL PipeCo LLC and its subsidiaries (the "Company") at June 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated and combined financial statements, the Company has entered into significant transactions with Kinder Morgan, Inc., a related party.

/s/ PricewaterhouseCoopers LLP

October 16, 2009

Houston, Texas

June 2009 NGPL PipeCo LLC Financials

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2009			2008
	(In thousands)
Operating Revenues:
Transportation and Storage	$	1,020,659		$	987,727
Natural Gas Sales		301,188			198,823
Other		3,349			4,779
Total Operating Revenues		1,325,196			1,191,329

Operating Costs and Expenses:
Purchases and Other Costs of Sales		399,301			326,631
Operations and Maintenance		167,332			136,597
General and Administrative		45,163			46,540
Depreciation and Amortization		77,020			75,126
Taxes, Other Than Income Taxes		37,557			32,286
Other Expenses (Income)		(5,796	)		157
Total Operating Costs and Expenses		720,577			617,337

Operating Income		604,619			573,992

Other Income and (Expenses):
Interest Expense, Net		(212,807	)		(157,350	)
Interest Income		2,529			21,758
Equity in Earnings of Horizon		1,531			1,492
Minority Interests		314			1,125
Other, Net		6,868			(6,669	)
Total Other Income and (Expenses)		(201,565	)		(139,644	)

Income Before Income Taxes		403,054			434,348
Income Taxes		165,188			161,371

Net Income	$	237,866		$	272,977

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

June 2009 NGPL PipeCo LLC Financials

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2009			2008
	(In thousands)
Net Income	$	237,866		$	272,977

Other Comprehensive Income (Loss), Net of Tax:
Change in Fair Value of Derivatives Utilized for Hedging Purposes (Net of Tax Expense of $98,387 and Tax Benefit of $66,565)		151,916			(100,831	)
Reclassification of Change in Fair Value of Derivatives to Net Income (Net of Tax Benefits of
$26,145 and $283)		(37,648	)		(480	)
Total Other Comprehensive Income (Loss)		114,268			(101,311	)

Comprehensive Income	$	352,134		$	171,666

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

June 2009 NGPL PipeCo LLC Financials

CONSOLIDATED AND COMBINED BALANCE SHEETS

NGPL PipeCo LLC and Subsidiaries

	June 30, 2009			June 30, 2008
	(In thousands)
ASSETS:
Current Assets:
Cash and Cash Equivalents	$	236		$	17,601
Restricted Deposits		-			90,906
Accounts Receivable, Net		67,394			61,535
Gas in Underground Storage		105,947			170,296
Materials and Supplies		11,145			6,115
Gas Imbalances		23,097			25,841
Fair Value of Derivatives		45,323			18,032
Other		11,323			16,673
		264,465			406,999

Investments		13,058			13,827

Goodwill		5,014,465			5,014,136

Property, Plant and Equipment, Net:
Property, Plant and Equipment		1,835,145			1,762,421
Accumulated Depreciation and Amortization		(126,932	)		(66,070	)
		1,708,213			1,696,351

Deferred Charges and Other Assets		38,754			36,869

Total Assets	$	7,038,955		$	7,168,182

LIABILITIES AND MEMBERS’ EQUITY:
Current Liabilities:
Notes Payable	$	28,300		$	172,000
Accounts Payable		16,482			43,952
Accrued Interest		9,303			9,640
Accrued Income and Other Taxes		60,075			27,775
Gas Imbalances		19,949			17,656
Fair Value of Derivatives		8,330			118,411
Other		22,128			11,758
		164,567			401,192

Other Liabilities and Deferred Credits:
Deferred Income Taxes		291,377			201,289
Other		24,471			36,448
		315,848			237,737

Long-term Debt		3,000,000			3,000,000

Minority Interests in Equity of Subsidiaries		497			811

Commitments and Contingent Liabilities (Notes 4 and 9)

Members’ Equity:
Members’ Capital		3,530,721			3,615,388
Accumulated Other Comprehensive Income (Loss)		27,322			(86,946	)
Total Members’ Equity		3,558,043			3,528,442

Total Liabilities and Members’ Equity	$	7,038,955		$	7,168,182

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

June 2009 NGPL PipeCo LLC Financials

CONSOLIDATED AND COMBINED STATEMENTS OF MEMBERS’ EQUITY

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2009			2008
	(In thousands)
Members’ Capital:
Beginning Balance	$	3,615,388		$	6,410,214
Net Income		237,866			272,977
Distributions to Members (Note 2(L))		(322,533	)		(3,128,452	)
Non-cash Contribution (Note 2(L))		-			60,649
Ending Balance		3,530,721			3,615,388

Accumulated Other Comprehensive Income (Loss), Net of Tax:
Beginning Balance		(86,946	)		14,365
Change in Fair Value of Derivatives Utilized for Hedging Purposes		151,916			(100,831	)
Reclassification of Change in Fair Value
of Derivatives to Net Income		(37,648	)		(480	)
Ending Balance		27,322			(86,946	)

Total Members’ Equity	$	3,558,043		$	3,528,442

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

June 2009 NGPL PipeCo LLC Financials

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

NGPL PipeCo LLC and Subsidiaries

	Year Ended June 30,
	2009			2008
	(In thousands)
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
Net Income	$	237,866		$	272,977
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization		77,020			75,126
Deferred Income Taxes		28,323			5,789
Carrying Value Adjustments to Inventories (Note 2(E))		20,627			-
Interest Income from NGPL PipeCo Escrow		-			(10,196	)
Changes in Gas in Underground Storage		43,722			(39,846	)
Changes in Other Working Capital Items		49,357			(34,004	)
(Gains)/Losses From Sales of Assets		(5,796	)		157
Contribution to Voluntary Employee Benefit Association (Note 3)		(8,711	)		(7,259	)
Other, Net		1,231			(10,583	)
Net Cash Flows Provided by Operating Activities		443,639			252,161

Cash Flows From Investing Activities:
Capital Expenditures		(94,518	)		(198,096	)
Proceeds From Sales of Assets, Net		8,072			11,687
Investment In NGPL PipeCo Escrow		-			(3,096,263	)
Receipt From NGPL PipeCo Escrow		-			3,106,459
Investment in Restricted Deposits		90,906			(90,906	)
Return of Equity Investment in Horizon		769			1,508
Net Cash Flows Provided by (Used in) Investing Activities		5,229			(265,611	)

Cash Flows From Financing Activities:
Short-term Debt, Net		(143,700	)		172,000
Long-term Debt Issued		-			3,000,000
Debt Issuance Costs		-			(13,750	)
Distributions to Members (Note 2(L))		(322,533	)		(3,128,452	)
Net Cash Flows Provided by (Used in) Financing
Activities		(466,233	)		29,798

Net Increase (Decrease) in Cash and Cash Equivalents		(17,365	)		16,348
Cash and Cash Equivalents at Beginning of Period		17,601			1,253
Cash and Cash Equivalents at End of Period	$	236		$	17,601

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

June 2009 NGPL PipeCo LLC Financials

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

NGPL PipeCo LLC (“NGPL PipeCo”) engages in interstate natural gas transportation, compression and storage. NGPL PipeCo is 80% owned by Myria Acquisition LLC (formerly Myria Acquisition, Inc.), a wholly owned subsidiary of Myria Holdings Inc. and 20% owned by NGPL Holdco Inc., a wholly owned subsidiary of Kinder Morgan, Inc. (Kinder Morgan, Inc.’s name was changed to Knight Inc. on May 31, 2007, upon completion of the “Going Private” transaction [see Note 2(Q)] and was changed back to Kinder Morgan, Inc. in July 2009). Unless the context requires otherwise, references to “we,” “us,” “our,” or the “Company” are intended to mean NGPL PipeCo.

On February 15, 2008, Kinder Morgan, Inc. (“Kinder Morgan”) sold an 80% ownership interest in NGPL PipeCo to Myria Acquisition LLC (“Myria”) for approximately $2.9 billion in cash (the “Myria Transaction”). Kinder Morgan also received approximately $3.1 billion of cash previously held by us in escrow pending the closing of the Myria Transaction. Immediately prior to the closing of the Myria Transaction, the $3.1 billion held in escrow was paid to Kinder Morgan to retire a $2.85 billion intercompany note and $50.1 million of associated interest (see Note 7) and as a distribution. Pursuant to the purchase agreement, Myria acquired all 800 of our Class B shares and Kinder Morgan retained all 200 of our Class A shares. Kinder Morgan will continue to operate our assets pursuant to the 15-year Operatio ns and Reimbursement Agreement for Natural Gas Pipeline Company of America LLC dated as of February 15, 2008 (the “Operating Agreement”).

Natural owns investments in two joint ventures, Horizon Pipeline Company, L.L.C. (“Horizon”), which is 50% owned and accounted for under the equity method, reflecting our ability to exercise significant influence over its operating and financial policies (see Note 2(F)), and Canyon Creek Compression Company (“Canyon”), which is 70% owned and consolidated into these financial statements. We recently made a regulatory abandonment filing on Canyon (see Note 3).

Natural’s interstate natural gas pipeline and storage operations, as well as those of its joint venture investees, are subject to regulation by the Federal Energy Regulatory Commission (the “FERC”). The FERC regulates, among other things, rates and charges for transportation and storage of natural gas in interstate commerce, the construction and operation of interstate pipeline and storage facilities and the accounts and records of interstate pipelines.

Prior to February 15, 2008, these financial statements have been prepared from the historical accounting records of Kinder Morgan and are presented on a carve-out basis to include the historical operations applicable to MidCon Corp. and its subsidiaries and Kinder Morgan Illinois Pipeline LLC, which together are referred to as “NGPL PipeCo” in this report, and which were each directly wholly owned by Kinder Morgan. On February 15, 2008, NGPL PipeCo LLC merged with and into MidCon Corp. with MidCon Corp. continuing as the surviving legal entity, converted to a limited liability company and renamed NGPL PipeCo LLC. Within these financial statements, references to “Members” for periods prior to the February 15, 2008 merger of NGPL PipeCo LLC and MidCon Corp. refer to our then sole parent, Kinder Morgan.< /div>

Our Consolidated and Combined Financial Statements include the accounts of NGPL PipeCo LLC and our majority-owned subsidiaries. Investments in jointly owned operations in which we hold a 50% or less interest and have the ability to exercise significant influence over their operating and financial policies are accounted for under the equity method. All material intercompany transactions and balances have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates. We evaluated subsequent events, which are events or transactions that occurred after June 30, 2009 but before our accompanying financial statements were issued, through October 16, 2009, the date we issued these Consolidated and Combined Financial Statements. As a result of the Myria Transaction, and in order to meet the reporting requirements of our members, on April 21, 2008, upon the vote of our Board of Directors, we changed our fiscal year to July 1 through June 30.

June 2009 NGPL PipeCo LLC Financials

2. Summary of Significant Accounting Policies

(A) Accounting for Regulatory Activities

Our regulated utility operations are accounted for in accordance with the provisions of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, which prescribes the circumstances in which the application of generally accepted accounting principles is affected by the economic effects of regulation. Regulatory assets and liabilities represent probable future revenues or expenses associated with certain charges and credits that will be recovered from or refunded to customers through the ratemaking process.

The following regulatory assets and liabilities are reflected in the accompanying Consolidated and Combined Balance Sheets in the captions “Deferred Charges and Other Assets” and “Other Liabilities and Deferred Credits: Other.”

	June 30, 2009		June 30, 2008
	(In thousands)
Regulatory Assets:
Employee Benefit Costs	$	1,216	$	1,396
Deferred Income Taxes		15,059		11,585
Rate Regulation and Application Costs		769		1,799
Total Regulatory Assets		17,044		14,780

Regulatory Liabilities:
Deferred Income Taxes		4,876		7,488
Total Regulatory Liabilities		4,876		7,488

Net Regulatory Assets	$	12,168	$	7,292

As of June 30, 2009 and 2008, $15.8 million and $13.4 million of our regulatory assets, respectively, and $4.9 million and $7.5 million of our regulatory liabilities, respectively, were being recovered from or refunded to customers through rates over periods ranging from 1 to 16 years. The regulatory asset of $1.2 million at June 30, 2009 related to employee benefit costs is not currently being recovered from customers through rates. We believe, however, that eventual recovery through future ratemaking procedures is probable.

(B) Revenue Recognition Policies

We recognize revenues as services are rendered or goods are delivered and, if applicable, title has passed.

“Restricted Deposits” consist principally of restricted funds on deposit with brokers in support of our risk management activities (see Note 8).

(D) Accounts Receivable

The caption “Accounts Receivable, Net” in the accompanying Consolidated and Combined Balance Sheets is presented net of allowances for doubtful accounts. Our policy for determining an appropriate allowance for doubtful accounts varies according to the type of service being provided and the customers being served. The allowance for doubtful accounts is

June 2009 NGPL PipeCo LLC Financials

adjusted as necessary for changed circumstances and customer-specific information. When specific receivables are determined to be uncollectible, the reserve and receivable are relieved. Allowances for doubtful accounts were $0 and $11,000 at June 30, 2009 and 2008, respectively.

(E) Inventories

Our inventories consist of the following:

	June 30, 2009		June 30, 2008
	(In thousands)
Gas in Underground Storage (Current)	$	105,947	$	170,296
Materials and Supplies		11,145		6,115
	$	117,092	$	176,411

In accordance with our transportation tariffs, we collect natural gas in-kind from shippers on our systems. Certain of this gas is used by us as fuel in our operations. Fuel collected in excess of our operational needs typically is either sold by us or injected into storage for sale at a later date. Consequently, in the normal course of business, we both sell natural gas and maintain natural gas inventories. Our inventories are accounted for using the following methods, with the percent of the total value reported under each method shown in parentheses: last-in, first-out (90% and 97%) for gas in underground storage and average cost (10% and 3%) for materials and supplies at June 30, 2009 and 2008, respectively.

We enter into derivative contracts for the purpose of hedging exposures that accompany our operational gas sales and we utilize this risk management activity to formulate a gas sales plan. Natural gas placed in inventory is valued at our forecasted realizable value, net of hedge gains and losses, based on our operational gas sales plan. We evaluate our natural gas inventory on a quarterly basis and if the carrying value of our inventory is greater than the latest estimate of our net realizable value, we reduce the carrying value of the natural gas inventory to our estimated net realizable value. During the year ended June 30, 2009, we recorded $20.6 million of reductions in the carrying value of our natural gas storage inventories. Only the excess fuel gas that we take title to under our transportation tariffs is recorded in the ac companying Consolidated and Combined Balance Sheets. We receive fees from our storage service customers but do not reflect the value of their gas stored in our facilities in the accompanying Consolidated and Combined Balance Sheets.

(F) Investments

We have a 50% ownership in Horizon, which we account for using the equity method. The balance of our investment in Horizon was $13.1 million and $13.8 million at June 30, 2009 and 2008, respectively. Earnings from our equity investment in Horizon were $1.5 million for both years ended June 30, 2009 and 2008. We received distributions from Horizon of $2.3 million and $3.0 million during the years ended June 30, 2009 and 2008, respectively.

(G) Property, Plant and Equipment

Depreciation on our long-lived assets is computed principally based on the straight-line method over their estimated useful lives. Generally, we apply composite depreciation rates to functional groups of property having similar economic characteristics. Depreciation rates range from 1.8% to 5.0%, excluding certain short-lived assets such as vehicles. Depreciation estimates are based on various factors, including age (in the case of acquired assets), manufacturing specifications, technological advances and historical data concerning useful lives of similar assets. Uncertainties that impact these estimates include changes in laws and regulations relating to restoration and abandonment requirements, economic conditions, and supply and demand in the area. When assets are put into service, we make estimates with respect to useful lives (and salvage values where appropriate) that we believe are reasonable. However, subsequent events could cause us to change our estimates, thus impacting the future calculation of depreciation and amortization expense. Historically, adjustments to useful lives have not had a material impact on our aggregate depreciation levels from year to year.

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inventory represents the portion of gas stored in an underground storage facility generally known as “working gas,” and represents an estimate of the portion of gas in these facilities available for routine injection and withdrawal to meet current demand. In addition to this working gas, underground gas storage reservoirs contain injected gas, which is not routinely cycled but, instead, serves the function of maintaining the necessary pressure to allow efficient operation of the facility. This gas, generally known as “cushion gas,” is recorded in the caption “Property, Plant and Equipment” on the accompanying Consolidated and Combined Balance Sheets. Cushion gas is divided into the categories of “recoverable cushion gas” and “unrecoverable cushion gas,” based on an enginee ring analysis of whether the gas can be economically removed from the storage facility at any point during its life. The portion of cushion gas that is determined to be unrecoverable is considered to be a permanent part of the facility itself and is depreciated over the facility’s estimated useful life. The portion of cushion gas that is determined to be recoverable is also considered a component of the facility but is not depreciated because it is expected to ultimately be recovered and sold.

We review the carrying values of our long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. We would recognize an impairment loss when estimated future cash flows expected to result from our use of the asset and its eventual disposition are less than its carrying amount. We did not record any asset impairments during the years ended June 30, 2009 and 2008.

(H) Asset Retirement Obligations

	Year Ended June 30,
	2009		2008
	(In thousands)
Balance at Beginning of Period	$	2,834	$	1,809
Liabilities Incurred		-		1,000
Liabilities Settled		-		-
Accretion Expense		85		25
Balance at End of Period	$	2,919	$	2,834

In August 2007, BP notified Canyon of its decision to discontinue operations at the Whitney Plant, by October 1, 2007. As of September 4, 2007, BP has ceased operations at its Whitney Canyon Gas Plant, which is located near Evanston, Wyoming. The Whitney Plant is the exclusive source of gas compressed at Canyon’s facility. On June 30, 2008, Canyon filed an application with the FERC to abandon all of its facilities and services. On December 5, 2008, the FERC issued an order approving Canyon’s abandonment request subject to certain conditions. The abandonment approval is for a three year time period subject to Canyon filing for Director of the Office of Energy Project approval prior to the disposition of any facilities so that the Director can perform an environmental review of the requested disposal. We do not believe that the abandonment of Canyon will have a material adverse impact on our business, cash flows, financial position or results of operations (see Note 3).

In addition, we have various condensate drip tanks located throughout the system, storage wells located within the storage fields, laterals no longer integral to the overall mainline transmission system, compressor stations which are no longer active, and other miscellaneous facilities, all of which have been officially abandoned. For these facilities, it is possible to reasonably estimate the timing of the payment of obligations associated with their retirement. The recognition of these obligations has resulted in a combined liability of approximately $2.9 million and $2.8 million at June 30, 2009 and 2008, respectively, which represents the present value of those future obligations for which we are able to make reasonable estimations of the current fair value due to, as discussed above, our ability to estimate the timing of the i ncurrence of the

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expenditures. The remainder of our asset retirement obligations have not been recorded due to our inability, as discussed above, to reasonably estimate when they will be settled in cash.

(I) Gas Imbalances

Gas imbalances receivable and payable reflect gas volumes owed to us from interconnecting pipelines or by us to interconnecting pipelines and are valued at the lower of cost or market if they are receivables and at the higher of cost or market if they are payables. Gas imbalances represent the difference between customer nominated versus actual gas receipts from and gas deliveries to interconnecting pipelines under various operational balancing agreements. Gas imbalances are settled in cash (“cash outs”) or made up in-kind subject to the terms of the various agreements. We had net cash-outs on operational balancing agreements of $3.8 million and $5.7 million for the years ended June 30, 2009 and 2008, respectively.

(J) Interest Expense

“Interest Expense, Net” as presented in the accompanying Consolidated and Combined Statements of Operations principally consists of interest expense on (i) our $3.0 billion of outstanding long-term debt, (ii) our short-term revolving credit facility and (iii) our $2.85 billion note payable to Kinder Morgan (which was retired in February 2008, see note 7), net of amounts capitalized representing the debt component of the allowance for funds used during construction (“AFUDC — Interest”), as shown following.

	Year Ended June 30,
	2009			2008
	(In thousands)
Interest Expense	$	(213,041	)	$	(112,078	)
Interest Expense on Kinder Morgan Note		-			(50,143	)
AFUDC – Interest		234			4,871
Interest Expense, Net	$	(212,807	)	$	(157,350	)

(K) Cash Flow Information

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. “Other, Net,” presented as a component of “Net Cash Flows Provided by Operating Activities” in the accompanying Consolidated and Combined Statements of Cash Flows includes, among other things, non-cash charges and credits to income.

ADDITIONAL CASH FLOW INFORMATION

Changes in Other Working Capital Items

Increase (Decrease) in Cash and Cash Equivalents

	Year Ended June 30,
	2009			2008
	(In thousands)
Accounts Receivable	$	(11,402	)	$	3,366
Materials and Supplies Inventories		(5,030	)		(2,184	)
Other Current Assets		43,029			(52,830	)
Accounts Payable		(23,967	)		23,095
Other Current Liabilities		46,727			(5,451	)
	$	49,357		$	(34,004	)

On October 17, 2007, we made a $2.85 billion dividend to Kinder Morgan in the form of a promissory note. The promissory note was repaid in February 2008 (see Note 7).

We made cash payments for interest of approximately $211.5 million during the year ended June 30, 2009. We made cash payments for interest of approximately $151.9 million during the year ended June 30, 2008, including $50.1 million of interest on the note payable to Kinder Morgan.

Prior to the February 15, 2008 closing of the Myria Transaction, we were included in the consolidated income tax returns of Kinder Morgan, who made tax payments on our behalf. Subsequent to the closing of the Myria Transaction, we are included in the consolidated tax returns of Myria. During the year ended June 30, 2009, we made cash payments for income taxes of approximately $103.8 million. During the period February 15, 2008 to June 30, 2008, we made cash payments for income taxes of approximately $51.5 million.

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Non-cash investing activities include decreases of $3.5 million and $2.2 million for the years ended June 30, 2009 and 2008, respectively, in the accrual for construction costs.

(L) Transactions with Related Parties

Prior to the February 15, 2008 closing of the Myria Transaction (see Note 1), Kinder Morgan charged us, at cost, for non-labor costs incurred on our behalf and for direct labor and related expenses for personnel who perform services for our benefit. Kinder Morgan also allocated to us certain corporate general and administrative expenses, such as expenses for executive compensation, accounting, human resources and information technology. The allocation method used to allocate such corporate costs was based on a weighted average of three factors: gross property, plant and equipment, direct payroll and operating income before corporate allocations. On February 15, 2008, Natural entered into the Operating Agreement (see Note 1) with Kinder Morgan. The Operating Agreement provides for Kinder Morgan to be reimbursed, at cost, for pre-app roved operations and maintenance costs, plus a fixed annual general and administration fee charge for services provided under the Operating Agreement. The annual fixed fee escalates at 3% each year until 2011 and is billed monthly. Fixed fee charges totaled $45.2 million and $16.7 million for the year ended June 30, 2009 and the period from February 15, 2008 to June 30, 2008, respectively.

In addition, in prior years, Kinder Morgan allocated to Natural a corporate charge related to interest expense based on the overall long-term debt position of Kinder Morgan (“Corporate Charges”). Effective January 1, 2008, Kinder Morgan no longer allocates this Corporate Charge to Natural.

On October 17, 2007, we declared a dividend in the amount of $2.85 billion to Kinder Morgan, our then sole shareholder. The dividend was paid on October 17, 2007, by issuing a $2.85 billion promissory note to Kinder Morgan. The note and accrued interest were paid in February 2008 upon the closing of the Myria Transaction. Interest on the note was based on the London Interbank Offered Rate plus 0.875%, payable in arrears at the end of each calendar quarter (see Note 7). Other distributions of approximately $211 million were made to Kinder Morgan during the year ended June 30, 2008, principally consisting of $206.3 million that had been held in escrow by us and was distributed to Kinder Morgan upon the closing of the Myria Transaction. In addition, on May 15, 2008, we made cash distributions to members totaling $67.6 million. The dis tributions were made on a pro rata basis of our ownership of 80% to Myria ($54.1 million) and 20% to Kinder Morgan ($13.5 million).

During the year ended June 30, 2009, we made cash distributions to members totaling $322.5 million. The distributions were made on a pro rata basis of our ownership of 80% to Myria ($258.0 million) and 20% to Kinder Morgan ($64.5 million).

The difference between the fair value of our assets and liabilities at the time of the Going Private transaction (see Note 2(Q)), was recorded as Goodwill. Upon recording the preliminary purchase price allocation at the time of the transaction, we recorded Goodwill of approximately $4.95 billion. Upon the finalization of the purchase price allocation in the quarter ended March 31, 2008, we recorded an additional $60.6 million of Goodwill, for a total of approximately $5.0 billion. The change in the purchase price allocation resulted in a non-cash contribution to Members’ Equity of $60.6 million, as reported in the accompanying Consolidated and Combined Statement of Members’ Equity for the year ended June 30, 2008.

Kinder Morgan’s policy is to combine payable and receivable balances that exist with affiliates at each month end and record them the following month as an interest-bearing advance to/from the affiliate. Therefore, the intercompany balances between Kinder Morgan and NGPL PipeCo prior to the February 15, 2008 Myria Transaction fluctuated through the normal course of business activity. There were no plans or intention to settle these intercompany balances and, thus, these balances represented an adjustment to Kinder Morgan’s equity investment in NGPL PipeCo. Therefore, in these Consolidated and Combined Financial Statements, related party balances with Kinder Morgan prior to the February 15, 2008, Myria Transaction have been reclassified as equity and no intercompany interest has been recorded except for interest on the $ 2.85 billion note payable to Kinder Morgan.

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Totals of significant transactions with related parties are as follows:

	Year Ended June 30,
	2009		2008
	(In thousands)
Sales, Transportation and Storage of Natural Gas and Other Revenues	$	14,538	$	9,796
Purchases and Transportation of Natural Gas	$	4,289	$	1,044
Charges for General and Administrative Costs	$	45,163	$	46,540
Corporate Charges	$	-	$	11,616
Interest Charges	$	-	$	50,143

Totals of significant receivable (payable) balances with related parties are as follows:

	June 30, 2009			June 30, 2008
	(In thousands)
Accounts Receivable – Myria	$	830		$	782
Accounts Receivable – Other Affiliates	$	20		$	1
Accounts Payable – Kinder Morgan Energy Partners, L.P.	$	(975	)	$	(844	)
Accounts Payable – Kinder Morgan.	$	(683	)	$	(12,185	)
Accounts Payable – Other Affiliates	$	(2	)	$	-
Gas Imbalances – Receivables	$	10,162		$	10,283
Gas Imbalances – Payables	$	(11,543	)	$	(3,089	)

(M) Income Taxes

Income tax expense is recorded based on an estimate of the effective tax rate in effect or to be in effect during the relevant periods. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of assets and liabilities for financial reporting and tax purposes. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. Deferred tax assets are reduced by a valuation allowance for the amount of any tax benefit we do not expect to be realized. Note 6 contains information about our income taxes, including the components of our income tax provision and the composition of our deferred income tax assets and liabilities.

(N) Accounting for Risk Management Activities

We enter into derivative contracts for the purpose of hedging exposures that accompany our normal business activities. We designate our derivative instruments as hedges of various exposures and test the effectiveness of changes in the value of these hedging instruments with the risk being hedged. Hedge ineffectiveness is recognized in income in the period in which it occurs. See Note 8 for a detailed discussion of our hedging activities.

(O) Accounting for Legal Costs

(P) Environmental Costs

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(Q) Goodwill

On May 30, 2007, a group of investors, including CEO Richard D. Kinder and other members of Kinder Morgan, Inc. senior management, completed a “Going Private transaction” in which all of the outstanding shares of Kinder Morgan, Inc. were purchased for $107.50 per share and the company was renamed Knight Inc. The company name was changed back to Kinder Morgan, Inc. in July 2009. Prior to the Going Private transaction, there was no goodwill recorded on our Consolidated and Combined Balance Sheet. The Going Private transaction was accounted for as a purchase and, accordingly, the difference between the fair value of our assets and liabilities at the time of the Going Private transaction was recorded as Goodwill. Upon recording the preliminary purchase price allocation at the time of the transaction, we recorded Goodwill of approximately $4.95 billion. Upon the finalization of the purchase price allocation in the first quarter of 2008, we recorded an additional $60.6 million of Goodwill, for a total of approximately $5.0 billion. The change in the purchase price allocation resulted in a non-cash contribution to Members’ Equity of $60.6 million, as reported in the accompanying Consolidated and Combined Statement of Members’ Equity for the year ended June 30, 2008.

We evaluate goodwill for potential impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We tested the goodwill associated with the Going Private transaction for impairment at May 31, 2009 and concluded that no impairment was required.

For investments we account for under the equity method of accounting, the excess cost over underlying fair value of net assets is referred to as equity method goodwill and is not subject to amortization but rather to impairment testing in accordance with the provisions of equity method accounting.

3. Regulatory Matters

There are currently no proceedings challenging our rates. Regulators, as well as our shippers, do have rights, under circumstances prescribed by applicable regulations, to challenge rates that we charge. We can provide no assurance that we will not face challenges to the rates we charge in the future. Any successful challenge could have a material adverse impact on our future earnings and cash flows.

FERC Order No. 2004/717

On October 16, 2008, the FERC issued a Final Rule in Order No. 717 revising the FERC Standards of Conduct for natural gas and electric transmission providers by eliminating Order No. 2004’s concept of Energy Affiliates and corporate separation in favor of an employee functional approach as used in Order No. 497. A transmission provider is prohibited from disclosing to a marketing function employee non-public information about the transmission system or a transmission customer. The final rule also retains the long-standing no-conduit rule, which prohibits a transmission provider from disclosing non-public information to marketing function employees by using a third party conduit. Additionally, the final rule requires that a transmission provider provide annual training on the Standards of Conduct to all transmission function e mployees, marketing function employees, officers, directors, supervisory employees, and any other employees likely to become privy to transmission function information. This rule became effective on November 26, 2008.

Notice of Proposed Rule Making – Financial Reporting

On September 20, 2007, the FERC issued for public comment in Docket No. RM07-9 a proposed rule that would revise its financial forms to require that additional information be reported by natural gas companies. The proposed rule would require, among other things, that natural gas companies (i) submit additional revenue information, including revenue from shipper-supplied gas, (ii) identify the costs associated with affiliate transactions, and (iii) provide additional information on incremental facilities and on discounted and negotiated rates. The FERC proposed an effective date of January 1, 2008, which means that forms reflecting the new requirements for 2008 would be filed in early 2009. Comments on the proposed rule were filed by numerous parties on November 13, 2007.

On March 21, 2008, the FERC issued a Final Rule regarding changes to the Form 2, 2-A and 3Q. The revisions were designed to enhance the forms’ usefulness by updating them to reflect current market and cost information relevant to interstate pipelines and their customers. The rule is effective January 1, 2008 with the filing of the revised Form 3-Q beginning with the first quarter of 2009. The revised Form 2 and 2-A for calendar year 2008 material would be filed by April 18, 2009. On June 20, 2008, the FERC issued an Order Granting in Part and Denying in Part Rehearing and Granting Request for Clarification. No substantive changes were made to the March 21, 2008 Final Rule.

Notice of Inquiry – Fuel Retention Practices

On September 20, 2007, the FERC issued a Notice of Inquiry seeking comment on whether it should change its current policy and prescribe a uniform method for all interstate gas pipelines to use in recovering fuel gas and gas lost and unaccounted for. The Notice of Inquiry included numerous questions regarding fuel recovery issues and the effects of fixed

June 2009 NGPL PipeCo LLC Financials

fuel percentages as compared with tracking provisions. Comments on the Notice of Inquiry were filed by numerous parties on November 30, 2007. On November 20, 2008 the FERC issued an order terminating the inquiry.

Notice of Proposed Rulemaking – Promotion of a More Efficient Capacity Release Market – Order 712

On November 15, 2007, the FERC issued a notice of proposed rulemaking in Docket No. RM 08-1-000 regarding proposed modifications to its Part 284 regulations concerning the release of firm capacity by shippers on interstate natural gas pipelines. The FERC proposes to remove, on a permanent basis, the rate ceiling on capacity release transactions of one year or less. Additionally, the FERC proposes to exempt capacity releases made as part of an asset management arrangement from the prohibition on tying and from the bidding requirements of Section 284.8. Initial comments were filed by numerous parties on January 25, 2008.

On June 19, 2008, the FERC issued a final rule in Order 712 regarding changes to the capacity release program. The FERC permitted market based pricing for short-term capacity releases of a year or less. Long-term capacity releases and a pipeline’s sale of its own capacity remain subject to a price cap. The ruling would facilitate asset management arrangements by relaxing the FERC’s prohibitions on tying and on its bidding requirements for certain capacity releases. The FERC further clarified that its prohibition on tying does not apply to conditions associated with gas inventory held in storage for releases for firm storage capacity. Finally, the FERC waived the prohibition on tying and bidding requirements for capacity releases made as part of state-approved retail open access programs. The final rule became effective on July 30, 2008.

On November 20, 2008, the FERC issued an order generally denying requests for rehearing and/or clarification that had been filed. The FERC reaffirmed its final rule, Order 712, and denied requests for rehearing stating the removal of the rate ceiling for short-term capacity release transactions is designed to extend to capacity release transactions the pricing flexibility already available to pipelines through negotiated rates without compromising the fundamental protection provided by the availability of recourse rate service. Additionally the FERC clarified several areas of the rule as it relates to asset management arrangements.

Notice of Proposed Rulemaking – Natural Gas Price Transparency

On April 19, 2007, the FERC issued a notice of proposed rulemaking in Docket Nos. RM07-10-000 and AD06-11-000 regarding price transparency provisions of Section 23 of the Natural Gas Act and the Energy Policy Act. In the notice, the FERC proposed to revise its regulations to (i) require that intrastate pipelines post daily the capacities of, and volumes flowing through, their major receipt and delivery points and mainline segments in order to make available the information to track daily flows of natural gas throughout the United States; and (ii) require that buyers and sellers of more than a de minimis volume of natural gas report annual numbers and volumes of relevant transactions to the FERC in order to make possible an estimate of the size of the physical U.S. natural gas market, assess the importance of the use of index pricin g in that market, and determine the size of the fixed-price trading market that produces the information. The FERC believes these revisions to its regulations will facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce. Initial comments were filed on July 11, 2007 and reply comments were filed on August 23, 2007. In addition, the FERC conducted an informal workshop in this proceeding on July 24, 2007, to discuss implementation and other technical issues associated with the proposals set forth in the notice of proposed rulemaking.

Daily Reporting Requirement – Order No. 720

On December 21, 2007, the FERC issued a new notice of proposed rulemaking in Docket No. RM08-2-000 regarding the daily posting provisions that were contained in Docket Nos. RM07-10-000 and AD06-11-000. The new notice of proposed rulemaking proposes to exempt from the daily posting requirements those non-interstate pipelines that (i) flow less than ten million MMBtus of natural gas per year, (ii) fall entirely upstream of a processing plant and (iii) deliver more than ninety-five percent (95%) of the natural gas volumes they flow directly to end-users. However, the new notice of proposed rulemaking expands the proposal to require that both interstate and non-exempt non-interstate pipelines post daily the capacities of, volumes scheduled at, and actual volumes flowing through, their major receipt and delivery points and mainline segm ents. Initial comments were filed by numerous parties on March 13, 2008. A Technical Conference was held on April 3, 2008. Numerous reply comments were received on April 14, 2008.

On November 20, 2008, the FERC issued Order No. 720, which established new reporting requirements for interstate and major non-interstate pipelines. Major non-interstate pipelines are required to post design capacity, scheduled volumes and available capacity at each receipt or delivery point with a design capacity of 15,000 MMbtus of natural gas per day or greater when gas is scheduled at the point. The final rule became effective January 27, 2009 for interstate pipelines. On January 15, 2009, the FERC issued an order granting an extension of time for major non-interstate pipelines to comply with the requirements of Order No. 720 until 150 days following the issuance of an order addressing the pending requests for rehearing. On January 16, 2009, FERC granted rehearing of Order 720. On July 16, 2009, the FERC issued a req uest for supplemental comments on revisions to the posting requirements. Comments were due on August 31, 2009. We do not expect this Order to have a material impact on our Consolidated and Combined Financial Statements.

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Annual Reporting Requirement – Order No. 704

On December 26, 2007, the FERC issued Order No. 704 in this docket implementing only the annual reporting provisions of the notice of proposed rulemaking with minimal changes to the original proposal. In Order No. 704, the FERC established reporting requirements on annual volumes of relevant transactions. The FERC issued Order No. 704-A on September 18, 2008. This order generally affirmed the rule, while clarifying what information certain natural gas market participants must report in Form 552. The revisions pertain to the reporting of transactions occurring in calendar year 2008. Order No. 704-A became effective October 27, 2008. On December 18, 2008, the FERC issued Order No. 704-B, denying rehearing and reconsideration of Order No. 704-A and granting a clarification regarding certain reportable volumes. On April 9, 2009, the FE RC granted an extension of time until July 1, 2009 for filing the initial Form 552. We filed our initial Form 552 on June 25, 2009.

Policy Statement - Equity Return Allowance

On April 17, 2008, the FERC adopted a new policy under Docket No. PL07-2-000 that allows master limited partnerships to be included in proxy groups for the purpose of determining rates of return for both interstate natural gas and oil pipelines. Additionally, the policy statement concluded that (i) there should be no cap on the level of distributions included in the FERC’s current discounted cash flow methodology, (ii) the Institutional Brokers Estimated System forecasts should remain the basis for the short-term growth forecast used in the discounted cash flow calculation, (iii) there should be an adjustment to the long-term growth rate used to calculate the equity cost of capital for a master limited partnership, specifically the long-term growth rate would be set at 50% of the gross domestic product, and (iv) there should be no modification to the current respective two-thirds and one-third weightings of the short-term and long-term growth factors. Additionally, the FERC decided not to explore other methods for determining a pipeline’s equity cost of capital at this time. The policy statement governs all future gas and oil rate proceedings involving the establishment of a return on equity, as well as those cases that are currently pending before either the FERC or an administrative law judge. On May 19, 2008, an application for rehearing was filed by The American Public Gas Association. On June 13, 2008, the FERC dismissed the request for rehearing.

Natural Gas Pipeline Expansion Filings

Natural Louisiana Line

On October 10, 2006, in FERC Docket No. CP07-3, Natural filed seeking approval to expand its Louisiana Line by 200,000 Dth/day. This $88 million project is supported by five-year agreements that fully subscribe the additional capacity. On July 2, 2007, the FERC issued an order authorizing construction and operation of the requested facilities. Natural accepted the order on July 6, 2007. This expansion was placed in service during the first quarter of 2008.

Herscher Galesville Storage Field

On December 7, 2007, Natural filed an application with the FERC seeking approval to expand its Herscher Galesville storage field in Kankakee County, Illinois to add 10 Bcf of incremental firm storage service for five expansion shippers. The project is fully supported by contracts ranging from 5 to 10 years. On August 11, 2008, the FERC issued an order authorizing the construction and operation of the requested facilities. Natural accepted the certificate on August 15, 2008. Service under the expansion commenced on March 1, 2009.

Canyon Filings

As part of its Docket No. RP02-356 rate case, Canyon implemented a cost of service tracker mechanism. This is a semi-annual cost of service tracker whereby rates charged customers will change each December 1 and June 1 and are adjusted for any over/under collections from Canyon’s estimate of cost and volumes for the prior six-month period versus the actual cost and volumes for that period as well as a projection of the cost and volumes for the ensuing six-month period. On April 30, 2008, Canyon filed its eleventh periodic tracker filing requesting a partial waiver of all applicable provisions included in Section 37 which proposed to maintain in effect its current Cost of Service and Deferred Account Rates, as opposed to filing revised rates. On May 28, 2008, the FERC approved Canyon’s request for a partial waiver of all applicable provisions included in Section 37 of the General Terms and Conditions of Canyon tariff so that Canyon can maintain in effect its existing Cost of Service and Deferred Account rates. Under the partial waiver, Canyon is not required to make semi-annual cost of service tracker filings.

On June 30, 2008, Canyon filed in Docket No. CP08-433-000 an application pursuant to section 7(b) of the Natural Gas Act , and Sections 157.7 and 157.18 of the FERC’s regulations for authorization to abandon: (i) its 22,000 horsepower compressor station and other appurtenant facilities located in Uinta County, Wyoming, (ii) its blanket gas in interstate commerce for interstate pipelines and others pursuant to Subpart G of Part 284 of the FERC’s regulations, (iii) its blanket certificate which authorized Canyon to engage in certain routine jurisdictional activities and for permission and approval to abandon certain services and facilities, as specified in Subpart F of Part 157 of the FERC’s regulations, and (iv) its 10-inch tap located in

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Uinta County, Wyoming used to deliver gas to Kern River Gas Transmission Company. Canyon requested that it be granted a three year period in which to determine the ultimate disposition of its facilities, whether it is by sale or physical removal of all or a portion of the facilities. On December 5, 2008, the FERC issued an order approving Canyon’s abandonment request subject to certain conditions. The abandonment approval is for a three year time period subject to Canyon filing for Director of the Office of Energy Project approval prior to the disposition of any facilities so that the Director can perform an environmental review of the requested disposal. In addition, the FERC granted Canyon’s abandonment of its Part 284, Subpart G blanket certificate effective the date of the order.

VEBA Contributions

As part of Natural’s most recent rate case settlement, it is required to make annual contributions to one or more Voluntary Employee Benefit Associations (“VEBA”) for the purposes of providing postretirement benefits to employees. Natural complies with this requirement by making contributions to VEBA plans administered by Kinder Morgan.

4. Environmental and Legal Matters

(A) Environmental Matters

We are subject to a variety of federal, state and local laws that regulate permitted activities relating to air and water quality, waste disposal, and other environmental matters.

Natural had established environmental reserves of approximately $3.3 million and $3.4 million as of June 30, 2009 and 2008, respectively to address remediation issues associated with four projects, which are recorded in the caption “Other Liabilities and Deferred Credits: Other” on the accompanying Consolidated and Combined Balance Sheets..

(B) Litigation Matters

United States of America, ex rel., Jack J. Grynberg v. K N Energy (Civil Action No. 97-D-1233, filed in the U.S. District Court, District of Colorado). This multi-district litigation proceeding involves four lawsuits filed in 1997 against numerous Kinder Morgan companies, including Natural. These suits were filed pursuant to the federal False Claims Act and allege underpayment of royalties due to mismeasurement of natural gas produced from federal and Indian lands. The complaints are part of a larger series of similar complaints filed by Mr. Grynberg against 77 natural gas pipelines (approximately 330 other defendants) in various courts throughout the country that were consolidated and transferred to the District of Wyoming.

In May 2005, a Special Master appointed in this litigation found that because there was a prior public disclosure of the allegations and that Grynberg was not an original source, the Court lacked subject matter jurisdiction. As a result, the Special Master recommended that the Court dismiss all the Kinder Morgan defendants, including Natural. In October 2006, the United States District Court for the District of Wyoming upheld the dismissal of each case against the Kinder Morgan defendants on jurisdictional grounds. Grynberg appealed this Order to the Tenth Circuit Court of Appeals. Briefing was completed and oral argument was held on September 25, 2008. A decision by the Tenth Circuit Court of Appeals affirming the dismissal of the Kinder Morgan defendants was issued on March 17, 2009. Grynberg’s petition for rehearing was de nied on May 4, 2009 and the Tenth Circuit issued its Mandate on May 18, 2009. Grynberg filed a Petition for Writ of Certiorari with the Supreme Court of the United States on August 3, 2009 and the defendants, including Natural, filed a Waiver of Brief in Opposition on August 28, 2009. The Supreme Court denied the Petition for Writ of Certiorari on October 5, 2009.

Prior to the dismissal order on jurisdictional grounds, the Kinder Morgan defendants filed Motions to Dismiss and for Sanctions alleging that Grynberg filed his Complaint without evidentiary support and for an improper purpose. On January 8, 2007, after the dismissal order, the Kinder Morgan defendants also filed a Motion for Attorney Fees under the False Claim Act. On April 24, 2007, the Court held a hearing on the Motions to Dismiss and for Sanctions and the Requests for Attorney Fees. A decision is still pending on the Motions to Dismiss and for Sanctions and the Requests for Attorney Fees.

June 2009 NGPL PipeCo LLC Financials

On January 5, 2009, the trial of the lawsuit styled William R. Justiss II et al. v. Natural Gas Pipeline Company of America LLC and Kevin Brown was held in the 62nd Judicial District Court, Lamar County, Texas, in which the owners of seven neighboring properties near rural Howland, Texas sued for damages arising from the operation of a natural gas compressor station owned and operated by Natural. At the conclusion of the trial, the jury returned a verdict finding that the alleged nuisance in the form of noise and odor emitted from the station had existed since 1998 with respect to five of the seven properties in question and found that no nuisance existed for the remaining two properties.

On January 30, 2009, the trial court entered judgment in accordance with the verdict rendered. At the same time, the trial court ordered the parties to mediation within 30 days. Mediation was unsuccessful. The total principal amount of all compensatory damages found by the jury was $1.2 million. The court also awarded $0.7 million in prejudgment interest and court costs. The total judgment amount is $1.9 million. Natural filed motions for new trial and for judgment notwithstanding the verdict on February 27, 2009, based on factual and legal insufficiency of the evidence and on the applicable two-year statute of limitations. Such motions were denied by the trial court.

Natural appealed the final judgment and the appeal is now pending. In connection with the appeal, Defendant Natural Gas Pipeline Company of America, as principal, and Safeco Insurance Company of America, as surety, posted a surety bond obligating themselves, jointly and severally, to pay Plaintiffs the amount of $2.0 million, which includes the amount of the compensatory damages, costs, and one year of post judgment interest at the rate of 5% per annum.

Natural has asserted a claim for insurance coverage against Aegis Insurance Services, Inc. under an excess liability policy with underlying limits and/or self insured retention of $0.3 million. Aegis has purported to reserve its rights to deny coverage on multiple grounds.

5. Property, Plant and Equipment

Investments in property, plant and equipment, at cost, and accumulated depreciation and amortization are as follows:

	June 30, 2009			June 30, 2008
	(In thousands)
Natural Gas Transmission and Storage	$	1,680,829		$	1,588,057
General and Other		109,986			107,650
Construction Work in Process		44,330			66,714
Total Property, Plant and Equipment		1,835,145			1,762,421
Accumulated Depreciation and Amortization		(126,932	)		(66,070	)
Property, Plant and Equipment, Net	$	1,708,213		$	1,696,351

6. Income Taxes

Components of the income tax provision for federal and state income taxes are as follows:

	Year Ended June 30,
	2009		2008
	(In thousands)
Current Tax Provision:
U.S.
Federal	$	113,521	$	134,184
State		23,344		21,398
		136,865		155,582

Deferred Tax (Benefit) Provision:
U.S.
Federal		18,060		10,723
State		10,263		(4,934	)
		28,323		5,789
Total Tax Provision	$	165,188	$	161,371

June 2009 NGPL PipeCo LLC Financials

The difference between the statutory federal income tax rate and our effective income tax rate is summarized as follows:

	Year Ended June 30,
	2009		2008
Federal Income Tax Rate		35.0%		35.0%
Increase (Decrease) as a Result of:
State Income Tax, Net of Federal Benefit		4.4%		3.4%
State Tax Rate Change		1.1%		(1.4%	)
Other		0.5%		0.2%
Effective Tax Rate		41.0%		37.2%

Income taxes included in the financial statements were composed of the following:

	Year Ended June 30,
	2009		2008
	(In thousands)
Operations	$	165,188	$	161,371
Equity Items		72,242		(66,848	)
Total	$	237,430	$	94,523

Deferred tax assets and liabilities result from the following:

	June 30, 2009		June 30, 2008
	(In thousands)
Deferred Tax Assets:
Derivatives	$	-	$	53,156
Amortization of Regulatory Liabilities		1,941		2,854
Postretirement Benefits Accrual		3,859		3,780
Operating Reserve		-		411
Environmental Costs		1,284		1,305
Contributions In Aid of Construction		5,575		5,294
Bad Debt Reserve		937		1,036
Hedge Ineffectiveness		1,418		-
Other		10,457		678
Total Deferred Tax Assets		25,471		68,514
Deferred Tax Liabilities:
Property, Plant and Equipment		278,473		252,016
Amortization of Regulatory Assets		5,805		4,395
Partnership Income		9,487		8,436
Operations Reserve		1,740		-
Derivatives		17,975		-
Hedge Ineffectiveness		-		3,083
Other		3,891		1,180
Total Deferred Tax Liabilities		317,371		269,110
Net Deferred Tax Liabilities	$	291,900	$	200,596

Current Deferred Tax Asset	$	-	$	693
Current Deferred Tax Liability		523		-
Non-current Deferred Tax Liability		291,377		201,289
Net Deferred Tax Liabilities	$	291,900	$	200,596

June 2009 NGPL PipeCo LLC Financials

FIN 48

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which became effective January 1, 2007. FIN No. 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also the past administrative practices and precedents of the taxing authority. The tax benef its recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

A reconciliation of the changes in our gross unrecognized tax benefits is as follows:

	Year Ended June 30,
	2009			2008
	(In millions)
Balance at Beginning of Period	$	1.1		$	11.5
Current Year Tax Positions		10.4			0.5
Prior Year Tax Positions		(4.3	)		-
Settlements With Taxing Authorities		2.2			(10.9	)
Lapse in Statute of Limitations		(2.1	)		-
Balance at End of Period	$	7.3		$	1.1

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense, and as of June 30, 2008, we had $0.1 million of accrued interest and no accrued penalties. As of June 30, 2009 (i) we had $0.5 million of net accrued interest income and no accrued penalties; (ii) we believe it is reasonably possible that our liability for unrecognized tax benefits will decrease by $6.3 million during the next twelve months, and (iii) we believe $0.9 million of the unrecognized tax benefits on our Consolidated and Combined Balance Sheet at June 30, 2009 would affect our effective tax rate in future periods in the event those unrecognized tax benefits were recognized. At the time of the Going Private transaction, an adjustment was made to goodwill for unrecognized tax benefits due to settlements with taxing authorities of the predecessor company for a total decrease of $10.9 million.

We are subject to taxation, and have tax years open to examination for the periods 2003 – 2008, in the United States and 1999 – 2009 in various states.

7. Financing

On December 21, 2007, we issued $1.25 billion aggregate principal amount of 6.514% senior notes due December 15, 2012, $1.25 billion aggregate principal amount of 7.119% senior notes due December 15, 2017 and $0.5 billion aggregate principal amount of 7.768% senior notes due December 15, 2037. The notes were sold in a private placement to a syndicate of investment banks led by Lehman Brothers Inc., Banc of America Securities LLC and Deutsche Bank Securities Inc., and resold by the initial purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. The notes are the senior unsecured obligati ons of NGPL PipeCo and rank equally in right of payment with any of NGPL PipeCo’s future unsecured senior debt. The senior notes are redeemable in whole or in part, at our option at any time, at a price equal to 100% of the principal amount of the notes plus accrued interest to the redemption date plus a make-whole premium. The indenture for the senior notes includes covenants that, among other things, limit our ability and the ability of our subsidiaries to (i) create liens that secure debt, (ii) enter into sale-leaseback transactions, (iii) incur debt, subject to a leverage test, (iv) enter into business outside its present business and (v) merge or consolidate with, or sell, lease or transfer its assets substantially as an entirety to another entity. In addition, if we experience certain kinds of changes of control coupled with a ratings downgrade such that the notes cease to have an investment grade rating, it must give the holders of the notes the opportunity to sell their senior notes to us at 10 1% of their principal amount, plus accrued and unpaid interest. Our senior notes have a carrying value of $3.0 billion and a fair value of approximately $3.2 billion at June 30, 2009.

Maturities of long-term debt for the five years ended June 30, 2014 include the $1.25 billion of 6.514% senior notes, which mature on December 15, 2012.

June 2009 NGPL PipeCo LLC Financials

can be used for general corporate purposes. The credit facility includes financial covenants and events of default that are common in such arrangements. Loans under the credit facility may be Base Rate Loans or Eurodollar Rate Loans. Interest rates on Base Rate Loans are based on an interest rate spread plus the higher of (1) the Federal Funds Rate plus one-half of one percent or (2) the publicly announced Bank of America “prime rate.” Interest rates on Eurodollar Rate Loans are based on an interest rate spread plus the British Bankers Association LIBOR Rate.

At June 30, 2009, there were $28.3 million of borrowings outstanding under this facility. After deducting outstanding letters of credit, the remaining borrowing capacity under this facility at June 30, 2009 was approximately $156.6 million. For the year ended June 30, 2009, average daily borrowings under this facility were approximately $28.9 million and the average interest rate on outstanding borrowings was 3.1%. At June 30, 2008, there were $172.0 million of borrowings outstanding under this facility. For the period February 15 through June 30, 2008, average daily borrowings under this facility were approximately $26.1 million and the average interest rate on outstanding borrowings was 3.5%. Due to the fact that borrowings under this facility are short-term in nature and that the interest rates applicable to borrowings under the facility float with current market rates, the carrying value of our borrowings under this facility approximate fair value.

On October 17, 2007, we declared a dividend in the amount of $2.85 billion to Kinder Morgan, our then sole shareholder. The dividend was paid on October 17, 2007, by issuing an interest bearing promissory note to Kinder Morgan in the principal amount of $2.85 billion. Interest on the note was based on the London Interbank Offered Rate plus 0.875%, payable in arrears at the end of each calendar quarter. The note and $50.1 million of accrued interest were paid in February 2008 upon the closing of the Myria Transaction (see Note 1).

8. Risk Management

We enter into derivative contracts for the purpose of hedging exposures that accompany our normal business activities. We designate our derivative instruments as hedges of various exposures as discussed following, and test the effectiveness of changes in the value of these hedging instruments with the risk being hedged. Hedge ineffectiveness is recognized in income in the period in which it occurs.

Our normal business activities expose us to risks associated with changes in the market price of natural gas. Specifically, these risks are associated with (i) pre-existing or anticipated physical natural gas sales, (ii) natural gas purchases and (iii) natural gas system use and storage. Price changes in natural gas are often caused by shifts in the supply and demand for this commodity, as well as its locations. All of our derivative activities relating to the mitigation of these risks were designated and qualified as cash flow hedges for all periods presented. We recognized pre-tax gains of $2.3 million and pre-tax losses of $2.8 million in the years ended June 30, 2009 and 2008, respectively as a result of ineffectiveness of these hedges, which amounts are reported within the caption “Natural Gas Sales” in the accompa nying Consolidated and Combined Statement of Operations. There was no component of these derivatives instruments’ gain or loss excluded from the assessment of hedge effectiveness.

As hedged sales and purchases take place and we record them into earnings, we also reclassify the gains and losses included in accumulated other comprehensive income into earnings. During the year ended June 30, 2009, we reclassified approximately $37.6 million of accumulated other comprehensive income into earnings as a result of hedged forecasted transactions occurring during the period. During the year ended June 30, 2008, we reclassified $1.0 million of accumulated other comprehensive income into earnings as a result of hedged forecasted transactions occurring during the period and $0.5 million of other comprehensive loss into income due to hedges no longer being highly correlated with the hedged items. We expect to reclassify into earnings, during the next twelve months, substantially all of our $27.3 million balance of accumu lated other comprehensive income at June 30, 2009, representing unrecognized net gains on derivative activities.

June 2009 NGPL PipeCo LLC Financials

their ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk in the future.

SFAS No. 157

On September 15, 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS No. 157”). In general, fair value measurements and disclosures are made in accordance with the provisions of this Statement and, while not requiring material new fair value measurements, SFAS No. 157 established a single definition of fair value in generally accepted accounting principles and expanded disclosures about fair value measurements. The provisions of this Statement apply to other accounting pronouncements that require or permit fair value measurements; the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. On February 12, 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, < font style="DISPLAY: inline; FONT-STYLE: italic">Effective Date of FASB Statement No. 157, (“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

Accordingly, we have not applied the provisions of SFAS No. 157 to (i) nonfinancial assets and liabilities initially measured at fair value in business combinations; (ii) other nonfinancial assets measured at fair value in conjunction with impairment assessments; and (iii) asset retirement obligations initially measured at fair value, although the fair value measurements we have made in these circumstances are not necessarily different from those that would be made had the provisions of SFAS No. 157 been applied. We adopted the remainder of SFAS No. 157 effective July 1, 2008, and the adoption did not have a material impact on our balance sheet, statement of operations, or statement of cash flows since we already apply its basic concepts in measuring fair value.

On October 10, 2008, the FASB issued FSP No. 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 clarification regarding the application of SFAS No. 157 in inactive markets. The provisions of FSP FAS 157-3 are effective immediately. This Staff Position did not have a material impact on our Consolidated and Combined Financial Statements.

SFAS No. 157 established a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defined three levels of inputs to the fair value measurement process, and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the SFAS No. 157 hierarchy are as follows:

●

Level 1 Inputs - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

●

June 2009 NGPL PipeCo LLC Financials

OTC derivatives are valued using models utilizing a variety of inputs including contractual terms; commodity, interest rate and foreign currency curves; and measures of volatility. The selection of a particular model and particular inputs to value an OTC derivative contract depends upon the contractual terms of the instrument as well as the availability of pricing information in the market. We and our affiliated companies use similar models to value similar instruments. For OTC derivative contracts that trade in liquid markets, such as generic forwards and swaps, model inputs can generally be verified and model selection does not involve significant management judgment. Such contracts are typically classified within Level 2 of the fair value hierarchy.

The following tables summarize the fair value measurements of our energy commodity derivative contracts based on the three levels established by SFAS No. 157:

	Asset Fair Value Measurements as of June 30, 2009 Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Energy Commodity Derivative Contracts	$	46,178	$	18,742	$	26,877	$	559

	Liability Fair Value Measurements as of June 30, 2009 Using
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(In thousands)
Energy Commodity Derivative Contracts	$	(9,032	)	$	-	$	(1,351	)	$	(7,681	)

The table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts:

	Year Ended June 30, 2009
	(In thousands)
Net Asset (Liability)
Beginning Balance	$	15,774
Realized and Unrealized Net Gains		1,845
Settlements		(24,741	)
Balance as of June 30, 2009	$	(7,122	)
Change in Unrealized Net Gains Relating to
Contracts Still Held as of June 30, 2009	$	(6,286	)

June 2009 NGPL PipeCo LLC Financials

9. Commitments and Contingent Liabilities

(A) Leases

Expenses incurred under operating leases were $1.5 million and $3.1 million for the years ended June 30, 2009 and 2008, respectively. Future minimum commitments under major non-cancelable operating leases as of June 30, 2009 are as follows:

Fiscal Year	Operating Leases
	(In thousands)
2010	$	380
2011		392
2012		403
2013		416
2014		428
Thereafter		2,130
Total	$	4,149

(B) Capital Expenditures

Approximately $25.1 million had been committed for the purchase of property, plant and equipment at June 30, 2009.

10. Risks, Uncertainties and Concentration of Credit Risk

Our operations consist principally of natural gas transportation and storage services in interstate commerce. Our operations are principally regulated by the FERC (see Note 3). As such, our results of operations, cash flows and financial condition are subject to certain risks which include, among other things:

●

a general economic downturn could adversely affect the demand for our products and services and our ability to secure investment capital necessary to maintain or expand our systems and operations;

●

the current or future distressed financial condition of customers could have an adverse impact on our operations in the event these customers are unable to pay us for the products or services we provide;

●

increased competition from existing or future natural gas transmission and storage operators could lead to lower levels of profits and adversely impact our ability to recontract for expiring transportation and storage capacity at favorable rates;

●

the rates we charge shippers on our pipeline systems are subject to regulatory approval and oversight and could be negatively impacted by rate proceedings;

●

environmental and other regulations could result in increased operating costs and capital costs; and

●

our exposure to volatility in natural gas prices could adversely impact our earnings and cash flows.

With respect to our hedging activities (see Note 8), we enter into derivative contracts with a number of parties, all of which have investment grade credit ratings. While we enter into derivative transactions principally with investment grade counterparties and actively monitor their ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk in the future.

In addition, virtually all of our revenues are derived from companies in the domestic natural gas industry. This concentration could impact our overall exposure to credit risk since these customers may be impacted by similar economic or other conditions. To help mitigate our credit risk, we evaluate our customers’ financial condition and, where appropriate, require prepayment, collateral or financial guarantees and letters of credit. In support of credit extended to certain customers, we had received prepayments of $1.8 million and $2.4 million as of June 30, 2009 and 2008, respectively, included in the caption “Current Liabilities: Other” in the accompanying Consolidated and Combined Balance Sheet.

Natural had no customers that accounted for more than 10% of total revenues in calendar 2008.

June 2009 NGPL PipeCo LLC Financials

base. Natural has a number of individually significant customers, including local natural gas distribution companies in the greater Chicago area and major natural gas marketers and, during calendar 2008, approximately 50% of its operating revenues from tariff services were attributable to its nine largest customers.

11. Recent Accounting Pronouncements

SFAS No. 157 and FASB Staff Position Nos. FAS 157-2 and FAS 157-3

For information on SFAS No. 157 and FASB Staff Position Nos. FAS 157-2 and FAS 157-3, see Note 7, Risk Management.

SFAS No. 159

On February 15, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement provides companies with an option to report selected financial assets and liabilities at fair value. The Statement’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.

SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The Statement does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157, discussed in Note 7, and SFAS No. 107, Disclosures about Fair Value of Financial Instruments.

This Statement was adopted by us effective July 1, 2008, at which time no financial assets or liabilities not previously required to be recorded at fair value by other authoritative literature were designated to be recorded at fair value. As such, the adoption of this Statement did not have any impact on our Consolidated and Combined Financial Statements.

SFAS. No. 141 (R) and FASB Staff Position 141(R)-1

On December 4, 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. Although this statement amends and replaces SFAS No. 141, it retains the fundamental requirements in SFAS No. 141 that (i) the purchase method of accounting be used for all business combinations; and (ii) an acquirer be identified for each business combination. This Statement applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree), including combinations achieved without the transfer of consideration; however, this Statement does not apply to a combination between entities or businesses under common control.

Significant provisions of SFAS No. 141(R) concern principles and requirements for how an acquirer (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (July 1, 2009 for us). Early adoption is not permitted. We do not anticipate that the adoption of th is Statement will have a material effect on our Consolidated and Combined Financial Statements.

On April 1, 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This FSP amends the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination under SFAS No. 141(R). This FSP carries forward the requirements in SFAS No. 141(R) for acquired contingencies, which would require that such contingencies be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. Otherwise, companies would typically account for the acquired contingencies in accordance with SFAS No. 5, Accounting for Contingencies. This FSP has the same effective date as SFAS No. 141(R), and we do not anticipate that its adoption will have a material effect on our Consolidated and Combined Financial Statements.

SFAS No. 160

On December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. This Statement changes the accounting and reporting for noncontrolling interests in consolidated

June 2009 NGPL PipeCo LLC Financials

financial statements. A noncontrolling interest, sometimes referred to as a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.

Specifically, SFAS No. 160 establishes accounting and reporting standards that require (i) the ownership interests in subsidiaries held by parties other than the parent to be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; (ii) the equity amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated income statement (consolidated net income and comprehensive income will be determined without deducting minority interest, however, earnings-per-share information will continue to be calculated on the basis of the net income attributable to the parent’s shareholders); and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently and similarly—as equity transactions.

This Statement is effective for fiscal years, and interim periods within those fiscal years beginning on or after December 15, 2008 (July 1, 2009 for us). Early adoption is not permitted. SFAS No. 160 is to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for its presentation and disclosure requirements, which are to be applied retrospectively for all periods presented. We do not anticipate that the adoption of this statement will have a material effect on our Consolidated and Combined Financial Statements.

SFAS No. 161

On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. This Statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and is intended to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows through enhanced disclosure requirements. The enhanced disclosures include, among other things, (i) a tabular summary of the fair value of derivative instruments and their gains and losses, (ii) disclosure of derivative features that are credit-risk–related to provide more information regarding an entity’s liquidity, and (iii) cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments.

This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (July 1, 2009 for us). Early application is encouraged. We do not anticipate that the adoption of this statement will have a material effect on our Consolidated and Combined Financial Statements.

FSP No. FAS 142-3

On April 25, 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 (July 1, 2009 for us), and interim periods within those fiscal years. Early adoption is prohibited. We do not anticipate that the adoption of this FSP will have a material effect on our Consolidated and Combined Financial Statements.

EITF 08-6

On November 24, 2008, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No. 08-6, Equity Method Investment Accounting Considerations (“EITF 08-6”). EITF 08-6 clarifies certain accounting and impairment considerations involving equity method investments. This Issue is effective for fiscal years beginning on or after December 15, 2008 (July 1, 2009 for us), and interim periods within those fiscal years. The guidance in EITF 08-6 is to be applied prospectively for all financial statements presented. We do not anticipate that the adoption of EITF 08-6 will have a material effect on our Consolidated and Combined Financial Statements.

FSP No. FAS 157-4

FSP No. FAS 107-1 and APB 28-1

FSP No. FAS 115-2 and FAS 124-2

On April 9, 2009, the FASB issued three separate FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for making fair value measurements more consistent with the principles presented in SFAS No. 157, Fair Value Measurements. This FSP provides additional guidance to highlight and expand on the factors that should be considered in estimating fair value when there has been a significant decrease in market activity for a financia l asset.

June 2009 NGPL PipeCo LLC Financials

FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting by increasing the frequency of fair value disclosures from annual to quarterly, in order to provide financial statement users with more timely information about the effects of current market conditions on their financial instruments. This FSP requires us to disclose in our interim financial statements the fair value of all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, as well as the method(s) and significant assumptions we use to estimate the fair value of those financial instruments.

FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. This FSP changes (i) the method for determining whether an other-than-temporary impairment exists for debt securities and (ii) the amount of an impairment charge to be recorded in earnings.

For us, each of these three FSPs became effective June 30, 2009; however, the adoption of these FSPs did not have a material impact on our Consolidated and Combined Financial Statements.

SFAS No. 165

On May 28, 2009, the FASB issued SFAS No. 165, Subsequent Events. This Statement establishes general standards of accounting for and disclosure of subsequent events—events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This Statement was effective for interim and annual periods ending after June 15, 2009. For us, this Statement became effective June 30, 2009, and the adoption of this Statement did not have a material impact on our Consolidated and Combined Financial Statements. For more information on our disclosure of subsequent events, see Note 1.

SFAS Nos. 166 and 167

On June 12, 2009, the FASB published SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 and SFAS No. 167, Amendments to FASB Interpretation No. 46(R). The Statements change the way entities account for securitizations and special-purpose entities. SFAS No. 166 is a revision of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS No. 167 is a revis ion to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.

Both Statements Nos. 166 and 167 will be effective at the start of an entity’s first fiscal year beginning after November 15, 2009 (July 1, 2010 for us). We do not expect the adoption of these Statements to have a material impact on our Consolidated and Combined Financial Statements.

SFAS No. 168 and the Financial Accounting Standards Board’s Accounting Standards Codification

On June 3, 2009, the FASB voted to approve its Accounting Standards Codification as the single source of authoritative nongovernmental U.S. GAAP. The move was officially effected by the June 29, 2009 issuance of SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principle—a replacement of SFAS No. 162. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. In other words, the GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and nonauthoritative.

While the Codification does not change U.S. GAAP, it introduces a new structure—reorganizing the thousands of pre-Codification U.S. GAAP pronouncements into approximately 90 accounting topics and displaying all topics consistently. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants, and the Codification includes relevant SEC guidance that follows the same topical structure in separate sections. All guidance contained in the Codification carries an equal level of authority.

The Codification will be effective for interim and annual periods ending after September 15, 2009. The adoption of the Accounting Standards Codification will affect the way we reference U.S. GAAP in our Consolidated and Combined Financial Statements and in our accounting policies; however, we do not expect the adoption to have any direct effect on our Consolidated and Combined Financial Statements.

June 2009 NGPL PipeCo LLC Financials

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

June 2009 NGPL PipeCo LLC Financials

General

In this report, unless the context requires otherwise, references to “we,” “us,” “our,” or the “Company” are intended to mean NGPL PipeCo LLC (“NGPL PipeCo”) and its consolidated subsidiaries. The following discussion should be read in conjunction with the accompanying Consolidated and Combined Financial Statements and related Notes. NGPL PipeCo is 80% owned by Myria Acquisition LLC (formerly Myria Acquisition, Inc.), a wholly owned subsidiary of Myria Holdings Inc. and 20% owned by NGPL Holdco Inc., a wholly owned subsidiary of Kinder Morgan, Inc. (“Kinder Morgan”). Kinder Morgan, Inc.’s name was changed to Knight Inc. on May 31, 2007, upon completion of the “Going Private” transaction (see Note 2(Q) of the accompanying Notes to Consolidated and Combined Financial Statements) and was changed back to Kinder Morgan, Inc. in July 2009. Kinder Morgan operates our assets pursuant to the 15-year Operations and Reimbursement Agreement for Natural Gas Pipeline Company of America LLC dated as of February 15, 2008 (the “Operating Agreement”).

Natural owns investments in two joint ventures, Horizon Pipeline Company, L.L.C. (“Horizon”), which is 50% owned and accounted for under the equity method, and Canyon Creek Compression Company (“Canyon”), which is 70% owned and is consolidated into the accompanying Consolidated and Combined Financial Statements. We recently made a regulatory abandonment filing on Canyon (see Note 3 of the accompanying Notes to Consolidated and Combined Financial Statements for additional information).

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on our Consolidated and Combined Financial Statements, prepared in accordance with accounting principles generally accepted in the United States of America and contained within this report. Certain amounts included in or affecting our financial statements and related disclosure must be estimated, requiring us to make certain assumptions with respect to values or conditions, which cannot be known with certainty at the time the financial statements are prepared. The reported amounts of our assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. We evaluate these estimates on an ongoing basis, 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.

Intangible assets are those assets which provide future economic benefit but have no physical substance. We account for our intangible assets according to the provisions of SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. These accounting pronouncements introduced the concept of indefinite life intangible assets and provided that all identifiable intangible assets having indefinite useful economic lives, including goodwill, will not be subject to periodic amortization. Such assets are not to be amortized unless and until their lives are determined to be finite. Instead, the carrying amount of a recognized intangible asset with an indefinite useful life must be tested for impair ment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. We use an annual impairment measurement date of May 31.

June 2009 NGPL PipeCo LLC Financials

As a result of the Going Private transaction, as of June 30, 2009 and 2008, our goodwill was $5.014 billion (see Note 2(Q) of the accompanying Notes to Consolidated and Combined Financial Statements). We tested the goodwill associated with the Going Private transaction for impairment at May 31, 2009 and concluded that no impairment was required.

Results of Operations

	Year Ended June 30,
	2009			2008
	(In thousands)
Operating Revenues	$	1,325,196		$	1,191,329
Purchases and Other Costs of Sales		(399,301	)		(326,631	)
Other Operating Expenses, Excluding Depreciation		(244,256	)		(215,580	)
Operating Income Before Depreciation		681,639			649,118
Other Income and (Expenses), Excluding Interest Expense		11,242			17,706
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)		692,881			666,824
Depreciation Expense		(77,020	)		(75,126	)
Interest Expense, Net		(212,807	)		(157,350	)
Income Before Income Taxes		403,054			434,348
Income Taxes		(165,188	)		(161,371	)

Net Income	$	237,866		$	272,977

Operating revenues increased by $133.9 million (11%) from the year ended June 30, 2008 to the year ended June 30, 2009. Gross profit (operating revenues less purchases and other costs of sales) increased $61.2 million (7%) from the year ended June 30, 2008 to the year ended June 30, 2009. Results for fiscal 2009, relative to 2008, included an increase of $96.5 million in gross profit from transportation and storage services, principally resulting from successful re-contracting at higher rates

June 2009 NGPL PipeCo LLC Financials

and increased contract volumes. This positive impact was partially offset by (i) an approximately $18.8 million increase in charges to reduce the carrying value of our current storage gas inventories to reflect the reduced market price of natural gas and (ii) a $16.1 million decrease in gross profits from operational gas sales due principally to the net effects of (1) lower sales volumes primarily driven by reduced cushion gas sales due to the completion of storage expansion projects, (2) increased operational sales volumes from fuel recoveries and (3) reduced natural gas prices. Natural’s operational natural gas sales are primarily made possible by its collection of fuel in-kind pursuant to its transportation tariffs and recovery of storage cushion gas volumes. Our future revenues from operational natural gas sales could be affected by, among other things, the market price of natural gas, the volume of fuel collected in-kind pursuant to our tariffs and our recovery and sales of storage cushion gas.

Other operating expenses, excluding depreciation, increased by $28.7 million (13%) from the year ended June 30, 2008 to the year ended June 30, 2009. Other operating expenses were negatively impacted in fiscal 2009, relative to 2008, principally by (i) a $9.1 million increase in electric compression costs, (ii) the fact that fiscal 2008 results included $6.1 million of emission credit sales, (iii) an additional $5.8 million in 2009 for expenses related to employee benefits, (iv) a $5.5 million increase in transmission mains damage prevention costs, (v) a $5.3 million increase in taxes other than income, principally property taxes, (vi) a $3.7 million increase in compressor station labor and expenses and (vii) $3.1 million in costs related to Hurricane Ike damage. These negative impacts in other operating expenses were partially off set by (i) a $5.8 million gain on the sale of land in fiscal 2009 and (ii) a $5.6 million decrease in costs from stress corrosion cracking rehabilitation projects and pipeline integrity management programs.

Other income and (expenses), excluding interest expense, decreased $6.5 million (37%) from the year ended June 30, 2008 to the year ended June 30, 2009. Other income and expenses were negatively impacted in fiscal 2009, relative to 2008, by a $19.2 million reduction in interest income, principally due to the closing of the Myria Transaction and the release of financing proceeds which generated the interest income from escrow (see Note 1 of the accompanying Notes to Consolidated and Combined Financial Statements). This negative impact was partially offset by an $11.6 million reduction in Corporate Charges from Kinder Morgan, which were terminated after calendar year 2008.

Interest expense, net increased by $55.5 million (35%) from the year ended June 30, 2008 to the year ended June 30, 2009. This increase resulted principally from (i) the net increase in our long-term debt from the issuance of $3.0 billion of senior notes and (ii) interest expense on our revolving credit facility (see Note 7 of the accompanying Notes to Consolidated and Combined Financial Statements).

Income tax expense increased by $3.8 million (2%) from the year ended June 30, 2008 to the year ended June 30, 2009. This increase resulted from the net effects of an increase in our effective tax rate from 37.1% to 41.0%, partially offset by a $31.3 million (7%) reduction in our pre-tax income. The increase in our effective tax rate was principally attributable to an increase in our state income tax rate due to increases in our apportionment factors in several states resulting from our no longer being included in the consolidated or combined state income tax returns of Kinder Morgan after February 14, 2008. See Note 6 of the accompanying Notes to Consolidated and Combined Financial Statements for additional information regarding income taxes.

Substantially all of Natural’s pipeline capacity is committed under firm transportation contracts ranging from one to six years. Under these contracts, over 90% of the revenues are derived from a demand charge and, therefore, are collected regardless of the volume of gas actually transported. The principal impact of the actual level of gas transported is on fuel recoveries, which are received in-kind as volumes move on the system. Approximately 42% of the total transportation volumes committed under Natural’s long-term firm transportation contracts in effect on June 30, 2009 had remaining terms of less than three years. Contracts representing approximately 12% of Natural’s total long-haul, contracted firm transport capacity as of June 30, 2009 are scheduled to expire during the following twelve months. Natural con tinues to pursue the renegotiation, extension and/or replacement of expiring contracts.

Our interstate pipeline and storage systems are subject to rate regulation under the jurisdiction of the FERC. Currently, there are no material proceedings challenging the rates (which include reservation, commodity, surcharges, fuel and gas lost and unaccounted for) on any of our pipeline systems. Nonetheless, shippers on our pipelines do have rights, under certain circumstances prescribed by applicable regulations, to challenge the rates we charge. There can be no assurance that we will not face future challenges to the rates we receive for services on our pipeline systems, including our recovery of fuel in-kind

June 2009 NGPL PipeCo LLC Financials

from shippers, which could have material impacts on our business, financial condition and results of operations.

Liquidity and Capital Resources

Primary Cash Requirements

Our primary cash requirements, in addition to normal operating, general and administrative expenses, are for debt service, capital expenditures to sustain our current pipeline and storage systems and for system expansions, cash payments to Myria for the purpose of making income tax payments and cash distributions to our members. Our capital expenditures, other than sustaining capital expenditures, and our cash distributions to our members are discretionary. Our capital expenditures for calendar 2009 are currently expected to be approximately $92.1 million, of which $27.7 had been expended as of June 30, 2009. We expect to fund these expenditures principally with existing cash and cash flows from operating activities. In addition to utilizing cash generated from operations, we could meet these cash requirements through bo rrowings under our credit facilities or by issuing additional long-term debt.

Invested Capital

The following table illustrates the sources of our invested capital.

	June 30,
	2009			2008
	(Dollars in thousands)
Long-term Debt	$	3,000,000	45.7%	$	3,000,000	45.9%
Minority Interests in Equity of Subsidiaries		497	0.0%		811	0.0%
Members’ Equity		3,558,043	54.3%		3,528,442	54.1%
Total Invested Capital	$	6,558,540	100.0%	$	6,529,253	100.0%

Short-term Liquidity

In addition to cash flows from operations, our principal source of short-term liquidity is our revolving credit facility. As of June 30, 2009, we had available a $200 million five-year credit facility dated February 15, 2008. We had $28.3 million and $172.0 million of borrowings outstanding under this facility at June 30, 2009 and 2008, respectively. After inclusion of applicable outstanding letters of credit that reduce our borrowing capacity under the credit facility, our remaining available borrowing capacity under the facility was $156.6 million and $12.9 million at June 30, 2009 and 2008, respectively.

Long-term Debt

On December 21, 2007, NGPL PipeCo LLC issued $1.25 billion aggregate principal amount of 6.514% senior notes due December 15, 2012, $1.25 billion aggregate principal amount of 7.119% senior notes due December 15, 2017 and $0.5 billion aggregate principal amount of 7.768% senior notes due December 15, 2037. The 2012, 2017 and 2037 senior notes are redeemable in whole or in part, at NGPL PipeCo LLC’s option at any time, at a price equal to 100% of the principal amount of the notes plus accrued interest to the redemption date plus a make-whole premium. The indenture for the senior notes includes covenants that, among other things, limit NGPL PipeCo’s ability and the ability of its subsidiaries to (i) create liens that secure debt, (ii) enter into sale-leaseback transactions, (iii) incur debt, subject to a leverage tes t, (iv) enter into business outside its present business and (v) merge or consolidate with, or sell, lease or transfer its assets substantially as an entirety to another entity. In addition, if NGPL PipeCo experiences certain kinds of changes of control coupled with a ratings downgrade such that the notes cease to have an investment grade rating, it must give the holders of the notes the opportunity to sell their senior notes to NGPL PipeCo at 101% of their principal amount, plus accrued and unpaid interest.

June 2009 NGPL PipeCo LLC Financials

Aggregate Contractual Obligations

			Amount of Commitment Expiration Per Period
	Total		Less than 1 year		2-3 years		4-5 years		After 5 years
	(In millions)
Contractual Obligations:
Long-term Debt:
Principal Payments	$	3,000.0	$	-	$	-	$	1,250.0	$	1,750.0
Interest Payments		2,148.3		209.3		418.5		296.4		1,224.1
Notes Payable		28.3		28.3		-		-		-
Operating Leases		4.1		0.4		0.8		0.8		2.1
Total Contractual Cash Obligations	$	5,180.7	$	238.0	$	419.3	$	1,547.2	$	2,976.2

Other Commercial Commitments:
Letters of Credit	$	15.1	$	15.1	$	-	$	-	$	-
Capital Expenditures	$	25.1	$	25.1	$	-	$	-	$	-

Cash Flows

The following discussion of cash flows should be read in conjunction with the accompanying Consolidated and Combined Statements of Cash Flows and related supplemental disclosures. All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

Net Cash Flows from Operating Activities

Net cash flows provided by operating activities increased from $252.2 million for the year ended June 30, 2008 to $443.6 million for the year ended June 30, 2009, an increase of $191.4 million (75.9%). Cash flows from operating activities were positively impacted in the year ended June 30, 2009, relative to the prior year by (i) a $15.3 million increase in net income, adjusted for certain non-cash items, (ii) an $83.6 million increase in cash flows attributable to changes in gas in underground storage, (iii) an $83.4 million increase in cash flows attributable to changes in other working capital items and (iv) a $10.6 million increase in cash flows attributable to changes in other long-term assets and liabilities. These positive impacts were partially offset by a $1.5 million increase in cash outflows for contributions to a volunta ry employee benefit association.

Net Cash Flows from Investing Activities

Net cash flows from investing activities increased from a use of cash of $265.6 million for the year ended June 30, 2008 to a source of cash of $5.2 million for the year ended June 30, 2009, an increase of $270.8 million. This increase in cash flows principally resulted from (i) a $103.6 million reduction in cash outflows for capital expenditures due, in part, to reduced expenditures for storage expansion projects and (ii) a $181.8 million increase in cash flows from restricted deposits related to our hedging activities upon the return to us, in fiscal 2009, of cash posted as collateral in fiscal 2008. These positive impacts were partially offset by (i) a $10.2 million reduction in cash flows associated with interest earned on financing proceeds held in escrow pending the closing of the Myria transaction in February 2008 and (ii) a $3.6 million reduction in proceeds from sales of assets.

Net Cash Flows from Financing Activities

Net cash flows from financing activities decreased from a source of cash of $29.8 million for the year ended June 30, 2008 to a use of cash of $466.2 million for the year ended June 30, 2009, a decrease of $496.0 million. This decrease in cash flows principally resulted from the offsetting effects of (i) $3.0 billion in long-term debt proceeds received in fiscal 2008, (ii) $2.85 billion paid in fiscal 2008 to retire a note payable to Kinder Morgan, (iii) a decrease of $315.7 million in net cash flows from short-term financing and (iv) an increase of $44.1 million in distributions to members.

Fair Value Measurement

SFAS No. 157, Fair Value Measurements establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring fair value. The hierarchy of valuation techniques is based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect a company’s own assumptions of market participant valuation (unobservable inputs). This framework defines three levels of inputs to the fair value measurement process, and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. In accordance with SFA S No. 157, the lowest level of fair value hierarchy based on these two

June 2009 NGPL PipeCo LLC Financials

types of inputs is designated as Level 3 and is based on prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

As of June 30, 2009, the fair value of our derivative contracts classified as Level 3 under the established fair value hierarchy consisted principally of natural basis swaps and natural gas options. Basis swaps are used in connection with another derivative contract to reduce hedge ineffectiveness by reducing a basis difference between a hedged exposure and a derivative contract. Natural gas options are used to offset the exposure related to certain physical contracts.

The following table summarizes the total fair value asset and liability measurements of our Level 3 energy commodity derivative contracts in accordance with SFAS No. 157.

	Significant Unobservable Inputs (Level 3) At June 30, 2009
	Assets		Liabilities
	(In thousands)
Natural Gas Basis Swaps	$	559	$	7,681

There were no transfers into or out of Level 3 during the period.

The valuation techniques used for the above Level 3 input derivative contracts are as follows:

●

Natural gas basis swaps—values obtained through a pricing service, derived by combining raw inputs from the New York Mercantile Exchange (referred to in this report as NYMEX) with proprietary quantitative models and processes. Although the prices are originating from a liquid market (NYMEX), we believe the incremental effort to further validate these prices would take undue effort and would not materially alter the assumptions. As a result, we have classified the valuation of these derivatives as Level 3.

For our energy commodity derivative contracts, the most observable inputs available are used to determine the fair value of each contract. In the absence of a quoted price for an identical contract in an active market, we use broker quotes for identical or similar contracts, or internally prepared valuation models as primary inputs to determine fair value. No adjustments were made to quotes or prices obtained from brokers and pricing services, and our valuation methods have not changed during the year ended June 30, 2009.

When appropriate, valuations are adjusted for various factors including credit considerations. Such adjustments are generally based on available market evidence, including but not limited to our credit default swap quotes as of June 30, 2009. Collateral agreements with our counterparties serve to reduce our credit exposure and are considered in the adjustment. We adjust the fair value measurements of our energy commodity derivative contracts for credit risk in accordance with SFAS No. 157, and as of June 30, 2009, our consolidated Accumulated Other Comprehensive Income (Loss) balance included a loss of $0.25 million related to discounting the value of our energy commodity derivative net assets for the effect of credit risk.

With the exception of the ineffective portion of our derivative contracts, our energy commodity derivative contracts are accounted for as cash flow hedges. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and associated amendments (“SFAS No. 133”), gains and losses associated with cash flow hedges are reported in “Accumulated Other Comprehensive Income (Loss)” in the accompanying Consolidated and Combined Balance Sheets.

Litigation and Environmental

Refer to Notes 4(A) and 4(B) of the accompanying Notes to Consolidated and Combined Financial Statements for information on our pending environmental and litigation matters, respectively. We believe we have established adequate environmental and legal reserves such that the resolution of pending environmental matters and litigation will not have a material adverse impact on our business, cash flows, financial position or results of operations. However, changing circumstances could cause these matters to have a material adverse impact.

Regulation

June 2009 NGPL PipeCo LLC Financials

consists of hydrostatic testing, internal electronic testing, or direct assessment of the piping. In addition to the pipeline integrity tests, pipeline companies must implement a qualification program to make certain that employees are properly trained. The United States Department of Transportation has approved our qualification program. We believe that we are in substantial compliance with this law’s requirements and have integrated appropriate aspects of this pipeline safety law into our Operator Qualification Program, which is already in place and functioning.

See Note 3 of the accompanying Notes to Consolidated and Combined Financial Statements for additional information regarding regulatory matters.

Information Regarding Forward-looking Statements

This report 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 are forward-looking statements. Forward-looking statements are not guarantees of perf ormance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. 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 in the United States;

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

changes in our tariff rates, including our recovery of fuel in-kind from shippers on our pipeline systems;

our ability to expand our facilities;

changes in laws or regulations, third-party relations and approvals, decisions of courts, regulators and governmental bodies that may adversely affect our business or our ability to compete;

our indebtedness could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds and/or place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;

interruptions of electric power supply to our facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes;

our ability to obtain insurance coverage without a significant level of self-retention of risk;

acts of nature, sabotage, terrorism or other acts causing damage greater than our insurance coverage limits;

inflation;

interest rates; and

the timing and success of business development efforts.

Delaware		260238387
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class	Name of each exchange on which registered
Class P Common Stock	New York Stock Exchange

	Gross		Net
Developed Acres		74,240		69,558
Undeveloped Acres		8,788		8,129
Total		83,028		77,687

	associated with environmental liability adjustments; (iv) a $1.7 million increase in income resulting from unrealized foreign currency gains on long-term debt transactions; (v) a $0.2 million increase in income from hurricane casualty gains and (vi) $0.5 million decrease in earnings related to assets sold which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting. 2008 amount includes (i) a combined $10.0 million decrease in income from the proposed settlement of certain litigation matters related to KMP’s Pacific operations’ East Line pipeline and other legal liability adjustments; (ii) a combined $10.0 million decrease in income associated with environmental liability adjustments; (iii) a $3.6 million decrease in income resulting from unrealized foreign currency losses on long-term debt transactions; (iv) a combined $2.7 million decrease in income resulting from refined product inventory losses and certain property, plant and equipment write-offs; (v) a $0.3 million decrease in income related to hurricane clean-up and repair activities, (vi) non-cash goodwill impairment adjustments of $1,266.5 million and (vii) $0.4 million decrease in earnings related to assets sold which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(c)	2010 amount includes (i) a $0.4 million increase in income from certain measurement period adjustments related to KMP’s October 1, 2009 natural gas treating business acquisition and (ii) a combined $7.4 million decrease in earnings related to sales and valuation adjustments of assets which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting. 2009 amount includes (i) a $7.8 million increase in income from hurricane casualty gains; (ii) a decrease in income of $5.6 million resulting from unrealized mark to market gains and losses due to the discontinuance of hedge accounting at Casper Douglas; (iii) a $0.1 million increase in expense associated with adjustments to long-term receivables for environmental cost recoveries and (iv) a combined $0.9 million de crease in earnings related sales and valuation adjustments of assets which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting. 2008 amount includes (i) a combined $5.6 million increase in income resulting from unrealized mark to market gains and losses due to the discontinuance of hedge accounting at Casper Douglas; (ii) a $0.5 million decrease in expense associated with environmental liability adjustments; (iii) a $5.0 million increase in expense related to hurricane clean-up and repair activities; (iv) a $0.3 million increase in expense associated with legal liability adjustments; (v) a non-cash goodwill impairment adjustments of $2,090.2 million and (vi) a combined $1.7 million decrease in earnings related to sales and valuation adjustments of assets which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(d)	2010 amount includes (i) a $5.3 million unrealized gain on derivative contracts used to hedge forecasted crude oil sales and (ii) increases in earnings resulting from valuation adjustments of $52.7 million related to derivative contracts in place at the time of the Going Private Transaction and recorded in the application of the purchase method of accounting. 2009 amount includes (i) a $13.5 million unrealized loss on derivative contracts used to hedge forecasted crude oil sales and (ii) increases in earnings resulting from valuation adjustments of $95.6 million related to derivative contracts in place at the time of the Going Private Transaction and recorded in the application of the purchase method of accounting. 2008 amount includes (i) a $0.3 million increase in expense associated with environmental liability adjustme nts and (ii) increases in earnings resulting from valuation adjustments of $136.2 million related to derivative contracts in place at the time of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(e)	2010 amount includes (i) a combined $7.4 million decrease in income from casualty insurance deductibles and the write-off of assets related to casualty losses; (ii) a combined $4.1 million decrease in income from the amounts previously reported in KMP’s 2010 fourth quarter earnings release issued on January 19, 2011, associated with a write-down of the carrying value of net assets to be sold to their estimated fair values as of December 31, 2010; (iii) a $0.6 million increase in expense related to storm and flood clean-up and repair activities; (iv) a $6.7 million casualty indemnification gain related to a 2008 fire at the Pasadena, Texas liquids terminals; (v) a $0.2 million decrease in expense from certain measurement period adjustments related to KMP’s March 5, 2010 Slay Industries terminal acquisition and (vi) a decr eases in earnings of $1.0 million related to assets sold, which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting. 2009 amount includes (i) a combined $24.0 million increase in income from hurricane and fire casualty gains and clean-up and repair activities; (ii) a $0.5 million decrease in expense associated with legal liability adjustments related to a litigation matter involving the Staten Island liquids terminal; (iii) a $0.9 million increase in expense associated with environmental liability adjustments; (iv) a $0.7 million increase in expense associated with adjustments to long-term receivables for environmental cost recoveries and (v) a decreases in earnings of $2.6 million related to assets sold, which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting. 2008 amount includes (i) a combined $7.2 million decrease in income related to fire da mage and repair activities; (ii) a combined $5.7 million decrease in income related to hurricane clean-up and repair activities; (iii) a combined $2.8 million increase in expense from both the settlement of certain litigation matters related to KMP’s Elizabeth River bulk terminal and its Staten Island liquids terminal, and other legal liability adjustments; (iv) a $0.6 million decrease in expense associated with environmental liability adjustments; (v) a non-cash goodwill impairment charge of $676.6 million and (vi) decreases in earnings of $3.7 million related to assets sold, which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(f)	2009 amount includes 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, and a $3.7 million decrease in expense due to a certain non-cash accounting adjustment related to book tax accruals made by the Express pipeline system. 2008 amount includes a $19.3 million decrease in expense associated with favorable changes in Canadian income tax rates, and a combined $18.9 million increase in expense due to certain non-cash Trans Mountain regulatory accounting adjustments.

	adjustments, and a $0.5 million decrease in expense associated with environmental liability adjustments. Also, amounts include (i) a decrease in earnings of $6.5 million for the year ended 2010 related to a valuation adjustment to cushion gas and (ii) increases in earnings of $0.3 million and $0.8 million for the years ended 2009 and 2008, respectively, related to valuation adjustments to derivative contracts in place. These assets had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(c)	2009 amount includes gains of $7.8 million from hurricane casualty indemnifications. Also, 2010, 2009 and 2008 amounts include $0.9 million, $1.2 million and $3.1 million, respectively, in decreased earnings related to assets sold, and 2008 amount also includes a $0.6 million increase in earnings related to valuation adjustments of assets. These assets had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(d)	2008 amount includes non-cash goodwill impairment adjustments of $2,090.2 million.
(e)	Includes Kinder Morgan Interstate Gas Transmission LLC, Trailblazer Pipeline Company LLC, TransColorado Gas Transmission Company LLC, Rockies Express Pipeline LLC, Midcontinent Express Pipeline LLC, Kinder Morgan Louisiana Pipeline LLC and Texas intrastate natural gas pipeline group pipeline volumes.
(f)	Represents Texas intrastate natural gas pipeline group volumes.

Class A common stock	597,213,410
Class B common stock	100,000,000
Class C common stock	2,462,927
Class P common stock	109,786,590

		Page Number
	PART I
Items 1. and 2.	Business and Properties	5
	(a) General Development of Business	5
	Organizational Structure	5
	Recent Developments	6
	(b) Financial Information about Business Segments	12
	(c) Narrative Description of Business	12
	Business Strategy	12
	Business Segments	13
	Products Pipelines—KMP	13
	Natural Gas Pipelines—KMP	18
	CO2—KMP	25
	Terminals—KMP	29
	Kinder Morgan Canada—KMP	32
	NGPL PipeCo LLC	33
	Major Customers	34
	Regulation	34
	Environmental Matters	37
	Other	39
	(d) Financial Information about Geographic Areas	40
	(e) Available Information	40
Item 1A.	Risk Factors	41
Item 1B.	Unresolved Staff Comments	57
Item 3.	Legal Proceedings	57
Item 4.	(Removed and Reserved)	57

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder
	Matters and Issuer Purchases of Equity Securities	58
Item 6.	Selected Financial Data	58
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
	General	60
	Critical Accounting Policies and Estimates	63
	Results of Operations	66
	Income Taxes—Continuing Operations	87
	Liquidity and Capital Resources	87
	Cash Flows	92
	Dividend Policy and Distributions	94
	Recent Accounting Pronouncements	97
	Information Regarding Forward-Looking Statements	97
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	99
	Energy Commodity Market Risk	99
	Interest Rate Risk	100
Item 8.	Financial Statements and Supplementary Data	101
Item 9.	Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure	101
Item 9A.	Controls and Procedures	102
	Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures	102
	Management’s Report on Internal Control Over Financial Reporting	102
	Changes in Internal Control Over Financial Reporting	102
Item 9B.	Other Information	102

	Productive Wells (a)				Service Wells (b)				Drilling Wells (c)
	Gross		Net		Gross		Net		Gross		Net
Crude Oil		2,187		1,351		997		738		3		3
Natural Gas		5		2		-		-		-		-
Total Wells		2,192		1,353		997		738		3		3

(a)	Includes active wells and wells temporarily shut-in. As of December 31, 2010, KMP did not operate any productive wells with multiple completions.
(b)	Consists of injection, water supply, disposal wells and service wells temporarily shut-in. A disposal well is used for disposal of salt water into an underground formation; a service well is a well drilled in a known oil field in order to inject liquids that enhance recovery or dispose of salt water.
(c)	Consists of development wells in the process of being drilled as of December 31, 2010. A development well is a well drilled in an already discovered oil field.

	Successor Company								Predecessor Company
	As of December 31,								As of December 31,
	2010		2009		2008		2007		2006
	(In millions)								(In millions)
Net property, plant and equipment	$	17,070.7	$	16,803.5	$	16,109.8	$	14,803.9	$	18,839.6
Total assets	$	28,908.1	$	27,581.0	$	25,444.9	$	36,195.8	$	26,795.6
Long-term debt – Kinder Morgan Kansas, Inc.(h)	$	2,873.8	$	2,872.2	$	2,863.1	$	8,618.4	$	6,630.1
Long-term debt – KMP(i)	$	10,282.8	$	10,007.5	$	8,292.7	$	6,479.3	$	4,384.3

(a)	Includes a goodwill impairment charge of $377.1 million in the five months ended May 31, 2007 relating to KMP’s acquisition of Trans Mountain pipeline from us on April 30, 2007.
(b)	Includes non-cash goodwill impairment charges of $4,033.3 million in 2008.
(c)	Includes a $200.0 million settlement related to the Going Private Transaction litigation and a $158.0 million litigation reserve related to KMP’s West Coast pipeline rate cases in 2010.
(d)	Includes a non-cash impairment charge of $430.0 million in 2010 to reduce the carrying value of our investment in NGPL PipeCo LLC.
(e)	Includes a non-cash goodwill impairment charge of $650.5 million in 2006 to reduce the carrying value of Terasen Inc.
(f)	Capital expenditures shown are for continuing operations only.
(g)	For the purpose of computing the ratio of earnings to fixed charges, earnings are defined as income from continuing operations before income taxes, and before non-controlling interests in pre-tax income of consolidated subsidiaries with no fixed charges, equity earnings (including amortization of excess cost of equity investments) and unamortized capitalized interest, plus fixed charges and distributed income of equity investees. Fixed charges are defined as the sum of interest on all indebtedness (excluding capitalized interest), amortization of debt issuance costs and that portion of rental expense which we believe to be representative of an interest factor.
(h)	Excludes value of interest rate swaps. Increases to long-term debt for value of interest rate swaps totaled $52.3 million, $28.7 million, $14.9 million, $46.3 million and $3.8 million as of December 31, 2010, 2009, 2008, 2007 and 2006, respectively.
(i)	Excludes value of interest rate swaps. Increases to long-term debt for value of interest rate swaps totaled $604.0 million, $332.3 million, $956.1 million, $153.4 million and $42.6 million as of December 31, 2010, 2009, 2008, 2007 and 2006, respectively.
(j)	For the five months ended May 31, 2007 and the year ended December 31, 2008, fixed charges exceeded earnings by $35.6 million and $3,024.9 million, respectively, primarily due to non-cash goodwill impairment charges discussed above in footnotes (a) and (b).

(g)	2010 amount includes a non-cash investment impairment charge, which we recorded in the amount of $430.0 million (pre-tax); see Note 6 of our consolidated financial statements included elsewhere in this report. Effective February 15, 2008, we sold an 80% ownership interest in NGPL PipeCo LLC. As a result of the sale, beginning February 15, 2008, we account for our 20% ownership interest in NGPL PipeCo LLC as an equity method investment.
(h)	General administration fixed fee charges under an Operations and Reimbursement Agreement.
(i)	Includes unallocated litigation and environmental expenses. 2010 amount includes (i) a $4.2 million increase in expense for certain asset and business acquisition costs; (ii) a $1.6 million increase in legal expense associated with items disclosed in these footnotes such as legal settlements and pipeline failures; (iii) a $0.2 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season and (iv) a $200 million (pre-tax) Going Private Transaction litigation settlement; see Note 16 of our consolidated financial statements included elsewhere in this report. 2009 amount includes (i) a $2.3 million increase in expense for certain asset and business acquisition costs, which under prior accounting standards would have been capitalized; (ii) a $1.3 million increase in expense for certain land t ransfer taxes associated with the April 30, 2007 Trans Mountain acquisition and (iii) a $2.7 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season. 2008 amount includes (i) a $0.9 million increase in expense for certain Express pipeline system acquisition costs; (ii) a $0.4 million increase in expense resulting from the write-off of certain acquisition costs, which under prior accounting standards would have been capitalized; (iii) a $0.1 million increase in expense related to hurricane clean-up and repair activities and (iv) a $2.0 million decrease in expense due to the adjustment of certain insurance related liabilities.
(j)	2010 and 2009 amounts include increase in imputed interest expense of $1.1 million and $1.6 million, respectively, related to the January 1, 2007 Cochin Pipeline acquisition. Also, 2010 amount includes a gain of $16.1 million related to the sale of Triton Power on October 22, 2010. 2008 amount includes (i) a $7.1 million decrease in interest expense due to certain non-cash Trans Mountain regulatory accounting adjustments; (ii) a $2.0 million increase in imputed interest expense related to the January 1, 2007 Cochin Pipeline acquisition and (iii) a $0.2 million increase in interest expense related to the proposed settlement of certain litigation matters related to KMP Pacific operations’ East Line pipeline.
(k)	2010 amount includes a reduction of approximately $107 million (after-tax) in the income we recognized from our interest in the general partner due to a KMP interim capital transaction. See Note 16 of our consolidated financial statements included elsewhere in this report.

(a)	2008 amount includes a $5.1 million decrease in revenues from the proposed settlement of certain litigation matters related to the Pacific operations’ East Line pipeline.
(b)	2010, 2009 and 2008 amounts include increases in expense of $2.5 million, $11.5 million and $9.2 million, respectively, associated with environmental liability adjustments. 2010 amount also includes a $172.0 million increase in expense associated with rate case liability adjustments, and a $14.1 million increase in expense associated with environmental clean-up expenses and the demolition of physical assets in preparation for the sale of KMP’s Gaffey Street, California land. 2009 amount also includes a $23.0 million increase in expense associated with adjustments to long-term receivables for environmental cost recoveries, and an $18.0 million increase in expense associated with rate case and other legal liability adjustments. 2008 amount also includes a combined $5.0 million increase in expense from the p roposed settlement of certain litigation matters related to the Pacific operations’ East Line pipeline and other legal liability adjustments, a $0.5 million increase in expense resulting from refined product inventory losses, and a $0.2 million increase in expense related to hurricane clean-up and repair activities.
(c)	2010 amount includes disposal losses of $3.9 million related to the retirement of KMP’s Gaffey Street, California land. 2009 amount includes a gain of $0.2 million from hurricane casualty indemnifications. 2008 amount includes a $2.2 million decrease in income resulting from certain property, plant and equipment write-offs. Also, 2010, 2009 and 2008 amounts include $7.6 million, $0.5 million and $0.4 million, respectively, of decreases in earnings related to property disposal losses, which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(d)	2008 amount includes non-cash goodwill impairment adjustments of $1,266.5 million.
(e)	2008 amount includes an expense of $1.3 million associated with the portion of environmental liability adjustments on Plantation Pipe Line Company, and an expense of $0.1 million reflecting KMP’s portion of Plantation Pipe Line Company’s expenses related to hurricane clean-up and repair activities.
(f)	2010, 2009 and 2008 amounts include a $0.7 million increase in income, a $1.7 million increase in income, and a $3.6 million decrease in income, respectively, resulting from unrealized foreign currency gains and losses on long-term debt transactions. 2010 amount also includes an $8.8 million gain from the sale of a 50% ownership interest in the Cypress pipeline system and the revaluation of KMP’s remaining interest in the Cypress pipeline to its fair value.
(g)	2008 amount includes a $0.5 million decrease in expense reflecting the tax effect (savings) on a proportionate share of environmental expenses incurred by Plantation Pipe Line Company and described in footnote (e), and a $0.1 million decrease in expense reflecting the tax effect (savings) on the incremental legal expenses described in footnote (b).
(h)	Volumes include ethanol pipeline volumes.
(i)	Includes Pacific, Plantation, Calnev, Central Florida, Cochin, and Cypress pipeline volumes.
(j)	Represents total ethanol volumes, including ethanol pipeline volumes.

	EBDA increase/(decrease)					Revenues increase/(decrease)
	(In millions, except percentages)
Pacific operations	$	40.0		15	%	$	49.9		13	%
Southeast Terminals		14.9		28	%		12.0		15	%
West Coast Terminals		10.5		16	%		10.7		12	%
Plantation Pipeline		3.2		8	%		(0.3	)	(1	)%
Central Florida Pipeline		2.9		6	%		1.4		2	%
Cochin Pipeline		(20.4	)	(38	)%		(16.6	)	(27	)%
All others (including eliminations)		1.3		1	%		(0.7	)	(1	)%
Total Products Pipelines—KMP	$	52.4		8	%	$	56.4		7	%

(a)	2010 and 2009 amounts include unrealized gains of $5.3 million (from increases in revenues) and unrealized losses of $13.5 million (from decreases in revenues), respectively, on derivative contracts used to hedge forecasted crude oil sales. Also, amounts include increases in segment earnings resulting from valuation adjustments of $52.7 million, 95.6 million and $136.2 million for the years ended 2010, 2009 and 2008, respectively, related to derivative contracts in place at the time of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(b)	2008 amount includes a $0.3 million increase in expense associated with environmental liability adjustments.
(c)	Includes Cortez, Central Basin, Canyon Reef Carriers, Centerline, Eastern Shelf and Pecos pipeline volumes.
(d)	Represents 100% of the production from the field. KMP owns an approximately 97% working interest in the SACROC unit and an approximately 50% working interest in the Yates unit.
(e)	Net to KMP after royalties and outside working interests.
(f)	Includes all KMP owned crude oil production properties.
(g)	Hedge gains/losses for crude oil and natural gas liquids are included with crude oil.
(h)	Includes production attributable to leasehold ownership and production attributable to KMP ownership in processing plants and third party processing agreements.

(a)	2010 amount includes (i) a $6.4 million increase in expense from casualty insurance deductibles and the write-off of assets related to casualty losses; (ii) a $0.6 million increase in expense related to storm and flood clean-up and repair activities and (iii) a $0.2 million decrease in expense from certain measurement period adjustments related to KMP’s March 5, 2010 Slay Industries terminal acquisition. 2009 amount includes (i) a $0.9 million increase in expense associated with environmental liability adjustments; (ii) a $0.7 million increase in expense associated with adjustments to long-term receivables for environmental cost recoveries; (iii) a $0.5 million decrease in expense associated with legal liability adjustments related to a litigation matter involving KMP’s Staten Island liquids terminal and (iv) a $0.3 million decrease in expense related to hurricane clean-up and repair activities. 2008 amount includes (i) a $5.3 million increase in expense related to hurricane clean-up and repair activities; (ii) a combined $2.8 million increase in expense from both the settlement of certain litigation matters related to KMP’s Elizabeth River bulk terminal and KMP’s Staten Island liquids terminal, and other legal liability adjustments; (iii) a $1.9 million increase in expense related to fire damage and repair activities and (iv) a $0.6 million decrease in expense, associated with environmental liability adjustments.
(b)	2010 amount includes (i) a $6.7 million casualty indemnification gain related to a 2008 fire at the Pasadena, Texas liquids terminal; (ii) a combined $5.5 million decrease in income from the amounts previously reported in KMP’s 2010 fourth quarter earnings release issued on January 19, 2011, associated with a write-down of the carrying value of net assets to be sold to their estimated fair values as of December 31, 2010; and (iii) a $1.0 million casualty loss related to the write-off of assets. 2009 amount includes gains of $24.6 million from hurricane and fire casualty indemnifications. 2008 amount includes losses of $5.3 million from asset write-offs related to fire damage, and losses of $0.8 million from asset write-offs related to hurricane damage. Also, 2010, 2009 and 2008 amounts include decreases o f earnings of $1.0 million, $2.6 million and $3.7 million, respectively, related to assets sold, which had been revalued as part of the Going Private Transaction and recorded in the application of the purchase method of accounting.
(c)	2008 amount includes a non-cash goodwill impairment charge of $676.6 million.
(d)	2010 amount includes a $1.4 million decrease in expense reflecting the tax effect (savings) on the decrease in income from the amounts previously reported in KMP’s 2010 fourth quarter earnings release issued on January 19, 2011,described in footnote (b). 2009 amount includes a $0.9 million increase in expense related to hurricane and fire casualty gains. 2008 amount includes a decrease in expense (reflecting tax savings) of $0.4 million related to hurricane clean-up and repair expenses and casualty losses.
(e)	Volumes for acquired terminals are included for all periods.

(a)	2008 amount includes a $12.3 million decrease in other non-operating income, due to certain non-cash Trans Mountain regulatory accounting adjustments.
(b)	2009 amount includes a $14.9 million increase in expense primarily due to certain non-cash regulatory accounting adjustments to Trans Mountain’s carrying amount of the previously established deferred tax liability, and a $3.7 million decrease in expense due to a certain non-cash accounting adjustment related to book tax accruals made by the Express pipeline system. 2008 amount includes a $19.3 million decrease in expense associated with favorable changes in Canadian income tax rates, and a $6.6 million increase in expense due to certain non-cash Trans Mountain regulatory accounting adjustments.
(c)	Represents Trans Mountain pipeline system volumes.

(a)	2010 amount includes $200 million Going Private Transaction litigation settlement; see Note 16 of our consolidated financial statements included elsewhere in this report.
(b)	For 2010, 2009 and 2008, the NGPL PipeCo LLC fixed fee revenues of $47.2 million, $45.8 million and $39.0 million, respectively, have been recorded to the “Product sales and other” caption in our accompanying consolidated statements of income with the offsetting expenses primarily recorded to the “General and administrative” expense caption in our accompanying consolidated statements of income. Also, see Note 11 to our consolidated financial statements included elsewhere in this report.
(c)	Includes such items as salaries and employee-related expenses, payroll taxes, insurance, office supplies and rentals, unallocated litigation and environmental expenses, and shared corporate services. 2010 amount includes increases in expense of $4.2 million for certain KMP asset and business acquisition costs. 2010 amount also includes an increase in KMP legal expense of $1.6 million associated with certain items such as legal settlements and pipeline failures, and a decrease in expense of $0.2 million related to KMP capitalized overhead costs associated with the 2008 hurricane season. 2009 amount includes (i) increases in expense of $2.3 million for certain KMP asset and business acquisition costs that were capitalized under prior accounting standards; (ii) a $1.3 million increase in expense for cer tain KMP land transfer taxes associated with KMP’s 2007 TransMountain acquisition and (iii) decreases in expense of $2.7 million from KMP capitalized overhead costs associated with the 2008 hurricane season.
(d)	2010 amount includes increases in imputed interest expense of $1.1 million and 2009 amounts include increases in imputed interest expense of $1.6 million all related to KMP’s 2007 Cochin Pipeline acquisition.
(e)	“Other, net” primarily represents offset to noncontrolling interests and interest income shown above and included in segment earnings.
(f)	2010 amount reflects our deconsolidation of Triton Power effective January 1, 2010. See Note 18 to our consolidated financial statements included elsewhere in this report.

	At December 31, 2010
	Short-term debt outstanding		Available borrowing capacity
	(In millions)
Credit Facilities
Kinder Morgan Kansas, Inc.
$1.0 billion, six-year secured revolver, due May 2013	$	-	$	959.4

KMP
$2.0 billion, three-year unsecured revolver, due June 2013	$	522.1	$	1,241.1