888228--2/26/2008--KINDER_MORGAN_ENERGY_PARTNERS_L

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{gas, price, oil}

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{acquisition, growth, future}

{cost, regulation, environmental}

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Pending Federal Energy Regulatory Commission and California Public Utilities Commission proceedings seek substantial refunds and reductions in tariff rates on some of our pipelines. If the proceedings are determined adversely to us, they could have a material adverse impact on us. Rulemaking and oversight, as well as changes in regulations, by the Federal Energy Regulatory Commission or other regulatory agencies having jurisdiction over our operations could adversely impact our income and operations. Increased regulatory requirements relating to the integrity of our pipelines will require us to spend additional money to comply with these requirements. Cost overruns and delays on our expansion and new build projects could adversely affect our business. Our rapid growth may cause difficulties integrating and constructing new operations, and we may not be able to achieve the expected benefits from any future acquisitions. Our acquisition strategy and expansion programs require access to new capital. Tightened credit markets or more expensive capital would impair our ability to grow. Environmental regulation and liabilities could result in increased operating and capital costs. Energy commodity transportation and storage activities involve numerous risks that may result in accidents or otherwise adversely affect operations. The future success of our oil and gas development and production operations depends in part upon our ability to develop additional oil and gas reserves that are economically recoverable. The development of oil and gas properties involves risks that may result in a total loss of investment. The volatility of natural gas and oil prices could have a material adverse effect on our business. Our use of hedging arrangements could result in financial losses or reduce our income. We do not own approximately 97.5% of the land on which our pipelines are constructed, and we are subject to the possibility of increased costs to retain necessary land use. Our debt instruments may limit our financial flexibility and increase our financing costs. Because a portion of our debt is subject to variable interest rates, if interest rates increase, our earnings could be adversely affected. Current or future distressed financial conditions of customers could have an adverse impact on us in the event these customers are unable to pay us for the services we provide. The general uncertainty associated with the current world economic and political environments in which we exist may adversely impact our financial performance. Knight s recently completed going-private transaction resulted in substantially more debt at Knight and could have an adverse effect on us, such as a downgrade in the ratings of our debt securities. Our senior management s attention may be diverted from our daily operations because of recent significant transactions by Knight following the completion of the going-private transaction. Competition could ultimately lead to lower levels of profits and adversely impact our ability to recontract for expiring transportation capacity at favorable rates. Future business development of our products pipelines is dependent on the supply of, and demand for, crude oil and other liquid hydrocarbons, particularly from the Alberta oilsands. We are subject to U.S. dollar/Canadian dollar exchange rate fluctuations. The interests of Knight may differ from our interests and the interests of our unitholders. Common unitholders have limited voting rights and limited control. A person or group owning 20% or more of the common units cannot vote. The general partner s liability to us and our unitholders may be limited. Unitholders may have liability to repay distributions. Unitholders may be liable if we have not complied with state partnership law. The general partner may buy out minority unitholders if it owns 80% of the units. We may sell additional limited partner interests, diluting existing interests of unitholders. The general partner can protect itself against dilution. Our partnership agreement and the KMR limited liability company agreement restrict or eliminate a number of the fiduciary duties that would otherwise be owed by our general partner and/or its delegate to our unitholders. We adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between our general partner and our unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units. Our treatment of a purchaser of common units as having the same tax benefits as the seller could be challenged, resulting in a reduction in value of the common units. Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service treats us as a corporation or if we become subject to a material amount of entity-level taxation for state tax purposes, it would substantially reduce the amount of cash available for distribution to our partners. The issuance of additional i-units may cause more taxable income to be allocated to the common units. Unitholders may have negative tax consequences if we default on our debt or sell assets. There is the potential for a change of control if Knight defaults on debt.

Full 10-K form ▸

888228--2/26/2008--KINDER_MORGAN_ENERGY_PARTNERS_L_P