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Executives

Richard D. Kinder - Chairman and CEO

C. Park Shaper - President

Steven J. Kean - EVP and COO

Analysts

Darren Horowitz - Raymond James

John D. Edwards - Morgan Keegan

Noah Lerner - Hartz Capital

Rajul Aggarwal - MarathonAsset Management

John Tysseland - Citigroup/Smith Barney

Yves Siegel - Wachovia

Kinder Morgan Energy Partners LP (KMP) Q3 FY08 Earnings Call October 15, 2008 4:30 PM ET

Operator

We would like to welcome everyone to today's Third Quarter Earnings review. All participants' lines will be on a listen-only mode until the question and answer session of today's call. [Operator Instructions]. We would also like to inform everyone that today's call is being recorded. If you have any objection, you may disconnect at this time.

It is now my pleasure to turn the call over to Mr. Rich Kinder, Chairman and CEO of Kinder Morgan. Thank you sir, you may begin.

Richard D. Kinder - Chairman and Chief Executive Officer

Thank you, Mary and welcome to the Kinder Morgan third quarter investor call. As usual, we'll be making statements within the meaning of the Securities Act 1933 and the Securities and Exchange Act 1934.

Also, as usual, I'll give an overview of the quarter and strategic issues affecting the company, and then Park Shaper, our President will follow with a detailed look at the numbers for both the quarter and year-to-date. And then we'll take any and all questions that you may have.

Let me just start by saying that I think it's easy to get distracted by order of certainly tumultuous events that are occurring in our economy and then in the stock market today. And I just want to start out by reassuring you that this management team is going to stay focused on what we do best, and that is to continue to produce solid and growing cash flow at Kinder Morgan to benefit both our investors and our debt holder.

Now let me start with the third quarter and year-to-date results and just give you an overview, and Parker, as I said, will give you all the details behind the numbers.

Today, we approved an increase in our distribution per unit to $1.02 or $4.08 annualized. That's up from $0.99 last quarter, and it represents a 16% increase over the third quarter of 2007 distribution which was $0.88 or $3.52 annualized.

Probably a more important number is distributable cash flow per unit before certain items this quarter was $1.09. That's up 14% from the $0.96 per unit for the comparable period last year.

Through nine months of 2008, Kinder Morgan has now produced distributable cash flow of $856 million. That's up 37% from about $623 million for the same nine months last year. I think it's also important to point out that the excess of distributable cash flow before certain items above that distribution for the first three quarters was about $97 million. Or put another way, our distributions per unit have gone to $297 million for the first three quarters of 2008 versus $256 million for the first three quarters of 2007. And even with that increase, we still accumulated excess cash flow of $97 million.

We had a strong third quarter, despite really a lost business associated with the two hurricanes that was about $21.5 million that we add in our segment results. We had decreased demand from gas... for gasoline during the quarter. We had a dreadful economy. We had increases in construction and fuel costs that impacted both our existing operations and our capital expansion program.

And if you look at all this and certainly while we face our share of headwinds on a going forward basis, I think these results demonstrate that our diversified portfolio, a very stable assets is capable of generating consistently strong cash flow, even in these extremely difficult market conditions.

The results that we produced during the quarter and really for the year-to-date were led by three of our segments: our CO2 segment, our Natural Gas Pipelines and our Terminals segments.

Now let me start with an overview of the Products Pipelines. We had earnings before DD&A of about $141 million. That's down about $14 million or 9% from a year ago. Of course, we had the North System in our numbers during the third quarter a year ago. And if you exclude that, it had roughly $11 million of earnings before DD&A in the third quarter.

If you exclude that, we were down about $4 million from a year ago. Virtually all of that had been... some was at SFPP where we had lower throughput. SFPP was off about $9 million from a year ago. The rest of the group made up about $5 million of the shortfall. So we were down about $4 million from a year ago or about 3%.

The downturn of SFPP is overwhelmingly attributable to just lower throughput on our system out on the West Coast. We did have improved results in this segment by our Southeast Terminals, our West Coast Terminals and our Central Florida Pipeline when you compare to the third quarter of 2007. Those groups of assets benefited as we had some upgrades and modifications of our facilities which enabled us to generate more revenues by handling more ethanol. That's become a nice return benefit for us.

If you look at the total refined products revenues for the quarter, they were flat. The volumes were down about 7.9% compared to the same period a year ago. If you strip out the hurricane impact on volumes, it was about 6.9% down.

Through the nine months of 2008, products revenues are actually up a little less than 2%, volumes down a little more than 7%, some mix pretty much down across the country. Las Vegas and all places are still positive both for the quarter and the year by about 1%. And the gasoline volumes in the Central Florida, around Orlando looked like they're down but actually Florida mandated 10% ethanol this year. So, quarter-on-quarter, we're down by probably about 2% or 3% in the Central Florida. So, those are isolated pockets where demand for gasoline still seems to be pretty strong.

Turning to our Natural Gas Pipelines segment, they had third quarter segment earnings before DD&A and certain items of $177 million. That's up 25% from $142 million in the third quarter of last year. And the results there were driven by two things. We had a nice return from our Rockies Express project, compared to last year, plus about $23 million for the quarter even after taking into account the hydrostatic testing that we had during the month of September which shut a big portion of REX down for most of that month.

And then the Texas Intrastate Pipeline Group continues to perform very well. It was up $14 million quarter-over-quarter. And the same trend lines are really positive for the year as a whole. It's important to note that again, there was some negative from the hurricanes in this business segment also at our Intrastate pipelines, a little less than $4 million of negative impact from the hurricanes.

Our CO2 segment delivered third quarter segment earnings before DD&A of $203 million. That was up 47% from the $138 million a year ago. And that segment sustained about $11 million of lost business as a result of hurricane Ike. And you may wonder why does the CO2 business... that's primarily operational in Colorado, New Mexico and Western Texas. Why would it have a decrease as a result of hurricane Ike. And the reason is that we had a decrease in NGL sales volumes due to third-party fractionation facilities being shut down. Now this will continue, we think, into early November when the main fractionator of our largest customer is scheduled to start up at the Volmont [ph] refinery complex.

So even overcoming this $11 million, they had a very good quarter in the CO2 segment. And that was driven by a little bit stronger than expected oil production at the SACROC Unit by increased CO2 sales and transport volumes and by higher hedge prices and higher oil and CO2 prices.

Among the important statistics, I think, in CO2 is the fact that our average oil production for the quarter at SACROC was just short of 28,000 barrels per day, up about 2% from the same period last year. Our average oil production at Yates was just a little over 27,000 barrels a day, a flat with the third quarter of 2007, and our CO2 delivery volumes were up 14% compared to third quarter of last year. And that's due to the expansion projects in the Southwest Colorado that are virtually complete and that have increased our CO2 production that we can move down to the Permian Basin across our Cortez Pipeline.

We now expect our CO2 production... I mean our oil production at SACROC and Yates, both to be slightly above our plan for the year, and I think that's a promising outlook.

And our Terminals segment, their third quarter earnings before DD&A and certain items was $132.4 million. That's up about 21% from year ago. The great bulk of that growth came from organic opportunities or organic expansions with the other 25% attributable to acquisitions. The expansions that resulted in internal growth included pretty major expansions at our large liquids terminals on the Houston Ship Channel in New York Harbor, at our North 40 Terminal near Edmonton, in Alberta, Canada and our Vancouver Wharves terminal, in Vancouver British Columbia. They also faced some hurricane damage as part of this $21.5 million I referenced earlier. And their damage was about $6.3 million in terms of lost business during the third quarter.

Total bulk tonnage was up about 9% for the quarter compared to the third quarter of 2007, led primarily by strong coal volumes at several of our terminals.

Our fifth business segment, Kinder Morgan Canada, which we formerly referred to as Trans Mountain, had DD&A of about $40 million, up 79% from the same period a year ago. And those results primarily reflect completion of the first portion of the Anchor Loop expansion of the Trans Mountain pipeline. So, we were able to boost the throughput capacity of Trans Mountain from 260,000 barrels a day in the third quarter a year ago to 285,000 barrels per day now.

The final phase of that expansion is now coming on service. It will be online by November 1st, just a few days ahead of our plan. And we'll take the capacity up to 300,000 barrels per day and certainly to increase earnings and cash flow at Kinder Morgan Canada.

Now, let me talk about the outlook. You'll notice, those of you who read the press release carefully that last quarter we had said we expected to exceed our target of $4.02 in distribution. I remember through the first three quarters were $2.97, so just to meet the $4.02 would mean $0.05 in distribution per unit in the fourth quarter.

Last quarter, we said we expected to exceed that target. We now say we expect to meet or exceed that target. Let me explain that.

We still expect our distribution... our distributable cash flow per unit to substantially exceed the $4.02 target that we have for the year but given the hurricane impact in the third quarter and additional impact of probably in the neighborhood of $10 million or a little more in the fourth quarter, we're going to wait for the fourth quarter results to see just how much excess coverage we want and is appropriate for the fourth quarter.

So we'll either meet or exceed our target and we will post you on that obviously at the end of this quarter.

Now let me talk about some of our major projects, which a good part of the press release is devoted to. Now a lot of these projects are coming in on time and on budget, particularly on our Products Pipeline and Terminals segment. But if we do face continued cost escalation on some of our major pipeline projects in the natural gas segment, as is due to additional regulatory requirements put on us, additional and rising construction and material costs, of weather delays, among other things. We remain extremely focused on managing these increases and on identifying ancillary opportunities to offset them.

Our total forecast of capital expenditures on our major projects are now up about 22% from the numbers we shared with you at our January investor conference. Most of that increase in the last quarter, as I said, has been on our major natural gas pipeline projects and why we would rather not see these increases obviously. We remain confident that large projects like Rockies Express and Midcontinent Express will still deliver attractive returns to our investors.

As we've said before, when we evaluate these projects at the get-go in order to make capital investment decisions, we conservatively estimate cash flows which leads to a lot of opportunities to outperform. To give you one example, on REX, we're already providing ancillary services to our shippers which generate revenues well in excess of the contractual revenues on which we base our expected return.

Now I will say that on our Kinder Morgan Louisiana System, that does not look like an attractive return at this time. We're working very hard to improve the revenue line on that project, and we're actually finding some opportunities to do exactly that.

Now we've described a whole bunch of our projects and acquisitions in our earnings release. So I'm not going to go through all of them. You can read them yourselves. But I do want to mention just three of the newer ones that have occurred since the last time we spoke.

The first is that we announced today that we've entered into a purchase and sale agreement to buy a liquids terminal in Phoenix, Arizona from ConocoPhillips for about $29 million. This is a liquids facility that has tank capacity of about 200,000 barrels per day. It's located adjacent to our... the existing terminal in the Phoenix complex. It will increase our storage capacity in that market by about 13%. We expect to close that in early December. It will be immediately accretive to cash flow available for distribution to our unitholders.

We also... since we last talked, have announced a new $1.3 billion natural gas pipeline project together with Energy Transfer Partners. We announced that on October 1, and that's the Fayetteville Express Project. It's a 42 inch, 187 mile pipeline that will begin in Conway, Arkansas and end in Quitman County, Mississippi. We have ten-year binding commitments that now total a 1.85 billion cubic feet per day out of the initial capacity of 2 billion cubic feet per day.

Pending regulatory approvals we expect to be in service by late 2010 or early 2011. And we expect all of that capacity to be fully committed prior to the time that we begin construction on the line.

In addition, since we last talked, KMP acquired two pipeline systems from Knight Inc., the private entity which owns a general partner of KMP. That purchase includes Knight's one-third interest in the Express-Platte crude oil pipeline systems that runs from Alberta Canada down to Illinois and a jet fuel pipeline that serves the Vancouver British Columbia Airport.

KMP paid now at approximately 2 million KMP units. So, it's all equity transaction, and those units will work about $116 million for those assets.

Now, the 500 pound gorilla in the room is obviously the volatility in the capital markets. Let me just address that head on. I think it's worth discussing, how we expect to fund our expansion projects. Several factors here: the first and most important factor is the strength of our existing assets and our expansions.

Our diverse set of energy infrastructure assets will generate about $2 billion of cash flow that can be distributed to our partners in 2008. We expect that number to increase in 2009. And let me be cleared that $2 billion is after all operating expenses debt service and sustaining capital expenditures. That's a very important factor in the strength of our capital structure.

Number two, our expansion projects in aggregate will generate attractive returns on our investments, using conservative projections secured by contracted customer commitments even after the crossover loans, we talked about it.

Third, we have ample access to short-term funds through unused capacity at our credit facilities. Let me talk about those.

At year end, even if we don't put out any additional capital between now and year end, we will still have undrawn capacity on our KMP line of well over $600 million on 12/31/2008. And we will have substantial amounts on our J.B. credit facilities. At REX, we expect to have well over $500 million and at Midcontinent Express well over $200 million of undrawn capacity at year end, without raising any additional capital, equity or debt between now and year end.

Our common units KMR shares and debt have performed relatively well, although I am reminded of that old citing, In the land of the blind, the one eyed man is king. But they've performed relatively well compared to our peer group over these last several months. That's allowed us to raise $3.4 billion of long-term debt over the last 15 months and $843 million of equity over that period of time.

Now if you included the KMR distributions, which is essentially an automatic distribution reinvestment program, we've raised approximately 1.2 billion of equity over that same 15 months. That gives us a lot of confidence that we'll be able to access these market to raise new capital. But fourth, in addition, our general partner Knight Inc., the general partner of KMP, has substantial financially resources. This year, Knight will have EBITDA of over $1 billion for calendar year 2008 and we have a debt to EBITDA ratio of about 2.6.

We're prepared to use those financial resources if necessary and the Board of Directors of Knight today indicated its willingness to contribute up to $750 million to purchase equity from KMP over the next 18 months if necessary to support KMP's capital raising efforts.

So I think in summary what we have at KMP, we expect to be able to continue our 12 year tradition of generating strong and growing cash flow, maintaining a strong balance sheet and providing excellent long-term returns to our investors.

And with that, I'll turn it over to Park.

C. Park Shaper - President

Alright, thanks Rich. And as is typical, I'm going to go through the financial slides that are attached to the press release, so hopefully everybody has those and can look at them.

Now the first page that you see should be the face of the income statement. And again, it was a very strong quarter, it's been a very strong year at KMP and expect that to continue. You will see at the bottom of kind of the first section, so up from the bottom section, the declared distribution per unit of $1.02; that's what the Board had declared today to be paid in November, up 16% from the $0.88 a year ago, and that leads to $2.97 of distribution year-to-date, up 16% from the $2.56 that was distributed a year ago.

Now on the top, mostly on the next page, which is where you can break out the segments and see how we actually earned distributable cash flow per unit of $1.09 for the quarter, and you will find that as the second to last line above the footnotes on the second page. You'll see the $1.09 of DCF per unit up from $0.96 a year ago. That's a 13% increase in DCF per unit and year-to-date $3.35, up from $2.65. That's almost a 27% increase above where we were at 2007.

So, again, tremendous growth out of the asset as we expected for 2008. And not only that, but our excess cover is just way ahead of our expectations. You may recall that in our budget, we had about $10 million of excess coverage for the year. Through three quarters, we have $97 million of excess coverage, and that's in the face of losing $21.5 million of lost business to the hurricanes. And so if not for the hurricane, then we would be $21.5 million ahead of that. For the quarter, the excess coverage was $18 million, and again that was impacted by the $21.5 million. So that number would have been almost $40 million if not for the hurricanes. So again, even in the face of the hurricanes, which did have some impact on our business, our assets performed very well.

Moving up from the DCF per unit before certain items, there is the net income per unit before certain items. Don't believe that's as relevant as the DCF per unit. You have the total DCF before certain items, as Rich mentioned, $282 million, up almost 23% from the $230 million in the third quarter a year ago and year-to-date up almost 37% to $856 million.

The line right above that, sustaining capital expenditures for the quarter about $43 million compared to $32 million a year ago third quarter and year-to-date $120 million compared to $95 million through the first three quarters of 2007. We are on track to be right around our budget of about $196 million of sustaining capital expenditures. But you'll see in order for us to hit $196 million, we will have significant sustaining capital expenditures in the fourth quarter. That is our current forecast. But it a little bit disproportionate relative to how we budgeted the fourth quarter. Now I'm going to talk about that more in a minute.

Now immediately above that, the difference between book and cash taxes, you will see that cash taxes were less than book taxes by about $8.5 million in the quarter. A year ago, cash taxes were less than book taxes by almost $15 million. Now year-to-date, 2008 cash taxes have actually exceeded book taxes by a little over $10 million. And you may recall that our budget called for the full year of 2008 cash taxes to exceed book taxes by almost $9 million. We except that we'll end up right around that level, $8 million or $9 million of cash taxes in excess of book taxes. Then above that, you have DD&A and then of course net income, general partner share of net income and then the net income before certain items.

Again, they're all building up to what we believe is the most relevant number. The DCF before certain items, and in that number DCF per unit before certain items, again showing nice coverage over our distribution.

Now so how are we driving that? What's driving the growth? If you jump up to the top of that second page, you can see the segment earnings before DD&A, and this is before certain items as well. And Rich really talked a lot about the segments. I'll touch on them again briefly.

Our products pipeline under last year both for the quarter and year-to-date, but a lot of that is the fact that the North System was sold at the beginning of the fourth quarter a year ago. And so if you back that out for the third quarter, Products Pipelines just a hair under last year and year-to-date basically consistent with last year. Rich talked about the volume impacts that we're seeing there. We did have a minor impact from the hurricane on the Products Pipelines segment of a little bit less than a million dollars. We do think that because of the lower demand for refined products, the Products Pipelines segment will be under its budget for the full year.

Natural gas pipeline had a very strong quarter again, up about $35 million from a year ago, up about $126 million from... during the first nine months relative to the nine months of 2007, driven largely by the addition of Rockies Express or the growth in Rockies Express really a function of bringing REX-West into service and then significant performance in the Texas Intrastate. Now natural gas pipeline did overcome about $3.6 million of impact from the hurricane. But even with that, we expect the natural gas pipeline to be significantly above budget for the full year.

CO2, up about $65 million for the quarter, up $227 million year-to-date, tremendous growth, significantly overcoming almost $12 million in impact from the hurricane, again driven-off of the NGL volume issues that Rich mentioned, which is assumption of fractionators being out of service and one in particular still out of service.

SACROC volumes above plan for the quarter, slightly above plan year-to-date. Yates volumes were a little bit below plan for the quarter or above plan year-to-date. And clearly, we are dramatically exceeding our plan ex-CO2 [ph] and expect to do that for the entire of the year.

Terminals is the next segment up about $23 million for the quarter, up about $80 million year-to-date driven by a little bit of acquisitions, as Rich mentioned and a significant amount of expansion projects. Terminals is more impacted by about $6.3 million of our business from the hurricane and of the fire. Again nicely over paying back [ph], although the terminals segment, we do expect to be slightly under its budget for the full year.

Kinder Morgan Canada, which is Trans Mountain, but also includes the Express-Platte system that we dropped down from the general partner in the third quarter and the jet fuel line that we transferred to drop down in conjunction with that, was up significantly from last year, both for the quarter and year-to-date, largely as a function of the expansions that are going on Trans Mountain, that the last piece of which... the last piece of Anchor Loop will come on at the beginning of November. Kinder Morgan Canada, we expect to be on budget but slightly below budget for the full year.

Where that gets you is segment earnings before DD&A is up about 22% to $693 million for the third quarter. Nine months, so year-to-date, almost $2.1 billion of segment earnings before DD&A, and when you look at the full year, we will almost hit $2.8 billion of segment earnings before DD&A.

We will net be above budget for the full year. Again products will be a little bit below. Terminals will be a little bit below. Kinder Morgan Canada will be just slightly below, but that will be made up for by outperformance on the Natural Gas Pipelines and the CO2 segments. So we expect we will be above budget in terms of segment earnings before DD&A. And again those assets are generating $2.8 billion of earnings before DD&A.

With that I'm going to drop below the DD&A and the segment earnings contribution and look at G&A. You'll see it is up from last year both for the quarter and year-to-date. It is also a little bit ahead of our budget. The reason why we're above budget is in part due to the Texas margin tax, in part due to incremental G&A at Trans Mountain, which is a function of insurance costs and some benefits costs being above budget and then legal is also above budget. We do think that G&A will be above budget for the year.

But interest, you'll see, is actually below where it was in the third quarter of 2007 by about $3 million. That's slightly ahead of 2007 for the nine months but well above or really favorable to the budget for the nine months and we expect that overall for the year, essentially a function of rates being lower than what we had in the budget. So, again we expect to get a nice tickup from the interest line for the year.

Minority interest is essentially unchanged. Certain items are laid out below that, just looking at the ones that had items in it for the quarter. The allocated non-cash long term compensation. That is compensation expense that's really a part of Nicolto [ph] that for accounting purposes has to be allocated down to Kinder Morgan Energy Partners. KMP has no obligation to pay any of that, will never pay any of that, not in the form of cash, not in the form of equity. There is absolutely no obligation and will be no payments from KMP related to that.

Now we talk about that every quarter. It will continue to show up at every quarter, because that's how we have to account for it.

Legal reserves and settlements, you'll see about $9.5 million for the quarter. That's largely related to a settlement of FFPP rates. And this amount relates to some prior period being flowed through in this period. And so, that is that item. Below that mark-to-market has certain upstream hedges. It's a positive or a favorable $12.2 million that of course we're still showing in at the certain items.

You may recall that in the second quarter, we talked about the hedges that we have in our upstream operations. These are a little bit of processing in the Rocky Mountains. And we had some hedges on there that for accounting purposes were deemed ineffective in the second quarter. We had a charge that showed up in certain items at that point in time. And we said at that time in July that we would expect positive amounts to flow back through to offset that over the next few quarters. Well this is the biggest piece of it, and so you see it's over $12 million. And if you look the year-to-date on that line, it's negative about $900,000. So almost everything that showed up there in the second quarter has now come back to us. And really all we did is just didn't change for how we account or really how things flow in terms of cash up at the segment.

Hurricanes and fires, you will see a $15.5 million charge there for the quarter. What this represents are asset write-offs, and so assets that are on our books that were destroyed or otherwise hurt in the hurricane and then one-time expenses associated with the hurricanes.

Now these amounts will clearly be offset in the future by insurance recoveries. And when they are, those insurance recoveries have to be accounted for as a gain at that point in time. And that gain will show up down here in certain items. So again, expect a positive to come in the future that will offset these amounts. Now it won't offset the full amounts because we do have deductibles associated with our insurance programs. Other or a few smaller items and then minority interest are... the minority interest amounts that are associated with those certain items.

Really, that takes you back down to net income, which once you flow that through, the depreciation, the book and cash taxes and the sustaining capital expenditures, you get to your DCF before certain items $282 million for the quarter or $1.9 hub [ph] or in our $1.2 distribution.

Briefly, I will go back to the first page, which is again the face of the income statement. I don't think that there is a whole lot meaningful in the face of the income statement. There are certain items that are scattered throughout there that we pull out and identify for you on the second page. So I think that's a more meaningful way to look at it.

I will point out that there is a new section. It's the bottom section of that page. Segment earnings before DD&A and amortization of excess investments. This is basically segment earnings before DD&A including certain items. And so you can compare it to the segment earnings before DD&A at the top of the next page, which excludes certain items. And again, the certain items are all identified down below. We do believe how we represent it on the second page is the appropriate way to look at it.

I mean I will say that if you look at it on the first page, you would think that our growth is even stronger than what we are claiming. If you look at the segment earnings before DD&A on the first page, you'd say total segments are up 29%. We would argue they are only up 22%. And if you look for the nine months, you'd say they are up almost 69%. And we're telling you they are really only up 29%. Again, we believe the way that it is represented on the second page is the correct way to look at it and to understand what these assets are going to generate going forward.

Now before I go to the balance sheet, a couple of quick comments about the fourth quarter. Again, as Rich said, we expect to meet or exceed our budget of $4.02

of distribution for the year.

We have generated $97 million of excess cash flow through the first three quarters due primarily to two factors. We actually think that that excess cash flow will come down when we finish the year, meaning that we won't finish with $97 million of excess cash flow; we'll finish with something less. And so what that implies is that in the fourth quarter, there will not be excess coverage, but rather, we won't fully cover the distribution.

Now the reasons for that are really two items that I have already discussed. One is the shifting of sustaining capital expenditures from the first three quarters into the fourth quarter. Now again, that number will be consistent with our budget, but it will be higher in the fourth quarter than what we expected. And then the second issue is continued impact of the hurricanes, which we currently estimate to be about $11.5 million, and that's due to the lower NGL volumes of CO2 and a little bit of continued impact at the terminal.

So again what I'm saying is we don't expect to end the year at a full $97 million of excess coverage. We do expect that we will have significant excess coverage above our distribution. And so when you look at it for the full year, we will have very significant excess coverage and will be well above our budget now in terms of excess coverage for the entire year.

With that, I will go to the balance sheet, which should be the last page attached to the press release and walk down that quickly. Our cash and cash equivalents haven't changed, other current assets essentially unchanged. PP&E is up, largely the assumption of expansion CapEx. Investments are up. That's largely a result of the investment in Rockies Express from earlier this year and the dropdown of Express which is equity accounted for, so it shows up on this line.

Now reducing those amounts was the sale of Thunder Creek, which was also accounted for as an equity investment and then the credit facility that we've put in place at Midcontinent Express around the return of cash from Midcontinent Express earlier in the year. And so that's reduced the amounts on this line.

Deferred charges and other assets is up about $200 million. Part of that is the note that we now have as part of our investment in Express and then the other part is just the mark-to-market of our hedges that just flow through the balance sheet. Total assets now about $17 billion. Notes payable and current maturities, I will talk about that when I talk about total debt. Other current liabilities essentially unchanged. Long-term debt, again, I will get to that in a minute. Value of interest rate swaps just a function of the forward curve for interest rates. Other is up about $200 million. That again is the hedge balance sheet mark-to-market. Minority interest unchanged. Accumulated other comprehensive loss, you will see it is up from the end of 2007. It is down significantly from where it was at the end of June. Some of you may recall or go back and look, we were at $2.95 billion at the end of June; now we are at $1.5 billion.

So significant reduction, which is just a function of commodity prices during the third quarter. Other partners' capital is up as a function of issuing equity and then a little bit because of the Express transaction.

So taking a step down to total debt, you see we are a little under $8.3 million of total debt. That's up from about $7 billion [ph] at the end of 2010 and up a little bit from about $8 billion at the end of the second quarter.

In terms of debt to EBITDA, you'll see it looks like we're just hanging in there at 3.4 times. You all can run this calculation if you want, but it's taking out another significant digit, you'll see at the end of the year, we were at 3.43 time. We're now at 3.35 time. So it's actually declining. It's still roll... it's still round 3.4 times. At the end of the second quarter, we were at 3.37 times.

Let's talk quickly about the change in debt. Year-to-date, it's almost $1.3 billion increase in debt. For the third quarter, it's about a $300 million increase in debt.

And so what were the uses of that cash? What do we do with that cash that we borrowed? Expansion capital, $1.8 billion year-to-date and in the third quarter, it was $600 million. That's really what we've been doing. We've been investing in those projects. Now we have spent about $130 million on acquisitions. Now it's a little bit less than that in the quarter, a little bit more than that year-to-date. We also made a contribution to Rockies Express of about $300 million earlier in the year. So those are the large uses of cash.

The sources of cash to help fund that. We had issued equity. The total is about $500 million year-to-date. Now that's about $384 million that's been raised in offerings and about $116 million that was issued to Knight, the general partner in exchange for the Express and the jet fuel lines. So, again that totals about $500 million of equity.

KMR distributions are essentially cash retention tool or more appropriately a distribution reinvestment vehicle that raised cash of about $70 million in the quarter, and almost $210 million year-to-date. The MEP credit facilities, I mentioned before, allowed us to get about $63 billion back from Midcontinent Express that didn't happen in the third quarter. It happened earlier in the year.

We've generated about $50 million from divestitures in the year that was largely the sale of Thunder Creek, again not much in the quarter but about $50 million year-to-date. The change in margin deposits generated about $250 million in cash in the quarter, about $40 million year-to-date. So, clearly what that means is earlier this year we had cash going out from margin deposits. We got it all back and more in the third quarter. So, again that's almost $250 million in the quarter, about $40 million source of cash year-to-date.

Excess cash flow, which we mentioned earlier, so this cash, it hasn't been distributed. About $18 million in the quarter, $97 million year-to-date. But couple of other things are really related to acquisitions; part of it was an additional payment for expansion CapEx on Trans Mountain and the other with just some cash associated with Express. We had source of cash of about $7 million in the quarter and about $30 million year-to-date.

And then working capital and other items were a use of cash of about $25 million in the quarter, about $40 million year-to-date. That's largely AR and AP offset a little bit by other current assets and other current liabilities. And then a couple of other minor items that are driving that use of cash, again $25 million for the quarter, about $40 million year-to-date.

Now, clearly our expansion CapEx has been significant at $600 million in the quarter, almost $1.8 billion year-to-date. Some of that has been in products; about $30 million have been order of products, about $126 million year-to-date at products. That's the Carson tanks and Miramar tanks and a couple of other projects.

Natural gas, oil and we had big expenditures, $275 million of the quarter, $676 million year-to-date. A lot of that is the Louisiana pipeline construction. From the CO2 segment we've spent about $134 million in the quarter, about $392 million year-to-date, clearly continue to expand at SACROC and then a little bit at Yates and then also the Southwest Colorado expansion, which is largely in service at this point.

On the Terminals side about $77 million of expansion CapEx in the quarter, $278 million year-to-date, across a variety of projects, included our efforts, our expansion of Houston Ship Channel. What we're doing on Louisiana, in the New York Harbor and then of course, primarily earlier in the year, our North 40 Terminal in Edmonton.

Kinder Morgan Canada, about $96 million of expansion CapEx in the quarter, about $312 million year-to-date. That is largely the Anchor Loop project to expand Trans Mountain.

So again, if you look at the change and that is almost completely driven by the expansion project, a little bit by the contributions to REX and acquisitions. And we have raised a significant amount of equity $500 million now year-to-date to offset those expansion activities.

And that is all I have. I will hand it back over to Rich.

Richard D. Kinder - Chairman and Chief Executive Officer

Okay and with that, we'll take any questions you might have. Mary?

Question And Answer

Operator

Thank you. We will now begin the question and answer session. [Operator Instructions]. Our first question comes from Darren Horowitz with the Raymond James Company. Sir, your line is open.

Darren Horowitz - Raymond James

Good afternoon and thank you. Rich, I thought you did a good job talking about being financially flexible and obviously liquidity and financing for growth is on everybody's minds. So, that's going to be the basis for my questions. First, when you talked about having the flexibility and obviously you're going through your budgeting process for the forward 12 months. When you include the projects like the Fayetteville line, can you give us some insight as to your thoughts on what that projected CapEx number might be and more importantly the impact that this higher cost of capital environment might have on your average IRR?

Richard D. Kinder - Chairman and Chief Executive Officer

Well we really don't have the costs pinned down for the next year until we go through the budget process. And strictly on Fayetteville obviously depending on the regulatory work, we don't know how much of that will be spent yet in 2009 versus 2010. We have a good handle on the total costs and have locked in. We and ATC have locked in the pipe costs already. And... but we don't know exactly what the breakout will be between 2009 and 2010 on Fayetteville yet. I don't know Park, you want to add anything to that?

C. Park Shaper - President

Well I think Darren, you asked about the impact of cost capital on IRR, I mean I don't... cost capital itself doesn't actually impact your return. I mean, I think the objective is to ensure that your earnings return that is well in excess of your cost of capital. And clearly, we believe that we are doing that just as we have historically. I mean, I think everyone who follows us, is probably sick of hearing that we're going to say this but we have never done projects that were right on top of our capital. We have always, whenever we were going to do a project, looked for a nice cushion between the return that we expected from that projects and our cost of capital. And I think we also very conservatively estimate cash flows from our projects. And I think we are seeing that on Rockies Express as portions of it come online, we are able to generate more cash than we have in our projection. So remain very confident that we are going to earn attractive returns well in excess of our cost of capital on these projects.

Darren Horowitz - Raymond James

Park, let ask you a follow-up question because you touched on something that I am curious about. Just for context, if you were to rewind 12 months and look at your budgeting process towards the end of '07 and early '08, can you just help us understand what... the spread above your cost of capital, what target return on average you were looking for and how that may be changing now in this environment as you look at the forward 12 months?

C. Park Shaper - President

Well I guess what I would say is in this environment where capital is more scarce, no question and where cost of debt is backed up, cost of equity is backed up. And I think what that leads to is less competition for a number of these projects. We will be doing all that we can to lock in higher returns on the projects that we commit to going forward and we think it's an attractive environment for doing that.

Darren Horowitz - Raymond James

Okay, let me switch gears. When you talked about obviously maintaining a more conservative approach to cash flow retention for working cap purposes, as you look at the year ahead, how do you balance excess cash flow coverage versus bottom line DCF growth?

Richard D. Kinder - Chairman and Chief Executive Officer

Well I think it is a balancing process and we're just going to look at that. Our commitment for the last 12 years has been, and that's consistent with the MLP rules, that we try to pass on to our unit holders the overwhelming bulk of the cash that we generate after debt service and all other costs. Clearly, I think we'll continue with an eye looking at the... we are entitled to maintain excess coverage for purposes of setting up reserves and for future capital needs. And I think we'll look at that very carefully as a balancing process when we set our targets for distributions in 2009. And now course I think something that ought to give all of you comfort, as you know, at our January conference, we will spell out in detail what we expect our distributable cash flow per unit to be and then how much we expect to distribute and what our target is for the year.

You'll see all of that and then in addition, I guess I would mention that the past does not necessarily prologue the future. But in the past, and Park alluded to this earlier, we've almost always ended up with more excess coverage. We've met or exceeded our targeted distribution every year in the existence of this company except for one year... and missed by $0.02 in 2006. But every year but that one year, we have had excess coverage that generally has been greater once we total up the whole year than what we projected in January at our analyst conference. So that gives us a little bit of comfort on running RIM [ph]. But,certainly we will look at that. And we are not naïve. I mean, clearly, in this kind of environment something you need to be looking at is that what ratio of excess coverage is appropriate in this kind of environment. And that's what we are going to look at on a going forward basis. Park?

C. Park Shaper - President

I think that covers it.

Unidentified Company Representative

Okay.

Darren Horowitz - Raymond James

Thank you very much. I appreciate it.

Richard D. Kinder - Chairman and Chief Executive Officer

Thank you, Darren.

Operator

And our next question comes from John Edwards with Morgan Keegan. Sir, your line is open.

Richard D. Kinder - Chairman and Chief Executive Officer

Hi John, how are you doing?

John D. Edwards - Morgan Keegan

Good, how are you doing?

Richard D. Kinder - Chairman and Chief Executive Officer

Well I'm doing fine. If I complain, it wouldn't do any good anyway, right?

John D. Edwards - Morgan Keegan

Right, right. Hey, Rich, can you talk about how much did the hydrostatic testing impact in terms of the cash flow for the quarter?

Richard D. Kinder - Chairman and Chief Executive Officer

Steve, can you drive here, and he's got those numbers.

Steven J. Kean - Executive Vice President and Chief Operating Officer

Yes, we had an impact to our interest on RAC of about $6 million associated with demand charges we weren't able to collect because we had five down for most of the month of September. Now the impact turned out to be a little bit less just because we did some ancillary services revenues that helped offset that. So just looking kind of at the FD line, which is not the whole story on the ancillary services, we got about 1.5 million of that back. But it was $6 million to our interest associated with foreground FD command charges associated with that shutdown.

John D. Edwards - Morgan Keegan

Okay.

Richard D. Kinder - Chairman and Chief Executive Officer

And we had of course had that shutdown John. We did complete it and it went fully back in service by October 1st.

John D. Edwards - Morgan Keegan

Okay, great. And then I know you went through it, Park. Again, what was the total CapEx for the quarter?

C. Park Shaper - President

Total CapEx for the quarter was about 600, little over $600 million and then year-to-date it's a little under $1.8 billion.

John D. Edwards - Morgan Keegan

Okay.

C. Park Shaper - President

Now that does include sustaining, but sustaining to weight out on the other pages, that's just expansion.

John D. Edwards - Morgan Keegan

Okay, great. And then as far as at this point now, how much is left to spend on ... at REX and at MEP?

C. Park Shaper - President

Well, I mean the remainder at REX and MEP for the life of the project clearly goes beyond 2008 and into 2009. And I think that the remainder at REX is probably about half the project that remains.

Richard D. Kinder - Chairman and Chief Executive Officer

About $2 billion... a third of the project, about $2 billion still to be spent at REX. Now a lot of those costs have already been locked in, in terms of some of that $2 billion is pipeline cost obviously.

John D. Edwards - Morgan Keegan

Right, okay. I am just trying to get an idea of... the total costs I think you've said now is about 5.6 or so, and so you've spent about 3.6 so far. Is that --

C. Park Shaper - President

It's about six actually, the total costs.

Richard D. Kinder - Chairman and Chief Executive Officer

And we've spent about four.

John D. Edwards - Morgan Keegan

Okay. All right. So, six total and about four spent. Okay. And then the same for MEP?

Unidentified Company Representative

Spent 500 of $1.9 billion capital costs.

Richard D. Kinder - Chairman and Chief Executive Officer

You'd hear that John, we spent about 500 to date out of about 1.9 total. That 1.9, we've already expanded at once as you know and that includes about $200 million for the additional expansion that we did, all of which is fully subscribed.

John D. Edwards - Morgan Keegan

Okay, all right.

C. Park Shaper - President

And all of those numbers are 888 and of course Rockies Express and MEP has their own credit facilities. Rockies Express has its own debt that's outstanding. We'd expect to continue to finance those at the project level.

John D. Edwards - Morgan Keegan

Right. And then, along those lines, I just wanted to confirm. You've got project facilities that are available until 2011 as I understand it. And you're not under any obligation to take those facilities out once you put everything into service. I assume you have some flexibility with respect to timing on any capital markets activities with respect to taking those out. Is that a correct understanding?

Richard D. Kinder - Chairman and Chief Executive Officer

You're correct.

John D. Edwards - Morgan Keegan

Okay, great. And then last would be. As far as any injection of investment by Knight Inc., what criteria are you looking at, if you could give a little color on your thoughts surrounding that?

Richard D. Kinder - Chairman and Chief Executive Officer

Well, let me say. First of all that this is something that as the largest owner of Knight, I will say straight Morris' [ph] mouth, obviously KMP is our priced asset. We believe in it 101%. And we're just going to look at the market and the market for both debt and equity and decide when and how much we think we ought to be buying an equity from KMP.

And we'll just let that be our guideline and we are very clear with the Board that we'll just evaluate that on an ongoing basis. We have absolutely no immediate need for any cash, debt or equity. We've told you what our credit facilities are at the end of the year even after all of the funds that we expect to spend in the fourth quarter on these projects. And even assuming no term up of debt, no issuance of equity whatsoever in the fourth quarter. So, we'll just watch it on a month-by-month basis, looking at the market on both the debt and equity side, and decide when we want to use that $750 million.

I think it's a little everything we tell you about Knight, obviously John is a matter of public record and our securities tonnage of Knight but Knight after the sell-out of NGPL of course is a very under levered company and it's shown by the fact that the debt to EBITDA ratio is about 2.6 times.

We have an undrawn credit facility at Knight. We have a credit facility of $1 billion. At year-end, we expect to have virtually nothing drawn on that. Now we do have a final tax payment on the NGPL sale that will come up right after the first of the year of little over $200 million. So say it in round figure, 750 to 800 of undrawn facility, plus again we have all the cash flow coming in at Knight for next year. We had EBITDA of over $1 billion this year. We'd expect that to grow next year. So we have plenty of cash at Knight to hold in reserve and KMP is our key asset obviously.

John D. Edwards - Morgan Keegan

Okay, great. I appreciate the color on that Rich.

Richard D. Kinder - Chairman and Chief Executive Officer

Okay.

Operator

And our next question comes from Michelle Nagi Marvin with Senate Cos Capital [ph]. Ma'am, your line is open.

Richard D. Kinder - Chairman and Chief Executive Officer

Hi Michelle.

Unidentified Analyst

Hi thanks for taking my call. Just a general market question, I'm trying to look for silver lining. How... do you think that the constraints in the capital markets could create some downward pressure on construction costs? And how long do you think it would take that to evolve?

Richard D. Kinder - Chairman and Chief Executive Officer

Well I think you are going to see some downward pressure for two or three reasons. One is of course the overall utilization of steel worldwide, is turning downward. You may have seen the latest numbers that China switched from... over the last several quarters have been net importers of steel. They actually at least what I have been reading, they actually were a net export... they've been an importer, they were net exporter at least during the month of September. And we would look for that likely to continue.

As steel production comes down, and steel demand comes down, I think you will see at least a lessening of steel price. Now that steel has to translate into the kind of steel that's used in pipeline construction, and it's too early to tell when that will happen. I think also as we look out and look at all of the projects going on in terms of new midstream energy construction, primarily pipeline, it's a little bit like the pin going through the boa constrictor that's coming through right now and over the next 18 months or so.

After that, we do see at least what we see a downturn and that will also lead I think to contractors getting sharpening their pencil a bit on how they will price future projects. That said, there are no guaranties in life and we'll just have to wait and see. But I think our guess would be that there will some downward pressure. Too early to tell when and how much.

Unidentified Analyst

Great, thanks.

Operator

And our next question comes from Noah Lerner with Hartz Capital. Sir, your line is open.

Noah Lerner - Hartz Capital

Thank you. Good afternoon everybody.

Richard D. Kinder - Chairman and Chief Executive Officer

Good afternoon Noah.

Noah Lerner - Hartz Capital

Couple of real quick questions. First, regarding the reduction in the volumes in the products and probably to some extent nat gas towards the end of the quarter, I'm going to make a presumption. I'm wondering if you can give any color on kind of what the velocity of the change intra quarter has been on the utilization in the volumes. Or we picking up speed with the reduction in utilization or has it kind of plateaued out and has kind of been consistent over the last couple of months now?

Richard D. Kinder - Chairman and Chief Executive Officer

Yes, well talk about the products. It actually was I think the actual worst month... I am looking at my sheet here... I believe was either July or August. September was just a little bit better but not a lot of difference throughout the quarter, but just a little bit better in September. My guess is we've probably seen the plateau and what we are thinking is it will probably stay down at about this level, about 7% through the fourth quarter. Again as I said earlier, Noah, there are some hits and misses and there is surprisingly Las Vegas, for whatever reason, is actually modestly up for the year. And on the other hand, California has been down, although California September was I believe a shade better than July and August. But I think we'll just have to see.

Obviously, if you look at the glass half full, you would think that gasoline prices having fallen as much as they have, $0.70 or so across the board and probably more to come that you would see some pickup in demand. But offsetting that certainly is... if we're in a recession, and I expect we are, how do you weight the recession against... which is a negative for gasoline usage against the positive of lower prices at the pump? And I just don't know. We're just playing it very conservatively and obviously we have the... any increase in those product volumes drop almost directly to the bottom line because we are a high fixed cost, low valuable cost business on our Products Pipeline system.

Now aside from the impact, and Steve can contradict me, aside from the impact of the hurricane late in the third quarter, we really haven't seen any downturn in natural gas demand. And we look at this very carefully and I've voiced some of this before. Our view of the overall demand for natural gas is pretty darn bullish. And the reason for that is primarily electricity demand that if you look at the alternatives to generate additional electricity that this country surely needs as we go forward, there aren't a lot of other alternatives. Coal certainly has a negative connotation right now in terms of environmental issues. I think you are not going to see a lot of new coal plants built. Nuclear, which I happen to personally believe is a big part of the answer, I am one of these all of the above category people. I think nuclear should be encouraged and hopefully it will, although our two Presidential candidates seem to have different view points on that. But I think that's probably 10 or 12 years off before you have any meaningful or probably any new nukes at all built. So that's not the solution over the next several years.

Certainly, we have abundant natural gas, the shale plays are coming to fruition, producing a lot of natural gas. We have it and the key is to get the connectivity between the supply sources and the demand sources. Certainly, we also have alternative fuels. I am a little bemused and I know all you people are smart enough to figure this out, but... and I think if we can find wind power and solar power, that's great too. But don't be confused by the fact that when you say we expect a 50% increase in wind power deliverability, that's going from maybe a little less than 2% to 2.5% or 2.75%, say 2% to 3% to round. So it's not like it's going to fulfill the growth that's inherent in natural gas or replace any of the demand for fossil fuels on the electric generation side. So I believe, like it or not, that we are going to have fossil fuels and particularly natural gas as the prime driver of our electricity needs over the next decade. And so we are very bullish on that. You'll have ups and downs in natural gas usage too, but I think for the most part, we feel very good and our numbers so far would show that natural gas demand and throughput is holding up very well except when you have disruptions from the hurricanes.

Noah Lerner - Hartz Capital

Okay, great. I guess if I can get just one other question from reading through the press release, looks like you had some pretty good test results down in Florida on the ethanol pipeline. I know we talked about this a couple of quarters ago that with its limitations on long haul pipes from, I suppose. I was wondering if you saw from the success of this any other opportunities for short haul pipelines for you to add on to expand the opportunities with the ethanol pipelines.

Richard D. Kinder - Chairman and Chief Executive Officer

Yes, that's a very good question. The tests on our central Florida pipeline went very well. We are going to start offering that to our customers later in the fourth quarter and we seem to have an awful lot of pent up demand for that given the fact that the 10% Florida mandate now for ethanol. And right now of course we have the terminal in Tampa, the terminal in Orlando and the pipeline connecting the two. But right now, for the ethanol part of the demand, that 10% is being moved until we started this magic [ph] by truck from Tampa over to Orlando, then put into tanks at our Orlando terminal and blended in at the rack to produce the 10% mandated ethanol content. Certainly, it's much cheaper to ship by pipeline even over this relatively short distance than it is to ship by truck. So we think people are definitely going to take advantage of all we can offer them on batching ethanol in Florida.

Now the next one that comes to mind is we have a pipeline system in Oregon, part of SFPP that runs from Portland down to Eugene, Oregon, and we would think that's probably the next place that we will implement this.

Now beyond that, on the long haul pipes, it's more difficult. We are looking at how we do this, but I certainly would not want to promise that we'll be batching major quantities of ethanol on plantation or on the two major facilities on SFPP, the east line and west line. What I would say though is that we've said this before on plantation, there may be the opportunity. We have multiple lines running across the Southeast. There may be the opportunity to segregate out ethanol, take one of those smaller lines and put it in ethanol service on a going forward basis. And certainly that's easier to do than batching ethanol, but some of the same technology making sure that you've got the moisture out of the system, et cetera, et cetera that we've learned on Florida will apply if we wanted to dedicate part of the plantation system to ethanol. And that's something we'll continue to look at, and I think it will probably be early 2009 before we're prepared to address that in more detail.

But clearly ethanol movement by pipeline is a positive. Another positive as most of you know is that in the energy... the bailout whatever you call at that. The bailout, the $700 billion bailout legislation in Congress, as part of that as you know I think they did put in there that movement of ethanol or biodiesel would qualify for MLP treatments. So, means we don't have to count any revenues from ethanol or biodiesel handling against the 10% that we are allowed to have come from non-qualifying sources.

So, that's a plus for us and for all the MLPs. It means that if you can structure your lines in such a way that you could move large quantities of ethanol, you can debottleneck a lot of the rail transportation issues in this country. You'll laminate a lot of the unit trains. They are the primary movers of ethanol now. And that cash will automatically qualify for MLP treatment. And I think that's a big positive.

Noah Lerner - Hartz Capital

Great. One last real quick question, on the increase in the cost between REX and MEP and everything, the press release said it looks like it's about 22% over the number from January. Is that basically equal from both or is one higher and one lower between the two projects with the excess costs?

Richard D. Kinder - Chairman and Chief Executive Officer

Steve?

Steven J. Kean - Executive Vice President and Chief Operating Officer

Yes. With the 22% number is taking the projects that we were looking at in January which includes REX and MEP and Louisiana and that sort of thing. And just looking at that project slate and identifying increase over, I think whether that starts with... touches a little over $7 billion numbers. That's 22% instruments out, most of that, about 9% of that is in gas group. And a vast majority of that is related to construction cost increase. We try to break it down. And this is really kind of broken down to our share. Construction cost, we've spent on REX of about 200 of that, MEP is about 110 and AMLP is about 281. That explains really most of that tight differential.

Noah Lerner - Hartz Capital

Okay, great. Thanks very much.

Richard D. Kinder - Chairman and Chief Executive Officer

Thank you.

Operator

And our next question comes from Rajul Aggarwal with Marathon Asset Management. Sir, your line is open.

Rajul Aggarwal - MarathonAsset Management

Hi. Thanks for taking my question. A couple of follow-ups and couple of other questions. One was just on this CapEx number. You had initially... on a previous question, you gave the numbers on CapEx for REX that have been spent and that is left to spend. Does that... were those estimates including the 22% increase or were they before the 22% increase?

Richard D. Kinder - Chairman and Chief Executive Officer

Oh no. They are including everything. Our current estimate and again, when we say, we have about 2 billion left to spend, don't think that's $2 billion of Kinder Morgan money. That's $2 billion on aid age [ph] basis, we have financing at the joint venture level, that will take care of the debt component of that. And then the contribution from us Sempra and Conoco will be for what's left over on the equity side. So part of the $2 billion comes out of the facility. Part comes in equity contributions and our part of the equity contribution is obviously 50% of whatever contributions necessary.

Rajul Aggarwal - MarathonAsset Management

Got it, that's helpful. On the $750 million potential equity infusion from KMI, you said that KMI has $1 billion of EBITDA and it's significantly under level I think what you say. The question I have was one, as and when you receive distributions from KMP to KMI, does that cash accumulate on KMI or are you just... just to really get further to the equity holders. And if it is... if that is the case, how does that EBITDA help the equity infusion, I guess?

Richard D. Kinder - Chairman and Chief Executive Officer

Well the cash that comes up from KMP to KMI which comes of course both from the standpoint of our general partner interest and also from the ownership of the KMP and KMR units that we own it to KMR and Knight. That comes up pretty clear [ph]. We also have NGPL distributions that come out of our remaining 20% ownership of NGPL and that is the cash flow that we have. That is up to Knight to decide what it wants to do with that. And we have the opportunity to either distribute that up or we have the opportunity to pay down what debt is left at Knight, or we have the opportunity to reinvest it back in KMP or some place else. And so we have that in addition to the facility that is essentially undrawn on. Does that answer your question?

Rajul Aggarwal - MarathonAsset Management

It does...

Richard D. Kinder - Chairman and Chief Executive Officer

It is really important that Knight is a very healthy company from a cash flow standpoint. And all we have is the remaining debt up there. We have paid the debt out. We have paid in taxes that occurred, otherwise it is free cash flow for Knight to decide how it wants to use.

Rajul Aggarwal - MarathonAsset Management

No, I understood. The reason I was asking the question was, from what you said, there isn't... in your view there was no need for the equity infusion right now in the near future that you saw. In the next three to six months if you get distributions and if you distribute amount to the equity holders of KMI, then that wouldn't be... I mean in that sense, the only capacity of debt would be the credit facility in some ways. That won't be cash sitting in there. Have you taken any steps to prevent that cash from being distributed out to the equity holders? That's just a fluent conversation at this point.

Richard D. Kinder - Chairman and Chief Executive Officer

Well let me go back again. We have no dividend policy at Knight, that's up to the decision of the Knight Board. We can distribute zero to Knight. We haven't distributed anything to Knight equity holders this year or we could distribute all of that cash flow. Clearly given this situation, we'll look at that very carefully before we make any distributions out to the shareholders in Knight of which I am the largest shareholder. So, we're going to do what's right for the whole enterprise, including KMP obviously.

Rajul Aggarwal - MarathonAsset Management

Got it.

Richard D. Kinder - Chairman and Chief Executive Officer

Does that answer your answer?

Rajul Aggarwal - MarathonAsset Management

It does, that helps. The other two questions I have, just there has been very drastic change in the commodity price environment in the last three months or so. And who knows where this is going. I just wanted to get color from you last two, you've talked about the demand side of gas and how you're bullish on that. How does the supply side reaction to this drastic correction in gas prices impact your business if it has any impact... I mean does the outright gas price have an impact on your business?

Richard D. Kinder - Chairman and Chief Executive Officer

Well I think everything probably has some indirect impact if you're a major midstream player in the energy field but not a lot. The lower price of natural gas, if you want to look the glass half full, you would say it will lead to natural gas arguably recapturing some markets that otherwise would have lost. You may have more production, more industrial use of natural gas in the United States. I don't think those are big items one way or another but we have lower prices. You probably have a little more use.

On the negative side, the glass half empty side you might say that some people in some places producers may scale back a little bit on their production. I think if they do that price will probably firm up again. But we don't think that the change in natural gas prices is going to have any significant impact on our business unless you had a fall to $2 or $3 and had producers cutting back dramatically, in which case, I think you've got to have a B type recovery in gas prices. So, I think that's kind of a non-event for us, the pricing of natural gas.

Rajul Aggarwal - MarathonAsset Management

Okay. And in terms of oil price in the CO2 segment?

Richard D. Kinder - Chairman and Chief Executive Officer

In terms of oil prices, clearly, now as we said before, virtually all of our volumes at SACROC and Yates, the oil production there is hedged under long-term hedges. So we're not exposed to direct commodity price differentials up or down there.

The two areas in which we are exposed to indirectly or directly to oil prices are number one, most of our NGLs are not hedged. They are almost impossible to hedge a very dirty hedge when you start hedging NGLs as a lot of people have experienced. So we don't hedge those. So to the extent that the ratio of oil prices and naturally the delta between oil prices and natural gas prices, both of which have declined pretty dramatically as you know, to the extent that that delta changes and it has impact on our NGL volumes that we produce out in SACROC, about... we're averaging about 10,000 barrels, these are 8H numbers now, not our share... about 10,000 barrels a day of that, 15,000 barrels when we get the facility, when Exxon gets the facility at Beaumont back on line that will have some impact depending on how that spread turns out.

So we kind of benefit in that particular segment from lower natural gas prices, get hurt by lower liquids prices.

And then the final thing is that we set our prices on a number of our CO2 sales contracts to third parties. A lot of those are set with a floor price, but upward escalation based on oil prices. Even though this is not a day-to-day thing because most of those are set a quarter in advance. So, for example, the set for the fourth quarter was the closing price on September 30th. The price for the third quarter was the closing price on June 30th. But we are exposed there in terms of the amount of our CO2, the value of some of our CO2 sales contracts.

So those are the two negatives. On the other side, if oil prices come down in a sustained way, you probably have more product demand. I like to say that we're essentially a huge toll road. That said, we're probably a little bit biased. We are helped by higher prices a little bit in the scheme of things and hurt a little bit by lower prices.

Rajul Aggarwal - MarathonAsset Management

Got it. Just one last question if I may, and this is more... you have and you continue to spend quite a bit of money in infrastructure across U.S. And I mean... from seeing... Iceland [ph] and it seems a lot of people are just looking at the world and saying the world is coming to an end. I mean does that make you nervous about all the CapEx that you are putting into the ground as to what all this turmoil may have an impact in terms of market pricing going forward and how that may impact your business?

Richard D. Kinder - Chairman and Chief Executive Officer

Well, let me start by saying I've been in this business about 30 years. I've seen a lot of ups and a lot of downs. And generally, this economy and this industry muddles its way through to pretty successful outcomes in the end. So long term, I'm not that negative on the whole situation. But we could have some short-term volatility as everybody knows or even short to medium-term volatility. But let me say specifically on the infrastructure, what I like about our game plan at Kinder Morgan is that virtually all of these major construction projects are backed up by long-term contracts with the shippers. And where we do not have long-term contracts with the shippers, we generally have the kind of rate base treatment where if they don't ship, the rate to the remaining shippers, or remaining volume shipped go up.

So, for example, on our Products Pipelines, while it has a negative short-term input hit to us if volumes go down, in the long term, we can readjust those tariffs to incorporate the lower throughput. So that's kind of the regulatory part of it. On the less regulated, the natural gas pipelines, on virtually all our projects. For example, REX, we have 1.8 billion cubic feet a day of capacity fully subscribed for a 10-year period from the date of the final finish of REX. So it really amounts to about 11.5 to 12 year contracts with people like Conoco and BP and other, EnCana, other strong credits.

On MEP, we have all of our throughput fully subscribed for 10 year contracts both on the base facility and on the recently announced expansion. All that was fully subscribed to a number of shippers. So we have... and on the Fayetteville project, as I just said, it's a 2 BCF a day. We haven't even done the open... we are just in the open season now. We already have 1.85 subscribed. My people tell me they expect to have the rest of that subscribed by the time we start construction in late 2009. So really, we are really not... nothing in life is without risk. Don't get me wrong, but we think we have protected our risk very well. We simply we won't build these projects unless we have long-term throughput agreements. Steve or Park, anything you want to add to that? Okay. Does that answer your question?

Rajul Aggarwal - MarathonAsset Management

Thank you so much.

Richard D. Kinder - Chairman and Chief Executive Officer

Yes.

Operator

And our next question comes from John Tysseland with Citigroup. Sir, your line is open.

Richard D. Kinder - Chairman and Chief Executive Officer

Hey John, how are you doing?

John Tysseland - Citigroup/Smith Barney

Good Rich. Good afternoon. Thorough conference call as always. Quick question. I guess most of my questions have been answered, but Rich, you seem to emphasize that the amount of distributable cash flow KMP generates when you are speaking about your financial flexibility, is that another way of saying that if you don't get attractively priced capital even in today's like very tight environment that you consider using the distributable cash flow as a source of financing, because I guess if you were take a very negative outlook on the capital markets longer term, KMP is actually... could finance the growth or the CapEx growth with some distributable cash flow, which I think is pretty unique among MLPs, especially ones that have as large of a CapEx budget as KMP does.

Richard D. Kinder - Chairman and Chief Executive Officer

Well we certainly mentioned that because that shows that we do have tremendous ultimate flexibility across the board. And as we said in the last part of the press release, John, that we are committed to continue to build the long-term future of this company and we just have a lot of flexibility. And we started I think my very first point was the tremendous cash flow that the underlying assets generate. I think we have all kinds of other flexibility too with our credit facilities, with the ability of a very strong general partner to step forward if it's appropriate.

And one thing we didn't mention, but we have actually in this process had a number of a third party infrastructure players come to us and talk about partnering up with us on projects, the very... these projects are very attractive when you have long-term contracts for all the capacity. So I just think we have an awful lot of flexibility, and I don't want to compare ourselves to any other MLP, but we just... at Kinder Morgan have a unique set of circumstances, strong general partner, good credit facilities, extraordinarily good cash flow. And you put all that together, and I think we're obviously well equipped to weather whatever the market throws at us. Park, you want to add anything to that?

C. Park Shaper - President

Imean, the only thing I would say John I think, this was your point as well, I mean when your own assets, that are stable, diverse set of assets that are key for the energy infrastructure of this country, they have to operate, keep this country running and they generate $2 billion of cash a year and growing. As Rick said, you have a lot of flexibility, you are in a very strong position and that's...I think that's what you said earlier that's what Rick said, that what press release says. And in $2 billion cash, gives you that flexibility

John Tysseland - Citigroup/Smith Barney

Well...last question is I guess, when you look at the opportunities that you have to further development infrastructure over the next several years and you have spoken about this in a couple of presentations. Do you still expect to spend the same amount may be on to CO2, if oil prices stay, where they are today or I guess maybe a better way to ask that question is, where would you consider scaling back CapEx should the current capital markets persist?

Richard D. Kinder - Chairman and Chief Executive Officer

Well, I don't think that we're going to have to scale back CapEx, again, for all the reasons we talked about. I think as Park alluded to earlier, we're clearly looking at higher returns now on the CapEx we do spend on new projects. And again, we've been approached by a lot of the players on the other side who now are interested in selling or joint venturing the assets that they have that I don't think they would have considered doing before the credit launch. We haven't pulled the trigger on it. I'm not saying we will. But certainly there are going to be a lot of opportunities out there and generally I think at higher returns, but still preserving the kind of throughput commitments that we've come to expect on our pipeline projects.

As far as the CO2 is concerned, we evaluate that every year on a conservative price deck, on the forward price of oil. If we don't see a very nice return on that, we won't spend the money on it. And this year certainly CO2 is not only a generator of a lot of cash, but even after you take off the... Park, I think alluded to the fact in three quarters, we spent about $390 million, expect to spend about $500 million for the year. Our cash flow, distributable cash flow coming out of that segment is well in excess of that. So we're actually generating a significant amount of free cash flow from our CO2 operation today. Expect to do the same thing in 2009 and beyond.

C. Park Shaper - President

The only thing I would say consistent with what Rich said is, I mean of course we'll continue to evaluate all future investment decisions based upon the environment that we're in at that time using a conservative projection for oil based upon where it trades at that time. We don't want to expect to really curtail our existing activity at the CO2 assets. But I do think that it's true that if oil prices stay low for a period of time that the cost of those same activities will come down. We will naturally end up spending less on capital with CO2 because the cost of doing the kinds of activity that we want to do will decline.

John Tysseland - Citigroup/Smith Barney

That makes a lot of sense. Last question, Park, when you look at your credit facility, can you remind me if that is... if you've swapped through a fixed rate on that and when those swaps expire?

C. Park Shaper - President

We have not swapped to a fixed rate on our credit facility. And so it... when we borrow on that, it floats.

John Tysseland - Citigroup/Smith Barney

And then when you look at fourth quarter, you said you were going to be significantly below budget for the year. But if you look at fourth quarter, I would assume --

Unidentified Company Representative

Significantly above budget, above budget for the year.

John Tysseland - Citigroup/Smith Barney

Okay, I'm sorry, I'm sorry.

Unidentified Company Representative

That's a little important there.

John Tysseland - Citigroup/Smith Barney

So when you look sequentially quarter-over-quarter to fourth quarter on interest expense, I mean how much are you anticipating that to jump?

C. Park Shaper - President

And so interest expense will be favorable to budget, so the actual interest expense will come in under what our budget was. So that's a favorable variance that we expect for the year. And then I am sorry, John, what did you ask?

John Tysseland - Citigroup/Smith Barney

Right. When you look at the fourth quarter relative to third quarter, given what near-term rates have done --

C. Park Shaper - President

Rates will be higher and we factored that into our expectation.

John Tysseland - Citigroup/Smith Barney

Okay.

C. Park Shaper - President

Rates in the fourth quarter will be higher than they were in the third quarter.

John Tysseland - Citigroup/Smith Barney

Yes. Thanks for the clarity guys.

Unidentified Company Representative

Okay, thanks John.

Operator

And our next question comes from Yves Siegel with [indiscernible].

Richard D. Kinder - Chairman and Chief Executive Officer

Hey Yves. How are you doing?

Yves Siegel - Wachovia

Well, thank you. Good afternoon. Just quick follow ups if I could. Number one, has the commercial paper market opened and what's your view on that?

C. Park Shaper - President

Well, the commercial paper market is open and we were issuing commercial paper and have been consistently. Now I'm sure many of you felt this week that S&P put its own negative outlook. And as part of that, they took our commercial paper rating to A3. And as part of that, there is really not a commercial paper market out there for that rating. And so we're now drawing on our facilities.

Yves Siegel - Wachovia

Okay. And have you had discussions with S&P in terms of what they would like to see in order to may be change that?

C. Park Shaper - President

Yes. And I'll let David comment as well. I mean he has directly spoken to them. But I actually think the write up was fairly clear. It was clearly instigated by the delay in putting Rockies Express in service. But I think what they are looking for is for us to finance these projects going forward. And I think that once we successfully do so, then my expectation is if everything else stays the same, and everything else won't stay the same, and so we'll have a discussion with them at that time. But my expectation is if everything else stays the same, once we finance these projects, that negative outlook would come up. David, is that consistent?

Unidentified Company Representative

Yes, that's consistent. I would agree with you on that statement, Park.

Yves Siegel - Wachovia

Okay, great. And then if I could just follow up with the CapEx. Was there any reason why the Louisiana pipeline project seems to disproportionately have more of a cost overrun than REX or the Midcontinent?

Richard D. Kinder - Chairman and Chief Executive Officer

I'm going to turn that over to Steve and let me say we have... go ahead, Steve.

Steven J. Kean - Executive Vice President and Chief Operating Officer

Yes, I mean I think what we're... what we've experienced on the Louisiana pipeline is really it stays the kind of three factors that are affecting pipeline construction costs generally. We've had weather issues. We have certainly experienced an increase in construction costs generally. We've had materials quality problems there that we've had to remedy. And so that's been... it's been unquestionably disproportionately impacted by increasing construction costs compared to the others. Again, we're going to be looking for whatever way we can to try to get some of that back and to look for revenue opportunities. But I think, as Rich says, it's going to be hard to make that particular project attractive when all is said and done.

Unidentified Company Representative

Actually, I want to clarify one other thing. In the answer to the question I gave before, someone was asking about the difference between the 22% number. And what I explained really was the difference between Q2 and Q3 in terms of our project update. So the breakdown that I gave on the construction cost increases on REX and MEP and Louisiana were geared for the Q2 to Q3 change rather than a change from any other account.

Yves Siegel - Wachovia

Rich, you commented on the impact of commodity prices. Could also just comment on the potential impact of the lower oil prices on what might be happening up in Canada as far as the oil sands?

Richard D. Kinder - Chairman and Chief Executive Officer

Yves, I think, it seems to me that that most of particularly the larger players up there are still very intent on carrying out their oil sands projects even in the face of... they've experienced escalation cost and clearly difference in pricing out. And I would expect that we've always said we would haircut some of these dramatic growth projections that some people come up with for Canada. But I think anyway you cut it, you're still going to see a substantial and large increase in the amount of production that's coming out of the oil sands.

But yes, I think the lower oil price will certainly have some impact on it. But I think that so many of these projects are so far along now that they really don't have any choice but to finish them up I think. And obviously, the various joint ventures and contracts signed with refineries in the U.S. that are retrofitting to accommodate the heavier oil just increases both the desire and the contractual necessity of finishing some of these projects.

But we'll continue to watching this as you know we're finished and will be by the end of this month with our expansion on Trans Mountain will be at 300,000 barrels a day capacity coming over to the lower mainland. And actually right now in our numbers, we got very good volumes down in the Washington State. A part of that goes out over the water from our facility in Vancouver Harbor. Part of it gets consumed in the lower mainland. And then, a significant part goes down to Washington State. And we've actually, I don't know how much of a long term trend this is, but we've actually seen in the last two months, some of the highest volumes going into Washington State, that we've seen at any times since we've owned that asset. So, what that's a result of, I don't know. But clearly we are seeing a lot of demand for it and a lot of demand coming over the water also.

Yves Siegel - Wachovia

I have just two last ones. Richard you also went over the credit worthiness of the guys on Rockies Express and Midcontinent. When you look at the Fayetteville expansion or any other type of stuff, are you worried at all about counterparty risk? And are you contemplating or are you getting right now... that hasn't been built yet but letters of credit... can you just... has the world changed enough that you are sort of worried about future projects and credit quality?

Richard D. Kinder - Chairman and Chief Executive Officer

I think we are always worried about credit quality in any environment, and we have and I really can't go into details on any of the contracts. But on virtually all of our contracts across our pipelines, unless it's... with very few exceptions, we do have letters of credit to back up in certain events on a number of our projects including Fayetteville.

C. Park Shaper - President

The only thing I will add to that is we do the credit protection and always consist, especially on FERC regulated pipelines, there are restrictions on what we can get and can we live within the PERC guidelines on that approach. And then, for these projects, I mean in Fayetteville as an example, I mean you look beyond that as well and say, what actually would happen if a counterparty got in trouble? Is this gas field going to be produced, and if it's going to be produced, it's quite likely going to have to use the pipeline capacity which means in that event your contract likely gets affirmed. But I'm not saying that's always the case, I am saying we go to that level of analysis as we're evaluating this.

Richard D. Kinder - Chairman and Chief Executive Officer

Yes. Before we try to build a pipeline away from a specific area, we look at what the overall formation is going to produce, what the cost structure of that is and what kind of market clearing price is, and of course so much of this money that the producers are spending is upfront in terms of leasehold costs. So actually you've to beat cost and a lot of cases are pretty minor, not minor but pretty slight compared with the pricing even in today's market.

Yves Siegel - Wachovia

Okay. And here's the last one which you or may not want to answer, but in terms of the acquisition opportunities or JV opportunities that may come your way, are any of these significant step-out type of transactions as opposed to the singles and doubles that you hit pretty well?

Richard D. Kinder - Chairman and Chief Executive Officer

You're right. I wouldn't want to a comment on that. Let me just say that we'll be very careful before we do anything. And of course, one way of doing that is if you did something, you might be something for equity. So it would be self financing from a going forward standpoint. But it will just depend on the circumstances. We will be very careful before we do anything. But there are certainly opportunities out there.

Yves Siegel - Wachovia

Got it. Thank you.

Richard D. Kinder - Chairman and Chief Executive Officer

Thanks Yves.

Operator

And our next question comes from Ross Pixane with [indiscernible].

Richard D. Kinder - Chairman and Chief Executive Officer

Hey Ross, how you doing?

Unidentified Analyst

Hi guys. First question is, can you tell us how much of the quarter's crude production was hedged and where you are for the rest of the year and for '09?

Richard D. Kinder - Chairman and Chief Executive Officer

Sure Park.

C. Park Shaper - President

Yes I mean the crude production for 20008 is essentially low 90% hedge, 93% approximately and '09 we're about 82% hedged. Now that's predominantly that doesn't include that NGLs and the denominator.

Unidentified Analyst

Okay, all right. Also, just want to make sure your most recent expansion program was ATP, proximate to Intertops [ph] would plug to around 7 billion of mile. Is that ideas where we're currently, give on the customer to see any things more than three maybe four range?

Richard D. Kinder - Chairman and Chief Executive Officer

Well, what we've tried to do in the Fayetteville project is really hold in our full experience with the cost increase experienced on our other project and frankly that added some. So what you're seeing is hopefully something that has some margin than margins for air in it but it does reflect kind of I think the worst of what we seen so far in the pipeline construction.

Unidentified Analyst

Okay. And finally, if I can kind of get a number on where REX debt is, also looking if you could comment on S&P's actions here, it's kind of interesting that on the second of the mark day, you came out to talk about your Fayetteville expansion, and said it will be over 4.5 times debt to EBITDA, probably inclusive of REX debt, as they would look at a negative outlook and they obviously move much quicker, if you can just give some color on your thoughts of why they did move as quick and also if you can give us the REX debt number? Thanks.

C. Park Shaper - President

The REX debt number is, we got $1.9 billion of debt out there, in terms of a longer term debt, were $625 million, $1.3 billion of long term and then outstanding on the credit facility is about $1 billion.

Unidentified Analyst

Okay. So that... was that 1.3 plus 600 plus 1?

Unidentified Company Representative

Yes, almost $3 billion.

Unidentified Company Representative

And then we put, and again these are on a 8H basis, and then within REX to date, the partners have contributed about $1 billion of equity into the project. So that's how you get to Richard's number earlier of roughly $4 billion in REX.

Unidentified Analyst

Alright. Any comments on the rating agencies?

C. Park Shaper - President

I mean, I think like I said before, it was prompted by the announcement around the REX delay. And I mean I don't know that we have anything to add to the comments before.

Unidentified Analyst

Okay. And Park, when you guys talk about the debt number, given that the rating agencies are going to be looking at this, you're including the REX EBITDA in your earnings. If you could maybe give us what the debt numbers are at REX just when you are going through that, that would be helpful for us. Thanks

C. Park Shaper - President

But the numbers that we give you at REX is after interest expense. All we do is we take our net income or our equity and earnings and we'll add back our DD&A. We are not adding back the interest expense.

Unidentified Analyst

Okay.

C. Park Shaper - President

I think it's better to look at it without including the REX debt. So what we're trying to give you when we talk about our distributable cash flow number is what we actually expect to receive out of REX in a distribution. And so that's why we add back the DD&A and we take off the sustaining CapEx.

Unidentified Analyst

Sure.

C. Park Shaper - President

It's after the REX debt is already serviced.

Unidentified Analyst

Right, I understand that. Being on the debt side, we are just trying to look at what the rating agencies are looking at from a total debt to EBITDA standpoint inclusive of REX. That's why I was asking for that.

C. Park Shaper - President

Yes, I understand that they are looking at that, and we'll have some more conversations with S&P about that. I mean Rockies Express is an investment grade rated entity. It supports its own debt and we expect that it will going forward. The $1.3 billion on it is non-recourse to us. We expect that there will be additional debt on it that's non-recourse to us. And I think that's consistent with their understanding.

Unidentified Analyst

All right. Okay, thanks guys.

Unidentified Company Representative

Thank you, Ross.

Operator

And our next question comes from Burt Zimmerman [ph] with Principal Global. Sir, your line is open.

Unidentified Analyst

Thank you. Good afternoon guys.

Richard D. Kinder - Chairman and Chief Executive Officer

Good afternoon.

Unidentified Analyst

I just had a quick question. You mentioned what your credit facility was going to look like at the end of the year. Could you just quickly run through what those credit facilities have available now?

Unidentified Company Representative

Yes. And today at KMP, we have in excess of $800 million. We have almost $900 million at REX. We have about $650 million at MEP.

Richard D. Kinder - Chairman and Chief Executive Officer

And let me just say in case somebody has asked this, those are all net of any commitment from Lehman, which was very small, about 3% of our total lines came from Lehman. But we've netted those out even though I think in the end Barclays may elect to take part of those. But at this time, that's not been done. And so we've been I think conservative there and just netted off. It's very minor, as I said, a little over 3% of the total commitment is from Lehman. But we have netted that out and the numbers we are giving you are without that.

Unidentified Analyst

Okay. So you had $800 million left on your KMP revolver now and you expect to have $600 million left at the end of the year, is that right?

Richard D. Kinder - Chairman and Chief Executive Officer

We expect more... closer to $650 million, yes.

Unidentified Analyst

Okay. So you are only going to draw another $150 million it sounds like the rest of the year?

Richard D. Kinder - Chairman and Chief Executive Officer

We have a little over $800 million and we're going to be a little under $650 million. So yes, $170 million... in that range.

Unidentified Analyst

Okay. Alright, thanks a lot.

Operator

And our next question comes from Rajul Aggarwal with Marathon Asset Management. Sir your line is open.

Rajul Aggarwal - MarathonAsset Management

Hi, thanks for taking my second set of questions. Just on the facility, on that $600 million floater that I think are recourse to you on the Rockies Express, how do you plan to tackle that?

Richard D. Kinder - Chairman and Chief Executive Officer

Well we expect to refinance it, then of course there will be equity contributions coming from the partners as well.

Rajul Aggarwal - MarathonAsset Management

Got it. So you think you'll be from between now and August of '09, you'll be issuing $600 million debt for REX, is that fair?

C. Park Shaper - President

Yes, if there's a reasonable change for that.

Rajul Aggarwal - MarathonAsset Management

Got it. The reason I'm asking is I mean given what is happening in the credit markets, you haven't given a thought to use the credit facility to find an answer.

C. Park Shaper - President

Well, we could do that as well.

Rajul Aggarwal - MarathonAsset Management

Got it. At what point does the credit facility become too tight for the ongoing CapEx at REX itself, or are you comfortable with the availability right now you have of $900 million at that facility?

C. Park Shaper - President

I mean we'll look at that when we look at 2009 and see how the CapEx is going to flow.

Rajul Aggarwal - MarathonAsset Management

And in terms of your own maturity, the 250 that you have in Feb of '09, how do you plan to refi that?

C. Park Shaper - President

We'll either refinance it with long-term debt or we'll refinance it using the credit facility or we'll issue equity.

Rajul Aggarwal - MarathonAsset Management

Thank you.

Operator

I'm showing no further questions at this time.

Richard D. Kinder - Chairman and Chief Executive Officer

Alright, Mary, thank you very much. It's been a long call. Again, as I always say, if you have additional questions, feel free to call Kim or any of the rest of our people and we'll try to answer any and all questions that you may have. Appreciate your patience for a long call and we'll talk again soon.

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Source: Kinder Morgan Energy Partners LP Q3 2008 Earnings Call Transcript
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