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Business Context and Reporting Period

Company: Energy Transfer Equity, L.P. (ETE)

Filing Type: Form 10-Q (Unaudited)

Reporting Period: Three months ended March 31, 2008

Comparative Period: Three months ended February 28, 2007

Overview: ETE is a Delaware limited partnership engaged in midstream natural gas operations, intrastate and interstate transportation, storage, and retail propane operations. The company operates primarily through its subsidiary, Energy Transfer Partners, L.P. (ETP). In November 2007, ETE changed its fiscal year-end to the calendar year; this report covers the first quarter of the new fiscal year.

Key Financial Metrics

Note: All dollar amounts in thousands, except per unit data.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $576.8 million (28%) driven by higher natural gas prices and increased volumes in midstream and intrastate transportation segments.
• Net Income Decline: Net income decreased by $20.7 million (14%) primarily due to a $31.6 million loss on non-hedged interest rate derivatives and increased interest expense ($15.4 million increase).
• Operating Cash Flow: Operating cash flow decreased by $93.3 million, largely due to changes in working capital (specifically accounts receivable and inventory) and a $10 million settlement payment to the CFTC.
• Capital Expenditures: Investing cash outflows increased significantly due to growth capital expenditures of approximately $466 million and acquisitions of $40.8 million.
• Debt Structure: ETP issued $1.5 billion in Senior Notes in March 2008 to repay a $500 million 364-day credit facility and reduce revolver borrowings.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Distributions: ETE declared a quarterly distribution of $0.44 per unit ($1.76 annualized) for Q1 2008, an increase of $0.12 on an annualized basis. ETP declared a distribution of $0.86875 per unit ($3.475 annualized).
• Capital Plan: ETP expects to expend approximately $907 million on growth capital expenditures for the remainder of 2008, primarily for pipeline construction and expansion.
• Segment Performance: Midstream operating income increased significantly ($27.3 million) due to the Canyon Gathering System acquisition and favorable market conditions. Retail propane operating income declined ($7.4 million) due to customer conservation and slower new home construction despite higher fuel prices.

Risks and Contingencies

• FERC/CFTC Investigations: The FERC has alleged market manipulation by ETP, seeking approximately $200 million in penalties and disgorgement. ETP settled a related CFTC suit for $10 million in March 2008. The outcome of the FERC proceeding remains uncertain and could materially impact liquidity and operations.
• Commodity Price Volatility: Results are sensitive to natural gas and propane prices. While the company uses hedging strategies, unbalanced positions can impact financial results.
• Regulatory Matters: Ongoing regulatory proceedings regarding Transwestern's rate case and the Midcontinent Express Pipeline (MEP) project approvals.

Investor Verification Checklist

• FERC/CFTC Exposure: Verify the current status of the FERC Order to Show Cause and the potential financial impact of the ~$200 million in sought penalties versus current accruals.
• Interest Rate Derivatives: Review the $31.6 million loss on non-hedged interest rate derivatives and the company's hedging strategy for future interest rate risk.
• Capital Expenditure Funding: Assess the ability to fund the projected $907 million in growth capex for the remainder of 2008 given current debt levels and cash flow.
• Minority Interest Allocation: Understand the impact of the minority interest in ETP (approx. 56% of ETP is not owned by ETE) on consolidated net income versus cash available for ETE distributions.
• Propane Segment Margins: Monitor the retail propane segment's ability to maintain margins amidst record fuel costs and declining sales volumes.