The information contained in Item 2 updates, and should be read in conjunction with, the information disclosed in our 2007 Annual Report on Form 10-K, and our condensed consolidated financial statements and the accompanying footnotes presented in Item 1 of this Quarterly Report on Form 10-Q.

In November 2007, we distributed our 50 percent interest in Citrus and our wholly owned subsidiaries, SLNG and Elba Express, to El Paso. We have reflected the SLNG and Elba Express operations as discontinued operations in our financial statements for periods prior to their distribution. For a further discussion of our discontinued operations, see Item 1, Financial Statements, Note 2. In addition, effective November 1, 2007, we converted our legal structure into a general partnership, which is not subject to income taxes.

Updates of Growth Projects. We expect to spend approximately $505 million on contracted organic growth projects through 2012. Of this amount, $71 million will be spent in 2008 on contracted expansion projects consisting of the following:

· Cypress Phase II. The Cypress Phase II project has an estimated cost of $20 million. The Cypress Phase II project began construction in September 2007 and is expected to be in-service in May 2008. FERC approval for this project has been received.

· Cypress Phase III. The Cypress Phase III expansion project has an estimated cost of $85 million. A FERC certificate has been issued for the project. Construction of Cypress Phase III is at the option of BG LNG Services. If BG LNG Services elects to have us build Cypress Phase III, then construction is expected to commence in 2010 with an in-service date of January 2011.

· South System III. The South System III expansion project will be completed in three phases at a total estimated cost of $285 million. We anticipate filing an application with the FERC during the fourth quarter of 2008 for certificate authorization to construct and operate these facilities. The project has estimated in-service dates of December 2010 for Phase I, June 2011 for Phase II and June 2012 for Phase III.

· Southeast Supply Header. The Southeast Supply Header project will be jointly owned by us, Spectra Energy Corp and CenterPoint Energy. The estimated cost to us for this project is $185 million. This project is expected to be completed in two phases. The FERC issued an order approving the first phase in September 2007. The estimated in-service dates are July 2008 for Phase I and October 2010 for Phase II.

For a further discussion of our various regulatory, development and operational risks, see our 2007 Annual Report on Form 10-K.

Our management uses earnings before interest expense and income taxes (EBIT) as a measure to assess the operating results and effectiveness of our business, which consists of consolidated operations as well as investments in unconsolidated affiliates. We believe EBIT is useful to investors because it allows them to evaluate more effectively our operating performance using the same performance measure analyzed internally by our management. We define EBIT as net income adjusted for (i) items that do not impact our income from continuing operations, such as discontinued operations, (ii) income taxes, (iii) interest and debt expense and (iv) affiliated interest income. We exclude interest and debt expense from this measure so that investors may evaluate our operating results without regard to our financing methods. EBIT may not be comparable to measurements used by other companies. Additionally, EBIT should be considered in conjunction with net income and other performance measures such as operating income and operating cash flows. Below is a reconciliation of our EBIT to net income, our throughput volumes and an analysis and discussion of our results for the quarter ended March 31, 2008 compared to the same period in 2007.

Operating Results:
                                                 2008         2007
                                                  (In millions,
                                                 except volumes)
Operating revenues                             $    163     $   120
Operating expenses                                  (62 )       (53 )
  Operating income                                  101          67
Earnings from unconsolidated affiliates               4          26
Other income, net                                     4           6
  EBIT                                              109          99
Interest and debt expense                           (20 )       (22 )
Affiliated interest income                            6           4
Income taxes                                          -         (24 )
  Income from continuing operations                  95          57
Discontinued operations, net of income taxes          -           6
  Net income                                   $     95     $    63

Throughput volumes (BBtu/d)(1)                    2,624       3,226


____________

(1) Throughput volumes include billable transportation throughput volumes for storage injection and volumes associated with our proportionate share of our 50 percent equity interest in Citrus for 2007.

EBIT Analysis:
                                                                                             EBIT
                                             Revenue         Expense         Other          Impact
                                                            Favorable/(Unfavorable)
                                                                 (In millions)
Expansions                                 $         9     $        (1 )   $       (2 )   $        6
Gas not used in operations and other
natural gas sales                                    2              (5 )            -             (3 )
Calpine bankruptcy settlement                       29               -              -             29
Earnings from Citrus                                 -               -            (22 )          (22 )
Other(1)                                             3              (3 )            -              -
  Total impact on EBIT                     $        43     $        (9 )   $      (24 )   $       10


____________

(1) Consists of individually insignificant items.

Expansions. In May 2007, we placed Phase I of our Cypress project in service, and placed Phase II in service in May 2008. Additionally, we continue to make progress on various projects further discussed in Updates of Growth Projects under Overview.

Gas Not Used in Operations and Other Natural Gas Sales. The financial impact of operational gas, net of gas used in operations, is based on the amount of natural gas we are allowed to retain and dispose of according to our tariff, relative to the amounts of natural gas we use for operating purposes and the price of natural gas. Gas not used in operations results in revenues to us, which are impacted by volumes and prices during a given period. During the quarter ended March 31, 2008, our EBIT was lower primarily due to an increase in volumes used in our operations relative to amounts we retained.

Calpine Bankruptcy Settlement. During the first quarter of 2008, we received a partial distribution under Calpine's approved plan of reorganization and recognized revenue of $29 million.

Earnings from Citrus. In November 2007, in conjunction with the formation of El Paso's MLP, we distributed our 50 percent interest in Citrus to El Paso. As a result, we no longer record equity earnings from Citrus.

Interest and Debt Expense

Interest and debt expense for the quarter ended March 31, 2008, was $2 million lower than the same period in 2007 primarily due to a lower average outstanding debt balance.

Affiliated Interest Income

Affiliated interest income for the quarter ended March 31, 2008, was $2 million higher than the same period in 2007 due to higher average advances to El Paso under the cash management program, offset by lower average short-term interest rates. The average advances due from El Paso of $275 million for the first quarter of 2007 increased to $423 million for the same period in 2008. The average short-term interest rate for the first quarter decreased from 5.9% in 2007 to 5.6% for the same period in 2008.

Income Taxes

Our effective tax rate of 30 percent for the quarter ended March 31, 2007 was lower than the statutory rate of 35 percent primarily due to the tax effect of earnings from unconsolidated affiliates where we anticipate receiving dividends that qualify for a dividends received deduction, partially offset by the effect of state income taxes. Additionally, effective November 1, 2007, we no longer pay income taxes as a result of our conversion to a partnership. For a further discussion of these transactions, see our 2007 Annual Report on Form 10-K.

Liquidity Overview. Our primary sources of liquidity are cash flows from operating activities and El Paso's cash management program. Our primary uses of cash are for working capital, capital expenditures, debt service requirements, and for required distributions to our partners. We are required to make distributions of available cash as defined in our partnership agreement on a quarterly basis to our partners. We have historically advanced cash to El Paso under its cash management program, which we reflect in investing activities in our statement of cash flows. At March 31, 2008, we had a note receivable from El Paso of approximately $460 million of which approximately $26 million was classified as current based on the net amount we anticipate using in the next twelve months considering available cash sources and needs. See Item 1, Financial Statements, Note 5, for a further discussion of El Paso's cash management program. We believe that cash flows from operating activities combined with amounts available to us under El Paso's cash management program or contributions from our partners, will be adequate to meet our capital requirements and our existing operating needs.

Overview of Cash Flows. Our cash flows for the quarters ended March 31 were as follows:

                                                                    2008        2007
                                                                     (In millions)
Cash flows provided by continuing operating activities             $   117     $   82
Cash flows used in continuing investing activities                     (97 )     (106 )
Cash flows provided by (used in) continuing financing activities       (20 )       24

For the first quarter of 2008 as compared to the same period in 2007, operating cash flow increased primarily due to higher cash generated from expansions and the proceeds from the Calpine bankruptcy settlement, among other items. We used our operating cash flow to fund capital maintenance and growth projects and make distributions to our partners.

Capital Expenditures. Our capital expenditures for the quarter ended March 31, 2008, and our estimates of capital expenditures for the remainder of this year to expand and maintain our system are listed below.

                               Quarter Ended          2008
                               March 31, 2008       Remaining        Total
                                             (In millions)
               Maintenance   $              10     $        50     $     60
               Expansion                    52              19           71
                             $              62     $        69     $    131

In the first quarter of 2008, our capital expenditures primarily included amounts spent on our Southeast Supply Header expansion project.

Cash Distributions. We are required to make distributions of available cash as defined in our partnership agreement on a quarterly basis to our partners. In January 2008, we paid a cash distribution of approximately $20 million to our partners. In addition, in April 2008 we paid a cash distribution of $91 million.

Debt. As previously announced, we anticipate repurchasing approximately $223 million of debt in 2008 in addition to scheduled debt retirements with recoveries of receivables from El Paso under its cash management program.

See Item 1, Financial Statements, Note 4, which is incorporated herein by reference.