10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to_____________

Commission file number 1-06446

Kinder Morgan, Inc.

(Exact name of registrant as specified in its charter)

Kansas	48-0290000
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 Dallas Street, Suite 1000, Houston, Texas 77002

(Address of principal executive offices, including zip code)

(713) 369-9000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x  No o

The number of shares outstanding of the registrant’s common stock, $5 par value, as of July 22, 2005 was 122,490,746 shares.

KMI Form 10-Q

KINDER MORGAN, INC. AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED JUNE 30, 2005

Contents

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements. (Unaudited)
	Consolidated Balance Sheets	3-4
	Consolidated Statements of Operations	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7-26
Item 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations.	27-44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	44
Item 4.	Controls and Procedures.	44-45
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings.	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	46
Item 3.	Defaults Upon Senior Securities.	46
Item 4.	Submission of Matters to a Vote of Security Holders.	46-47
Item 5.	Other Information.	47-48
Item 6.	Exhibits.	48
SIGNATURE		49

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KMI Form 10-Q

PART I. - FINANCIAL INFORMATION

Item 1.  Financial Statements.

CONSOLIDATED BALANCE SHEETS (Unaudited)

Kinder Morgan, Inc. and Subsidiaries

	June 30,	December 31,
	2005	2004
	(In thousands)
ASSETS:
Current Assets:
Cash and Cash Equivalents	$     4,944	$   176,520
Restricted Deposits	6,657	38,049
Accounts Receivable, Net:
Trade	83,544	82,544
Related Parties	3,916	5,859
Note Receivable	2,269	4,594
Inventories	93,370	41,781
Gas Imbalances	6,361	5,625
Other	190,456	114,286
	391,517	469,258
Investments:
Kinder Morgan Energy Partners	2,136,809	2,305,212
Goodwill	914,434	918,076
Other	178,693	176,143
	3,229,936	3,399,431
Property, Plant and Equipment, Net	5,828,723	5,851,965
Deferred Charges and Other Assets	449,378	396,247
Total Assets	$ 9,899,554	$10,116,901

The accompanying notes are an integral part of these statements.

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KMI Form 10-Q

CONSOLIDATED BALANCE SHEETS (Unaudited)

Kinder Morgan, Inc. and Subsidiaries

	June 30, 2005		December 31, 2004
	(In thousands except shares)
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Current Maturities of Long-term Debt	$     5,000		$   505,000
Notes Payable	158,400		-
Accounts Payable:
Trade	32,007		58,119
Related Parties	1,230		180
Accrued Interest	59,721		67,206
Accrued Taxes	33,200		32,547
Gas Imbalances	22,508		18,254
Other	123,333		157,503
	435,399		838,809
Other Liabilities and Deferred Credits:
Deferred Income Taxes	2,520,778		2,530,065
Other	140,258		148,044
	2,661,036		2,678,109
Long-term Debt:
Outstanding Notes and Debentures	2,507,916		2,257,950
Deferrable Interest Debentures Issued to Subsidiary Trusts	283,600		283,600
Value of Interest Rate Swaps	119,749		88,243
	2,911,265		2,629,793
Minority Interests in Equity of Subsidiaries	1,136,439		1,105,436
Stockholders’ Equity:
Common Stock-
Authorized - 300,000,000 Shares, Par Value $5 Per Share
Outstanding - 135,394,956 and 134,198,905 Shares,
Respectively, Before Deducting 13,204,951 and 10,666,801
Shares Held in Treasury	676,975		670,995
Additional Paid-in Capital	1,923,275		1,863,145
Retained Earnings	1,069,483		975,912
Treasury Stock	(751,646	)	(558,844	)
Deferred Compensation	(26,450	)	(31,712	)
Accumulated Other Comprehensive Loss	(136,222	)	(54,742	)
Total Stockholders’ Equity	2,755,415		2,864,754
Total Liabilities and Stockholders’ Equity	$ 9,899,554		$10,116,901

The accompanying notes are an integral part of these statements.

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KMI Form 10-Q

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Kinder Morgan, Inc. and Subsidiaries

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(In thousands except per share amounts)
Operating Revenues:
Natural Gas Transportation and Storage	$ 188,478		$ 171,946		$ 395,838		$ 370,739
Natural Gas Sales	80,910		42,941		190,759		180,043
Other	23,997		21,980		43,671		38,671
Total Operating Revenues	293,385		236,867		630,268		589,453
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales	99,559		52,210		212,169		185,681
Operations and Maintenance	46,410		37,934		86,555		74,128
General and Administrative	18,566		19,879		35,239		42,167
Depreciation and Amortization	30,216		29,707		59,571		59,188
Taxes, Other Than Income Taxes	8,566		8,451		17,114		16,832
Total Operating Costs and Expenses	203,317		148,181		410,648		377,996
Operating Income	90,068		88,686		219,620		211,457
Other Income and (Expenses):
Equity in Earnings of Kinder Morgan Energy Partners	157,162		132,802		311,207		261,569
Equity in Earnings of Other Equity Investments	3,307		2,695		6,620		5,502
Interest Expense	(38,564	)	(32,361	)	(74,328	)	(64,795	)
Interest Expense – Deferrable Interest Debentures	(5,478	)	(5,478	)	(10,956	)	(10,956	)
Minority Interests	(19,629	)	(15,089	)	(31,328	)	(24,397	)
Other, Net	23,235		762		29,303		1,521
Total Other Income and (Expenses)	120,033		83,331		230,518		168,444
Income from Continuing Operations Before
Income Taxes	210,101		172,017		450,138		379,901
Income Taxes	88,528		67,627		183,474		148,469
Income from Continuing Operations	121,573		104,390		266,664		231,432
Gain (Loss) on Disposal of Discontinued Operations,
Net of Tax	423		-		(1,389	)	-
Net Income	$ 121,996		$ 104,390		$ 265,275		$ 231,432
Basic Earnings (Loss) Per Common Share:
Income from Continuing Operations	$    1.00		$    0.84		$    2.17		$    1.87
Loss on Disposal of Discontinued Operations	-		-		(0.01	)	-
Total Basic Earnings Per Common Share	$    1.00		$    0.84		$    2.16		$    1.87
Number of Shares Used in Computing Basic
Earnings Per Common Share (Thousands)	122,012		123,882		122,605		123,799
Diluted Earnings (Loss) Per Common Share:
Income from Continuing Operations	$    0.99		$    0.84		$    2.15		$    1.85
Loss on Disposal of Discontinued Operations	-		-		(0.01	)	-
Total Diluted Earnings Per Common Share	$    0.99		$    0.84		$    2.14		$    1.85
Number of Shares Used in Computing Diluted
Earnings Per Common Share (Thousands)	123,103		124,955		123,755		124,942
Dividends Per Common Share	$  0.7000		$  0.5625		$  1.4000		$  1.1250

The accompanying notes are an integral part of these statements.

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KMI Form 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Kinder Morgan, Inc. and Subsidiaries

Increase (Decrease) in Cash and Cash Equivalents

	Six Months Ended June 30,
	2005		2004
	(In thousands)
Cash Flows From Operating Activities:
Net Income	$  265,275		$  231,432
Adjustments to Reconcile Net Income to Net Cash Flows
from Operating Activities:
Loss on Disposal of Discontinued Operations, Net of Tax	1,389		-
Depreciation and Amortization	59,571		59,188
Deferred Income Taxes	81,645		59,845
Equity in Earnings of Kinder Morgan Energy Partners	(311,207	)	(261,569	)
Distributions from Kinder Morgan Energy Partners	254,386		207,992
Equity in Earnings of Other Investments	(6,620	)	(5,502	)
Minority Interests in Income of Consolidated Subsidiaries	31,328		24,397
Deferred Purchased Gas Costs	16,290		6,518
Net Gains on Sales of Assets	(27,077	)	(733	)
Pension Contribution in Excess of Expense	(24,349	)	-
Changes in Gas in Underground Storage	(42,704	)	15,064
Changes in Working Capital Items	(125,841	)	(83,092	)
Payment to Terminate Interest Rate Swap	(3,543	)	-
Other, Net	(1,979	)	(7,522	)
Net Cash Flows Provided by Continuing Operations	166,564		246,018
Net Cash Flows Used in Discontinued Operations	(782	)	(423	)
Net Cash Flows Provided by Operating Activities	165,782		245,595
Cash Flows From Investing Activities:
Capital Expenditures	(48,995	)	(61,381	)
Investment in Kinder Morgan Energy Partners (Note 7)	(625	)	(17,504	)
Net Proceeds from Margin Deposits	31,392		9,061
Other Investments	(293	)	(292	)
Sale of Kinder Morgan Management Shares	92,500		-
Net (Cost of Removal) Proceeds from Sales of Other Assets	(915	)	25,693
Net Cash Flows Provided by (Used in) Investing Activities	73,064		(44,423	)
Cash Flows From Financing Activities:
Short-term Debt, Net	158,400		(62,400	)
Long-term Debt Issued	250,000		-
Long-term Debt Retired	(500,000	)	-
Issuance of Shares by Kinder Morgan Management	-		15,000
Common Stock Issued	42,149		30,061
Short-term Advances From (To) Unconsolidated Affiliates	2,982		(8,817	)
Treasury Stock Acquired	(189,573	)	(39,309	)
Cash Dividends, Common Stock	(171,704	)	(139,379	)
Minority Interests, Net	(1,163	)	(614	)
Debt Issuance Costs	(1,513	)	-
Securities Issuance Costs	-		(75	)
Net Cash Flows Used in Financing Activities	(410,422	)	(205,533	)
Net Decrease in Cash and Cash Equivalents	(171,576	)	(4,361	)
Cash and Cash Equivalents at Beginning of Period	176,520		11,076
Cash and Cash Equivalents at End of Period	$    4,944		$    6,715

For supplemental cash flow information, see Note 4.

The accompanying notes are an integral part of these statements.

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KMI Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

We are an energy transportation, storage and related services provider and have operations in the Rocky Mountain and mid-continent regions of the United States, with principal operations in Arkansas, Colorado, Illinois, Iowa, Kansas, Louisiana, Missouri, Nebraska, New Mexico, Oklahoma, Texas and Wyoming. Our business activities include: (i) storing, transporting and selling natural gas, (ii) providing retail natural gas distribution services and (iii) operating and, in previous periods, developing and constructing electric generation facilities. We have both regulated and nonregulated operations. In addition, we own the general partner interest, as well as significant limited partner interests, in Kinder Morgan Energy Partners, L.P., a publicly traded pipeline master limited partnership, referred to in these Notes as “Kinder Morgan Energy Partners,” and receive a substantial portion of our earnings fr om returns on these investments. Our common stock is traded on the New York Stock Exchange under the symbol “KMI.”

We have prepared the accompanying unaudited interim consolidated financial statements under the rules and regulations of the Securities and Exchange Commission. Under such rules and regulations, we have condensed or omitted certain information and notes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. We believe, however, that our disclosures are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial results for the interim periods presented. You should read these interim consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2004 ( 7;2004 Form 10-K”). Unless the context requires otherwise, references to “we,” “us,” “our,” or the “Company” are intended to mean Kinder Morgan, Inc. and its consolidated subsidiaries.

1.Summary of Significant Accounting Policies

For a complete discussion of our significant accounting policies, see Note 1 of Notes to Consolidated Financial Statements included in our 2004 Form 10-K.

Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, entities to adopt the fair value method of accounting for stock-based compensation plans. As allowed under SFAS No. 123, we continue to apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation expense would not be recognized for stock options unless the options were granted at an exercise price lower than the market price on the grant date, which we have not done. Had compensation cost for these plans been determined consistent with SFAS No. 123, net income and diluted earnings per share would have been reduced to the pro forma amounts shown in the table below. Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, among other factors, t he resulting pro forma compensation cost may not be representative of that to be expected in future years. Additionally, the pro forma amounts include approximately $278,000 and $507,000 for the three months and six months ended June 30, 2004, respectively, related to the 15 percent purchase discount offered under the employee stock purchase plan. Effective January 1, 2005, the purchase discount offered under the employee stock purchase plan was reduced to 5 percent. Amounts related to the 5 percent discount are not included in the pro forma amounts for the three months and six months ended June 30, 2005 because the employee stock purchase plan is no longer considered a compensatory plan under SFAS No. 123.

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KMI Form 10-Q

The Financial Accounting Standards Board (“FASB”) recently issued SFAS No. 123R (revised 2004), Share-Based Payment, which will change our accounting for stock options and similar awards, see Note 17.

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(In thousands, except per share amounts)
Net Income, As Reported	$  121,996		$  104,390		$  265,275		$  231,432
Add: Stock-based Employee Compensation
Expense Included in Reported Net Income,
Net of Related Tax Effects	1,253		775		2,449		1,550
Deduct: Total Stock-based Employee
Compensation Expense Determined under
the Fair Value Method for All Awards,
Net of Related Tax Effects	(3,271	)	(3,567	)	(7,157	)	(8,091	)
Net Income, Pro Forma	$  119,978		$  101,598		$  260,567		$  224,891
Basic Earnings Per Share:
As Reported	$     1.00		$     0.84		$     2.16		$     1.87
Pro Forma	$     0.98		$     0.82		$     2.13		$     1.82
Diluted Earnings Per Share:
As Reported	$     0.99		$     0.84		$     2.14		$     1.85
Pro Forma	$     0.97		$     0.81		$     2.11		$     1.80

2.Earnings Per Share

Basic earnings per common share is computed based on the weighted-average number of common shares outstanding during each period. In recent periods, we have repurchased a significant number of our outstanding shares, see Note 11. Diluted earnings per common share is computed based on the weighted-average number of common shares outstanding during each period, increased by the assumed exercise or conversion of securities (stock options are currently the only such securities outstanding) convertible into common stock, for which the effect of conversion or exercise using the treasury stock method would be dilutive.

	Three Months Ended June 30,		Six Months Ended June 30,
	2005	2004	2005	2004
	(In thousands)
Weighted-average Common Shares Outstanding	122,012	123,882	122,605	123,799
Dilutive Common Stock Options	1,091	1,073	1,150	1,143
Shares Used to Compute Diluted Earnings Per Common Share	123,103	124,955	123,755	124,942

No options were excluded from the diluted earnings per share calculation for the three months and the six months ended June 30, 2005. Weighted-average stock options outstanding totaling 0.1 million for the three months and the six months ended June 30, 2004 were excluded from the diluted earnings per common share calculation because the effect of including them would have been antidilutive.

3.Income Taxes

The effective tax rate (calculated by dividing the amount in the caption “Income Taxes” by the amount in the caption “Income from Continuing Operations Before Income Taxes” as shown in the accompanying interim Consolidated Statements of Operations) was 42.1% and 40.8% for the three and six months ended June 30, 2005, respectively. These effective tax rates reflect, among other factors, the impact of (i) the tax effects of our first and second quarter 2005 gains from sales of Kinder Morgan

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KMI Form 10-Q

Management shares that we owned (see Note 7) and (ii) the minority interest associated with Kinder Morgan Management. We recorded pre-tax gains from sales of Kinder Morgan Management shares of $22.0 million and $26.5 million in the three months and six months ended June 30, 2005, respectively. In conjunction with these gains, we increased our total income tax provision by $13.9 million and $15.5 million in the three months and six months ended June 30, 2005, respectively. We have not recorded deferred taxes with respect to our investment in KMR due to our ability and intent to recover our investment in a tax-free manner. The effective tax rate was 39.3% and 39.1% for the three and six months ended June 30, 2004, respectively, reflecting the impact of the minority interest associated with Kinder Morgan Management, among other factors.

4. Cash Flow Information

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Changes in Working Capital Items:
(Net of Effects of Acquisitions and Sales)
Increase (Decrease) in Cash and Cash Equivalents

	Six Months Ended June 30,
	2005		2004
	(In thousands)
Accounts Receivable	$  (1,000	)	$  10,102
Materials and Supplies Inventory	(213	)	31
Other Current Assets	(72,920	)	(33,513	)
Accounts Payable	(25,304	)	(38,911	)
Income Tax Benefits from Employee Benefit Plans	15,269		9,713
Other Current Liabilities	(41,673	)	(30,514	)
	$(125,841	)	$ (83,092	)

Supplemental Disclosures of Cash Flow Information:

Cash Paid During the Period for:
Interest, Net of Amount Capitalized	$  85,547	$  81,328
Income Taxes Paid	$ 139,776	$ 117,103

Distributions received by our Kinder Morgan Management subsidiary from its investment in i-units of Kinder Morgan Energy Partners are in the form of additional i-units, while distributions made by Kinder Morgan Management to its shareholders are in the form of additional Kinder Morgan Management shares, see Note 6. “Other, Net” as presented in the accompanying interim Consolidated Statements of Cash Flows includes other non-cash increases and decreases to earnings, including amortization of deferred revenue, amortization of debt discount and expense and amortization of interest rate swap proceeds previously received upon termination of the swap.

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KMI Form 10-Q

5.Comprehensive Income

Our comprehensive income is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(In thousands)
Net Income:	$ 121,996		$ 104,390		$ 265,275		$ 231,432
Other Comprehensive Income (Loss), Net of Tax:
Change in Fair Value of Derivatives
Utilized for Hedging Purposes	15,202		(4,253	)	(13,980	)	(12,626	)
Reclassification of Change in Fair Value of
Derivatives to Net Income	4,471		7,998		2,131		8,754
Equity in Other Comprehensive Loss of
Equity Method Investees	(29,298	)	(19,377	)	(147,417	)	(36,704	)
Minority Interest in Other Comprehensive
Loss of Equity Method Investees	17,966		10,089		77,786		18,571
Other Comprehensive Income (Loss)	8,341		(5,543	)	(81,480	)	(22,005	)
Comprehensive Income	$ 130,337		$  98,847		$ 183,795		$ 209,427

The Accumulated Other Comprehensive Loss balance of $136.2 million at June 30, 2005 consisted of (i) $124.2 million representing our pro rata share of the accumulated other comprehensive loss of Kinder Morgan Energy Partners and (ii) $12.0 million representing unrecognized net losses on hedging activities.

6.Kinder Morgan Management, LLC

On May 13, 2005, Kinder Morgan Management, LLC, referred to in this report as Kinder Morgan Management, made a distribution of 0.017482 of its shares per outstanding share (963,495 total shares) to shareholders of record as of April 29, 2005, based on the $0.76 per common unit distribution declared by Kinder Morgan Energy Partners. On August 12, 2005, Kinder Morgan Management will make a distribution of 0.016210 of its shares per outstanding share (909,009 total shares) to shareholders of record as of July 29, 2005, based on the $0.78 per common unit distribution declared by Kinder Morgan Energy Partners. These distributions are paid in the form of additional shares or fractions thereof calculated by dividing the Kinder Morgan Energy Partners’ cash distribution per common unit by the average market price of a Kinder Morgan Management share determined for a ten-trading day period ending on the trading day i mmediately prior to the ex-dividend date for the shares.

7.Investments and Sales

On June 1, 2005, we sold 1,717,033 Kinder Morgan Management shares that we owned for approximately $75.0 million. We recognized a pre-tax gain of $22.0 million associated with this sale.

In April 2005, Kinder Morgan Energy Partners issued 957,656 common units as partial consideration for the acquisition of seven bulk terminal operations. This transaction reduced our percentage ownership of Kinder Morgan Energy Partners (at the time of the transaction) from approximately 18.13% to approximately 18.06% and had the associated effects of increasing our (i) investment in the net assets of Kinder Morgan Energy Partners by $5.1 million, (ii) associated accumulated deferred income taxes by $0.5 million and (iii) paid-in capital by $0.9 million and, in addition, reduced our equity method goodwill in Kinder Morgan Energy Partners by $3.6 million. In addition, in April 2005, in order to maintain our 1% general partner interest in Kinder Morgan Energy Partners’ operating partnerships, we

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KMI Form 10-Q

made a contribution of approximately $0.6 million.

On January 31, 2005, we sold 413,516 Kinder Morgan Management shares that we owned for approximately $17.5 million. We recognized a pre-tax gain of $4.5 million associated with this sale.

In April 2004, we sold two LM6000 gas-fired turbines for $16.5 million (net of marketing fees), which consideration consisted of $2.4 million in cash, a note receivable of $14.5 million and a note payable for marketing fees of $0.4 million. During September 2004, the remaining balance of this receivable was collected. In June 2004, we sold two LM6000 turbines and two boilers to Kinder Morgan Production Company, L.P., a subsidiary of Kinder Morgan Energy Partners, for their estimated fair market value of $21.1 million, which we received in cash. This equipment was a portion of the equipment that became surplus as a result of our decision to exit the power development business.

In February 2004, Kinder Morgan Energy Partners issued 5.3 million common units in a public offering at a price of $46.80 per common unit, receiving total net proceeds (after underwriting discount) of $237.8 million. We did not acquire any of these common units. This transaction reduced our percentage ownership of Kinder Morgan Energy Partners (at the time of the transaction) from approximately 19.0% to approximately 18.5% and had the associated effects of increasing our (i) investment in the net assets of Kinder Morgan Energy Partners by $23.2 million, (ii) associated accumulated deferred income taxes by $0.1 million and (iii) paid-in capital by $0.2 million and, in addition, reduced our equity method goodwill in Kinder Morgan Energy Partners by $23.1 million. In addition, in February 2004, in order to maintain our 1% general partner interest in Kinder Morgan Energy Partners’ operating partnerships, we ma de a contribution of approximately $2.4 million.

On March 25, 2004, Kinder Morgan Management closed the issuance and sale of 360,664 listed shares in a limited registered offering. None of the shares from the offering were purchased by Kinder Morgan, Inc. Kinder Morgan Management used the net proceeds of approximately $14.9 million from the offering to buy 360,664 additional i-units from Kinder Morgan Energy Partners. This issuance of i-units reduced our percentage ownership of Kinder Morgan Energy Partners (at the time of the transaction) from approximately 18.54% to approximately 18.51% and had the associated effects of increasing our investment in the net assets of Kinder Morgan Energy Partners by $1.2 million and reducing our (i) equity method goodwill in Kinder Morgan Energy Partners by $1.5 million, (ii) paid-in capital by $0.2 million and (iii) associated accumulated deferred income taxes by $0.1 million. In addition, in order to maintain our 1% genera l partner interest in Kinder Morgan Energy Partners’ operating partnerships, we made a contribution of approximately $0.2 million.

8.Summarized Income Statement Information for Kinder Morgan Energy Partners

Following is summarized income statement information for Kinder Morgan Energy Partners, a publicly traded master limited partnership in which we own the general partner interest, in addition to limited partner interests in the form of Kinder Morgan Energy Partners common units, i-units and Class B limited partner units. This investment, which is accounted for under the equity method of accounting, is described in more detail in our 2004 Form 10-K. Additional information on Kinder Morgan Energy Partners’ results of operations and financial position are contained in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and in its Annual Report on Form 10-K for the year ended December 31, 2004.

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KMI Form 10-Q

	Three Months Ended June 30,		Six Months Ended June 30,
	2005	2004	2005	2004
	(In thousands)
Operating Revenues	$ 2,126,355	$ 1,957,182	$ 4,098,287	$ 3,779,438
Operating Expenses	1,851,226	1,725,818	3,554,181	3,322,932
Operating Income	$   275,129	$   231,364	$   544,106	$   456,506
Net Income	$   221,826	$   195,218	$   445,447	$   386,972

9.Discontinued Operations

During 1999, we adopted and implemented a plan to discontinue a number of lines of business. During 2000, we essentially completed the disposition of these discontinued operations. For the three months ended June 30, 2005, a gain of approximately $0.4 million (net of tax of $0.2 million) was recorded to reflect the settlement of previously recorded liabilities. For the six months ended June 30, 2005, incremental losses of approximately $1.4 million (net of tax benefits of $0.8 million) were recorded to increase previously recorded liabilities to reflect updated estimates. The cash flows attributable to discontinued operations included in the accompanying interim Consolidated Statements of Cash Flows under the caption “Net Cash Flows Used in Discontinued Operations” result from cash activity attributable to retained liabilities associated with these discontinued operations. Note 7 of Notes to Consolida ted Financial Statements included in our 2004 Form 10-K contains additional information on these matters.

10.Financing

At June 30, 2005, we had available an $800 million five-year credit facility dated August 18, 2004. This credit facility can be used for general corporate purposes, including as backup for our commercial paper program and includes financial covenants and events of default that are common in such arrangements. This credit facility does not contain a material adverse change clause. However, the margin that we pay with respect to borrowings and the facility fee we pay on the total commitment varies based on our senior debt investment rating. We had no borrowings under our credit facility at June 30, 2005. Note 12 of Notes to Consolidated Financial Statements included in our 2004 Form 10-K contains additional information on our credit facility.

The commercial paper we issue, which is supported by the credit facility described above, is comprised of unsecured short-term notes with maturities not to exceed 270 days from the date of issue. Commercial paper outstanding at June 30, 2005 was $158.4 million. We had no commercial paper outstanding at December 31, 2004. Our weighted-average interest rate on short-term borrowings outstanding at June 30, 2005 was 3.35 percent. Average short-term borrowings outstanding during the second quarter of 2005 were $235.0 million and the weighted-average interest rate was 3.10 percent. Average short-term borrowings outstanding during the first six months of 2005 were $196.2 million and the weighted-average interest rate was 2.98 percent.

Our current maturities of long-term debt of $5 million at June 30, 2005 represents $5 million of current maturities of our 6.50% Series Debentures due September 1, 2013 (which are payable September 1, 2005).

On March 1, 2005, our $500 million of 6.65% Senior Notes matured, and we paid the holders of the notes, utilizing a combination of cash on hand and borrowings under our commercial paper program.

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KMI Form 10-Q

On March 15, 2005, we issued $250 million of our 5.15% Senior Notes due March 1, 2015.  The proceeds of $248.5 million, net of underwriting discounts and commissions, were used to repay short-term commercial paper debt which was incurred to pay our 6.65% Senior Notes that matured on March 1, 2005.

On May 13, 2005, we paid a cash dividend on our common stock of $0.70 per share to shareholders of record as of April 29, 2005. On July 20, 2005, our Board of Directors approved a cash dividend of $0.75 per common share payable on August 12, 2005 to shareholders of record as of July 29, 2005.

11.Common Stock Repurchase Plan

On August 14, 2001, we announced a program to repurchase $300 million of our outstanding common stock, which program was increased to $400 million, $450 million, $500 million, $550 million, $750 million and $800 million in February 2002, July 2002, November 2003, April 2004, November 2004 and April 2005, respectively. As of June 30, 2005, we had repurchased a total of approximately $744.9 million (13,147,000 shares) of our outstanding common stock under the program, of which $14.9 million (196,500 shares) and $183.7 million (2,418,300 shares) were repurchased in the three months and six months ended June 30, 2005, respectively. We repurchased $37.2 million (631,200 shares) and $39.3 million (666,200 shares) of our common stock in the three months and six months ended June 30, 2004, respectively.

12.Business Segments

In accordance with the manner in which we manage our businesses, including the allocation of capital and evaluation of business segment performance, we report our operations in the following segments: (1) Natural Gas Pipeline Company of America and certain affiliates, referred to as Natural Gas Pipeline Company of America or NGPL, a major interstate natural gas pipeline and storage system; (2) prior to its contribution to Kinder Morgan Energy Partners as discussed following, TransColorado Gas Transmission Company, referred to as TransColorado, an interstate natural gas pipeline located in western Colorado and northwest New Mexico; (3) Kinder Morgan Retail, the regulated sale and transportation of natural gas to residential, commercial and industrial customers (including a small distribution system in Hermosillo, Mexico) and the sale of natural gas to certain utility customers under the Choice Gas Program and (4) Power, the operation and, in previous periods, development and construction of natural gas-fired electric generation facilities. Our investment in TransColorado Gas Transmission Company was contributed to Kinder Morgan Energy Partners effective November 1, 2004.

The accounting policies we apply in the generation of business segment information are generally the same as those applied to our consolidated operations and described in Note 1 of Notes to Consolidated Financial Statements included in our 2004 Form 10-K, except that (i) certain items below the “Operating Income” line (such as interest expense) are either not allocated to business segments or are not considered by management in its evaluation of business segment performance and (ii) equity in earnings of equity method investees, other than Kinder Morgan Energy Partners, are included. These equity method earnings are included in “Other Income and (Expenses)” in the accompanying interim Consolidated Statements of Operations. In addition, (i) certain items included in operating income (such as general and administrative expenses) are not considered by management in its evaluation of business se gment performance and (ii) gains and losses from incidental sales of assets are included in segment earnings. With adjustment for these items, we currently evaluate business segment performance primarily based on operating income in relation to the level of capital employed. We account for intersegment sales at market prices, while we account for asset transfers at either market value or, in some instances, book value.

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KMI Form 10-Q

BUSINESS SEGMENT INFORMATION

	Three Months Ended June 30, 2005					June 30, 2005
	Segment Earnings		Revenues From External Customers1	Depreciation And Amortization	Capital Expenditures	Segment Assets
	(In thousands)
Natural Gas Pipeline Company of America	$  99,400		$ 216,243	$   24,579	$   24,786	$ 5,576,700
Kinder Morgan Retail	4,944		58,697	4,561	8,954	442,613
Power	4,477		15,212	1,076	-	383,345
Segment Totals	108,821		290,152	$   30,216	$   33,740	6,402,658
Other Revenues2			3,233
Total Revenues			$ 293,385
Earnings from Investment in Kinder				Investment in Kinder Morgan
Morgan Energy Partners	157,162			Energy Partners		2,136,809
General and Administrative Expenses	(18,566	)		Goodwill		914,434
Other Income and (Expenses)	(37,316	)		Other3		445,653
Income from Continuing Operations				Consolidated		$ 9,899,554
Before Income Taxes	$ 210,101

	Three Months Ended June 30, 2004
	Segment Earnings		Revenues From External Customers1	Depreciation And Amortization	Capital Expenditures
	(In thousands)
Natural Gas Pipeline Company of America	$  93,427		$ 171,672	$   23,564	$   21,817
TransColorado	5,384		7,776	1,062	4,301
Kinder Morgan Retail	4,971		42,630	4,209	15,341
Power	3,908		14,789	872	-
Segment Totals	107,690		$ 236,867	$   29,707	$   41,459
Earnings from Investment in Kinder
Morgan Energy Partners	132,802
General and Administrative Expenses	(19,879	)
Other Income and (Expenses)	(48,596	)
Income from Continuing Operations
Before Income Taxes	$ 172,017

¹

There were no intersegment revenues during the periods presented.

²

Revenues from KM Insurance Ltd., our wholly owned subsidiary that was formed during the second quarter of 2005 for the purpose of providing insurance services to Kinder Morgan Energy Partners and us. KM Insurance Ltd. was formed as a Class 2 Bermuda insurance company, the sole business of which is to issue policies for Kinder Morgan Energy Partners and us to secure the deductible portion of our workers’ compensation, automobile liability and general liability policies placed in the commercial insurance market.

³

Includes market value of derivative instruments (including interest rate swaps) and miscellaneous corporate assets (such as information technology and telecommunications equipment) not allocated to individual segments.

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KMI Form 10-Q

	Six Months Ended June 30, 2005
	Segment Earnings		Revenues From External Customers1	Depreciation And Amortization	Capital Expenditures
	(In thousands)
Natural Gas Pipeline Company of America	$ 213,609		$ 422,716	$   48,698	$   36,799
Kinder Morgan Retail	38,011		179,829	9,028	12,196
Power	8,843		24,490	1,845	-
Segment Totals	260,463		627,035	$   59,571	$   48,995
Other Revenues2			3,233
Total Revenues			$ 630,268
Earnings from Investment in Kinder
Morgan Energy Partners	311,207
General and Administrative Expenses	(35,239	)
Other Income and (Expenses)	(86,293	)
Income from Continuing Operations
Before Income Taxes	$ 450,138

	Six Months Ended June 30, 2004
	Segment Earnings		Revenues From External Customers1	Depreciation And Amortization	Capital Expenditures
	(In thousands)
Natural Gas Pipeline Company of America	$ 200,173		$ 395,684	$   46,944	$   33,198
TransColorado	11,011		15,681	2,121	5,411
Kinder Morgan Retail	38,652		154,089	8,378	22,772
Power	7,631		23,999	1,745	-
Segment Totals	257,467		$ 589,453	$   59,188	$   61,381
Earnings from Investment in Kinder
Morgan Energy Partners	261,569
General and Administrative Expenses	(42,167	)
Other Income and (Expenses)	(96,968	)
Income from Continuing Operations
Before Income Taxes	$ 379,901

¹

There were no intersegment revenues during the periods presented.

²

Revenues from KM Insurance Ltd., our wholly owned subsidiary that was formed during the second quarter of 2005 for the purpose of providing insurance services to Kinder Morgan Energy Partners and us. KM Insurance Ltd. was formed as a Class 2 Bermuda insurance company, the sole business of which is to issue policies for Kinder Morgan Energy Partners and us to secure the deductible portion of our workers’ compensation, automobile liability and general liability policies placed in the commercial insurance market.

GEOGRAPHIC INFORMATION

All but an insignificant amount of our assets and operations are located in the continental United States of America.

13.Accounting for Derivative Instruments and Hedging Activities

Our normal business activities expose us to risks associated with changes in the market price of natural gas and associated transportation. We engage in derivative transactions for the purpose of mitigating these risks, which transactions are accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and associated amendments. During the three and six

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KMI Form 10-Q

month periods ended June 30, 2005 and 2004, our derivative activities relating to the mitigation of these risks were designated and qualified as cash flow hedges. We recognized a pre-tax loss of approximately $0.5 million and a pre-tax gain of $0.1 million in the three months ended June 30, 2005, and 2004, respectively and a pre-tax loss of approximately $1.8 million and $0.5 million in the six month periods ended June 30, 2005 and 2004, respectively, as a result of ineffectiveness of these hedges, which amounts are reported within the captions “Natural Gas Sales” and “Gas Purchases and Other Costs of Sales” in the accompanying interim Consolidated Statements of Operations. There was no component of these derivatives instruments’ gain or loss excluded from the assessment of hedge effectiveness. As the hedged sales and purchases take place and we record them into earnings, we also reclassify the gains and losses included in accumulated other comprehensive income into earnings. We expect to reclassify into earnings, during the next twelve months, substantially all of our accumulated other comprehensive loss balance related to these derivatives of $12.0 million at June 30, 2005, representing unrecognized net losses on derivative activities. During the three and six month periods ended June 30, 2005 and 2004, we reclassified no gains or losses into earnings as a result of the discontinuance of cash flow hedges due to a determination that the forecasted transactions would no longer occur by the end of the originally specified time period. In conjunction with these activities, we are required to place funds in margin accounts (included with “Restricted Deposits” in the accompanying interim Consolidated Balance Sheet) when the market value of these derivatives with specific counterparties exceeds established limits, or in conjunction with the purchase of exchange-traded derivativ es.

We have outstanding fixed-to-floating interest rate swap agreements with a notional principal amount of $1.25 billion at June 30, 2005. These agreements effectively convert the interest expense associated with our 7.25% Debentures due in 2028 and $750 million of our 6.50% Senior Notes due in 2012 from fixed rates to floating rates based on the three-month London Interbank Offered Rate (“LIBOR”) plus a credit spread. These swaps have been designated as fair value hedges, and we have accounted for them utilizing the “shortcut” method prescribed for qualifying fair value hedges under SFAS No. 133. Accordingly, the carrying value of the swap is adjusted to its fair value as of the end of each reporting period, and an offsetting entry is made to adjust the carrying value of the debt securities whose fair value is being hedged. The fair value of the swaps of $123.1 million at June 30, 2005 is incl uded in the caption “Deferred Charges and Other Assets” in the accompanying interim Consolidated Balance Sheet. We record interest expense equal to the floating rate payments, which is accrued monthly and paid semi-annually.

On March 10, 2005, we terminated $250 million of our interest rate swap agreements associated with our 6.50% Senior Notes due 2012 and paid $3.5 million in cash. We are amortizing this amount to interest expense over the period the 6.50% Senior Notes are outstanding. The unamortized balance of $3.4 million at June 30, 2005 is included in the caption “Value of Interest Rate Swaps” under the heading “Long-term Debt” in the accompanying interim Consolidated Balance Sheet.

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KMI Form 10-Q

14.Employee Benefits

(A)    Retirement Plans

The components of net periodic pension cost for our retirement plans are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(In thousands)
Service Cost	$   2,494		$   2,149		$   4,987		$   4,297
Interest Cost	2,994		2,859		5,987		5,717
Expected Return on Assets	(5,101	)	(4,070	)	(10,202	)	(8,141	)
Amortization of:
Transition Asset	(8	)	(40	)	(16	)	(81	)
Prior Service Cost	45		45		89		89
(Gain)/Loss	176		(518	)	355		144
Net Periodic Pension Cost	$     600		$     425		$   1,200		$   2,025

We previously disclosed in our 2004 Form 10-K that we expect to make contributions of approximately $25 million to our retirement plans during 2005. As of June 30, 2005, contributions of approximately $25 million have been made. We expect that additional contributions, if any, made during 2005 will not be significant.

(B)    Other Postretirement Employee Benefits

The components of net periodic benefit cost for our postretirement benefit plan are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(In thousands)
Service Cost	$     110		$     114		$     220		$     229
Interest Cost	1,301		1,653		2,603		3,306
Expected Return on Assets	(1,429	)	(1,236	)	(2,857	)	(2,473	)
Amortization of:
Transition Obligation	-		233		-		465
Prior Service Cost	(416	)	59		(831	)	119
Loss	1,209		1,320		2,415		1,522
Net Periodic Postretirement Benefit Cost	$     775		$   2,143		$   1,550		$   3,168

We previously disclosed in our 2004 Form 10-K that we expect to make contributions of approximately $8.5 million to our postretirement benefit plan during 2005. As of June 30, 2005, contributions of approximately $8.5 million have been made. We expect that additional contributions, if any, to our postretirement benefit plan during 2005 will not be significant.

15.Regulatory Matters

On December 6, 2004, as revised on March 11, 2005, NGPL filed with the FERC, in Docket No. CP05-34, a certificate application for: (i) authorization to construct and operate a new 1,775 horsepower (“hp”) compressor unit and a new 3,500 hp compressor unit at NGPL’s Compressor Station No. 155 in Wise County, Texas, (ii) authorization to construct and operate a new 3,550 hp compressor unit and a new 2,370 hp compressor unit at NGPL’s Compressor Station No. 801 in Carter County, Oklahoma and (iii) permission and approval to abandon three 660 hp compressor units and a 2,000 hp compressor unit at Compressor Station No. 155. This project will provide 20,000 dekatherms (“Dth”) per day of additional

17

KMI Form 10-Q

transportation capacity in NGPL’s Segment No. 1 and 51,000 Dth per day of additional transportation capacity in NGPL’s Amarillo/Gulf Coast line at a cost of approximately $21.1 million. The FERC issued a certificate approving the project on June 1, 2005. NGPL accepted the certificate on June 29, 2005.

On December 2, 2004, the FERC issued a Notice of Inquiry (Docket No. PL05-5) seeking comments on the implications of the July 20, 2004 opinion of the Court of Appeals for the District of Columbia Circuit in BP West Coast Producers, LLC, v. FERC. In reviewing a series of orders involving SFPP, L.P., the court held, among other things, that the FERC had not adequately justified its policy (the “Lakehead” policy) of providing an oil pipeline limited partnership with an income tax allowance equal to the proportion of its limited partnership interests owned by corporate partners. The FERC was seeking comments on whether the court’s ruling applies only to the specific facts of the SFPP, L.P. proceeding, or also extends to other capital structures involving partnerships and other forms of ownership. Comments were filed by the Kinder Morgan interstate pipelines.

On May 4, 2005, the FERC adopted a policy statement in Docket No. PL05-5, providing that all entities owning public utility assets - oil and gas pipelines and electric utilities - would be permitted to include an income tax allowance in their cost-of-service rates to reflect the actual or potential income tax liability attributable to their public utility income, regardless of the form of ownership. Any tax pass-through entity seeking an income tax allowance would have to establish that its partners or members have an actual or potential income tax obligation on the entity’s public utility income. The FERC expressed the intent to implement its policy in individual cases as they arise.

On November 22, 2004, the FERC issued a Notice of Inquiry seeking comments on its policy of selective discounting. Specifically, the FERC asked parties to submit comments and respond to inquiries regarding the FERC’s practice of permitting pipelines to adjust their ratemaking throughput downward in rate cases to reflect discounts given by pipelines for competitive reasons – when the discount is given to meet competition from another gas pipeline. Comments were filed by numerous parties, including NGPL. After reviewing the comments, the FERC found that its current policy on selective discounting is an integral and essential part of the FERC’s policies furthering the goal of developing a competitive national natural gas transportation market. The FERC further found that the selective discounting policy provides for safeguards to protect captive customers. If there are circumstances on a particular pipeline that may warrant special consideration or additional protections for captive customers, those issues can be considered in individual cases. The FERC stated that this order is in the public interest because it promotes a competitive natural gas market and also protects the interests of captive customers. By an order issued on May 31, 2005, the FERC reaffirmed its existing policy on selective discounting by interstate pipelines without change. Several entities have filed for rehearing.

On November 5, 2004, the FERC issued a Notice of Proposed Accounting Release that would require FERC jurisdictional entities to recognize costs incurred in performing pipeline assessments that are a part of a pipeline integrity management program as maintenance expense in the period incurred. The proposed accounting ruling is in response to the FERC’s finding of diverse practices within the pipeline industry in accounting for pipeline assessment activities. The proposed ruling would standardize these practices. Specifically, the proposed ruling clarifies the distinction between costs for a “one-time rehabilitation project to extend the useful life of the system,” which could be capitalized, and costs for an “on-going inspection and testing or maintenance program,” which would be accounted for as maintenance and charged to expense in the period incurred.

On June 30, 2005, the FERC issued an order providing guidance to the industry on accounting for costs associated with pipeline integrity management requirements. The order is effective prospectively from January 1, 2006. Under the order, the costs to be expensed include those to: prepare a plan to implement

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KMI Form 10-Q

the program; identify high consequence areas; develop and maintain a record keeping system; and inspect affected pipeline segments. The costs of modifying the pipeline to permit in-line inspections, such as installing pig launchers and receivers, are to be capitalized, as are certain costs associated with developing or enhancing computer software or to add or replace other items of plant. We are currently reviewing the effects of this order on our financial statements.

On October 18, 2004, NGPL filed, in Docket No. CP05-7, a certificate application with the FERC for permission and approval to abandon certain storage field surface piping and for authority to construct and operate additional facilities at its Sayre Storage field located in Beckman County, Oklahoma.  By this application, NGPL seeks to provide an additional 10 billion cubic feet (“Bcf”) of nominated storage service (“NSS”) on NGPL’s Amarillo mainline system, increase Sayre’s certificated peak day withdrawal from 400 MMcf per day to 600 MMcf per day, and increase Sayre’s maximum working gas capacity to 57.1 Bcf, at a cost of approximately $35.4 million. By an order issued on March 25, 2005, the FERC approved NGPL’s proposal without modification and subject only to the usual conditions. On April 20, 2005, NGPL accepted the issued certificate.

In April 2004, we were advised that, as part of an audit of the FERC Form 2s, the FERC would be conducting a compliance audit of NGPL’s Form 2s for the period January 1, 2000 through December 31, 2003. On May 4, 2005, the FERC issued their audit report recommending that NGPL (i) revise its procedures to ensure that fines and penalties are recorded in the proper accounts as required by the FERC’s Uniform System of Accounts, (ii) make a correcting entry in the amount of $215,000 to properly record a penalty that was paid in 2000 and (iii) implement procedures to ensure that inactive projects are cleared from construction work in progress on a timely basis. In addition, the FERC audit team identified approximately $20.6 million of costs associated with pipeline assessment that were capitalized by NGPL in accordance with its capitalization policies during the audit period. The Chief Accountant of the FERC has issued a Notice of Proposed Accounting Release that is intended to provide industry guidance on accounting for pipeline assessment activities. The FERC audit report indicates that appropriate accounting for these costs will be further considered when this industry-wide proceeding is concluded and a final Accounting Release is approved by the FERC. The FERC final Accounting Release was issued June 30, 2005 and the new accounting guidelines will be effective January 1, 2006, as further described above.

The FERC has commenced an audit of NGPL, as well as a number of other interstate gas pipelines, to test compliance with the FERC’s requirements related to the filings and postings of the Index of Customers.

On February 20, 2004, the Circuit Court of Appeals for the District of Columbia remanded back to the FERC a Williston Basin Interstate Pipeline proceeding in which the Court ruled that the FERC did not explain how the selective discounting policy adopted by the FERC in the Colorado Interstate Gas Co. and Granite State Gas Transmission cases would not compromise the pipelines’ ability to target discounts at particular receipt/delivery points, subsystems or other defined geographic areas. On June 1, 2004, the FERC issued a Notice of Request for Comments in the Williston Basin Interstate Pipeline proceeding, on issues pertaining to discounting policy adopted in the Colorado Interstate Gas Co. and Granite State Gas Transmission cases. Comments were due on August 9, 2004. Comments were filed by the Kinder Morgan interstate pipelines. On March 3, 2005, the FERC issued an Order on Remand in the Williston Basin In terstate Pipeline Co. proceeding (RP00-463). The FERC has concluded that it cannot, at the present time, satisfy its burden under NGA Section 5 to require Williston or other pipelines to modify their tariffs to incorporate the CIG/Granite State policy. The FERC will return to its pre-existing policy of permitting pipelines to limit the selective discounts they offer shippers to particular points. Pipelines who implemented the CIG/Granite State policy pursuant to orders that are now final may file pursuant to NGA Section 4 to remove their tariff provisions implementing that policy. The Kinder

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KMI Form 10-Q

Morgan interstate pipelines filed with the FERC to remove these tariff restrictions, which the FERC has approved.

On November 25, 2003, the FERC issued Order No. 2004, adopting new Standards of Conduct to become effective February 9, 2004. Every interstate natural gas pipeline was required to file a compliance plan by that date and was required to be in full compliance with the Standards of Conduct by June 1, 2004. The primary change from existing regulation is to make such standards applicable to an interstate pipeline’s interaction with many more affiliates (termed “Energy Affiliates”), including intrastate/Hinshaw pipelines (in general, a Hinshaw pipeline is a pipeline that receives gas at or within a state boundary, is regulated by an agency of that state, and all the gas it transports is consumed within that state), processors and gatherers and any company involved in gas or electric markets (such as electric generators and electric or gas marketers) even if they do not ship on the affiliated interstate pipeline. Local distribution companies (“LDCs”) are excluded, however, if they do not make any off-system sales. The Standards of Conduct require, inter alia, separate staffing of interstate pipelines and their Energy Affiliates (but certain support functions and senior management at the central corporate level may be shared) and strict limitations on communications from an interstate pipeline to an Energy Affiliate. NGPL and Kinder Morgan Interstate Gas Transmission LLC, a subsidiary of Kinder Morgan Energy Partners, filed for clarification and rehearing of Order No. 2004 on December 29, 2003, and numerous other rehearing requests have been submitted. In the request for rehearing, NGPL and Kinder Morgan Interstate Gas Transmission LLC asked that intrastate/Hinshaw pipeline affiliates not be included in the definition of Energy Affiliates. On February 9, 2004, the interstate pipelines owned by Kinder Morgan, Inc. and Kinder Morgan Energy Partners filed their compliance plans under Order No. 2004. In addition, on February 19, 2004, the Kinder Morgan interstate pipelines filed a joint request asking that their interaction with intrastate/Hinshaw pipeline affiliates be exempted from the Standards of Conduct. Separation from these entities would be the most burdensome requirement of the new rules for the Kinder Morgan interstate pipelines.

On April 16, 2004, the FERC issued Order No. 2004-A. The FERC extended the effective date of the new Standards of Conduct from June 1, 2004, to September 1, 2004. Otherwise, the FERC largely denied rehearing of Order No. 2004, but provided further clarification or adjustment in several areas. The FERC continued the exemption for LDCs that do not make off-system sales, but clarified that the LDC exemption still applies if the LDC is also a Hinshaw pipeline. The FERC also clarified that an LDC can engage in certain sales and other Energy Affiliate activities to the limited extent necessary to support sales to customers located on its distribution system, and sales necessary to remain in balance under pipeline tariffs, without becoming an Energy Affiliate. The FERC declined to exempt producers from the definition of Energy Affiliate. The FERC also declined to exempt intrastate and Hinshaw pipelines, processors and gatherers from the definition of Energy Affiliate, but did clarify that such entities will not be Energy Affiliates if they do not participate in gas or electric commodity markets or interstate capacity markets (as capacity holder, agent or manager) or in financial transactions related to such markets. The FERC also clarified further the personnel and functions that can be shared by interstate pipelines and their Energy Affiliates, including senior officers and risk management personnel and the permissible role of holding or parent companies and service companies. The FERC also clarified that day-to-day operating information can be shared by interconnecting entities. Finally, the FERC clarified that an interstate pipeline and its Energy Affiliate can discuss potential new interconnects to serve the Energy Affiliate, but subject to posting and record-keeping requirements. The Kinder Morgan interstate pipelines sought rehearing to clarify the applicability of the LDC and Parent Company exemptions to them.

On July 21, 2004, the Kinder Morgan interstate pipelines filed additional joint requests asking for limited exemptions from certain requirements of FERC Order No. 2004 and asking for an extension of the deadline for full compliance with Order No. 2004 until 90 days after the FERC has completed action

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KMI Form 10-Q

on the pipelines’ various rehearing and exemption requests. The pipelines also requested that Rocky Mountain Natural Gas Company, one of Kinder Morgan, Inc.’s wholly owned subsidiaries, be classified as an exempt LDC for purposes of Order No. 2004. These exemptions requested relief from the independent functioning and information disclosure requirements of Order No. 2004. The exemption requests proposed to treat as Energy Affiliates within the meaning of Order No. 2004 two groups of employees, (i) individuals in the Choice Gas Commodity Group within Kinder Morgan, Inc.’s Retail operations and (ii) commodity sales and purchasing personnel within Kinder Morgan Energy Partners’ Texas intrastate operations. Order No. 2004 regulations governing relationships between interstate pipelines and their Energy Affiliates would apply to relationships with these two groups. Under these proposals, certain critical operating functions could continue to be shared.

On August 2, 2004, the FERC issued Order No. 2004-B. In this order, the FERC extended the effective date of the new Standards of Conduct from September 1, 2004 to September 22, 2004. Also in this order, among other actions, the FERC denied the request for rehearing made by the Kinder Morgan interstate pipelines to clarify the applicability of the LDC and Parent Company exemptions to them.

On September 20, 2004, the FERC issued an order that conditionally granted the July 21, 2004 joint requests for limited exemptions from the requirements of the Standards of Conduct described above. In that order, the FERC directed the Kinder Morgan interstate pipelines to submit compliance plans regarding these filings within 30 days. These compliance plans were filed on October 19, 2004 and set out certain steps taken by the Kinder Morgan interstate pipelines to assure that employees in the Choice Gas Commodity Group within Kinder Morgan, Inc.’s Retail operations and the commodity sales and purchasing personnel of Kinder Morgan Energy Partners’ Texas intrastate operations do not have access to restricted interstate pipeline information or receive preferential treatment as to interstate pipeline services. The FERC will not enforce compliance of the independent functioning requirement of the Standards of Conduct as to these employees until 30 days after it acts on these compliance filings. In all other respects, the Kinder Morgan interstate pipelines were required to comply with Order No. 2004 by September 22, 2004.

The Kinder Morgan interstate pipelines have implemented compliance with the Standards of Conduct as of September 22, 2004, subject to the exemptions described in the prior paragraph. Compliance includes, inter alia, the posting of compliance procedures and organizational information for each interstate pipeline on its internet website, the posting of discount and tariff discretion information and the implementation of independent functioning for Energy Affiliates not covered by the prior paragraph (electric and gas gathering, processing or production affiliates).

On December 21, 2004, the FERC issued Order No. 2004-C, an order granting rehearing on certain issues and also clarifying certain provisions in the previous orders. The primary impact on the Kinder Morgan interstate pipelines from Order 2004-C is the granting of rehearing and allowing LDCs to participate in hedging activity related to on-system sales and still qualify for exemption from Energy Affiliate.

By an order issued on April 19, 2005, the FERC accepted the compliance plans filed by the Kinder Morgan interstate pipelines without modification, but subject to further amplification and clarification as to the intrastate group in three areas: (i) further description of the matters the shared transmission function personnel may discuss with the commodity sales and purchasing personnel within Kinder Morgan Energy Partners’ Texas intrastate operations; (ii) additional posting of organizational information about the commodity sales and purchasing personnel within Kinder Morgan Energy Partners’ Texas intrastate operations; and (iii) clarification that the President of Kinder Morgan Energy Partners’ intrastate pipeline group has received proper training and will not be a conduit for improperly sharing transmission or customer information with the commodity sales and purchasing personnel within

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KMI Form 10-Q

Kinder Morgan Energy Partners’ Texas intrastate natural gas operations. The FERC also approved treatment of Rocky Mountain Natural Gas Company as an exempt LDC. The Kinder Morgan interstate pipelines made a compliance filing on May 18, 2005.

On July 25, 2003, the FERC issued a Modification to Policy Statement stating that FERC-regulated natural gas pipelines will, on a prospective basis, no longer be permitted to use gas basis differentials to price negotiated rate transactions. Effectively, interstate pipelines will no longer be permitted to use commodity price indices to structure transactions. Negotiated rates based on commodity price indices in existing contracts will be permitted to remain in effect until the end of the contract period for which such rates were negotiated. Price indexed contracts currently constitute an insignificant portion of the contracts on the interstate pipelines owned by Kinder Morgan, Inc. and Kinder Morgan Energy Partners. Moreover, in subsequent orders in individual pipeline cases, the FERC has allowed negotiated rate transactions using pricing indices so long as revenue is capped by the applicable maximum rate(s). R ehearing on this aspect of the Modification to Policy Statement has been sought by several pipelines, but the FERC has not yet acted on rehearing.

See Note 8 of Notes to Consolidated Financial Statements included in our 2004 Form 10-K for additional information regarding regulatory matters.

16.Environmental and Legal Matters

(A)    Environmental Matters

We are subject to a variety of federal, state and local laws that regulate permitted activities relating to air and water quality, waste disposal and other environmental matters. Additionally, we have established reserves totaling $11.9 million at June 30, 2005 to address known environmental remediation sites. After consideration of reserves established, we believe that costs for environmental remediation and ongoing compliance with these regulations will not have a material adverse effect on our cash flows, financial position or results of operations or diminish our ability to operate our businesses. However, there can be no assurances that future events, such as changes in existing laws, the promulgation of new laws, or the development of new facts or conditions will not cause us to incur significant costs.

See Note 9(A) of Notes to Consolidated Financial Statements included in our 2004 Form 10-K for additional information regarding environmental matters.

(B)    Litigation Matters

United States of America, ex rel., Jack J. Grynberg v. K N Energy, Civil Action No. 97-D-1233, filed in the U.S. District Court, District of Colorado. This action was filed on June 9, 1997 pursuant to the federal False Claims Act and involves allegations of mismeasurement of natural gas produced from federal and Indian lands. The complaint asks to recover all royalties the Government allegedly should have received had the volume and heating content of the natural gas been valued properly, along with treble damages and civil penalties as provided for in the False Claims Act. Mr. Grynberg, as relator, seeks his statutory share of any recovery, plus expenses and attorney fees and costs. The Department of Justice has decided not to intervene in support of the action. The complaint is part of a larger series of similar complaints filed by Mr. Grynberg against 77 natural gas pipelines (approximately 330 other defendants). An earlier single action making substantially similar allegations against the pipeline industry was dismissed by Judge Hogan of the U.S. District Court for the District of Columbia on grounds of improper joinder and lack of jurisdiction. As a result, Mr. Grynberg filed individual complaints in various courts throughout the country. In 1999, these cases were consolidated by the Judicial Panel for Multidistrict Litigation (“MDL”), and transferred to the District of Wyoming. The

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KMI Form 10-Q

MDL case is called In Re Natural Gas Royalties Qui Tam Litigation, Docket No. 1293. Motions to dismiss were filed and an oral argument on the motion to dismiss occurred on March 17, 2000. On July 20, 2000, the United States of America filed a motion to dismiss those claims by Grynberg that deal with the manner in which defendants valued gas produced from federal leases (referred to as valuation claims). Judge Downes denied the defendant’s motion to dismiss on May 18, 2001. The United States’ motion to dismiss most of the plaintiff’s valuation claims has been granted by the Court. Mr. Grynberg appealed that dismissal to the 10^th Circuit, which requested briefing regarding its jurisdiction over that appeal. Mr. Grynberg’s appeal was dismissed for lack of appellate jurisdiction. Discovery to determine issues related to the Court’s subject matter jurisdiction, arising out of the False Claims Act is complete. On May 7, 2003, Grynberg sought leave to file a Third Amended Complaint, which adds allegations of undermeasurement related to CO₂ production. Defendants have filed briefs opposing leave to amend. Neither the Court nor the Special Master have ruled on Mr. Grynberg’s motion to amend. On May 13, 2005, the Special Master issued his Report and Recommendations to Judge Downes in the In Re Natural Gas Royalties Qui Tam Litigation, Docket No. 1293. The Special Master found that there was a prior public disclosure of the mismeasurement fraud Grynberg alleged, and that Grynberg was not an original source of the allegations. As a result, the Special Master recommended dismissal on jurisdictional grounds of the Kinder Morgan defendants. On June 27, 2005, Grynberg filed a motion to modify and partially reverse the Special Master’s recommendations, and the Defendants filed a motion to adopt the Special Master’s recommendations with modifications. We ex pect that the Federal Court in Wyoming may adopt the recommendations in the Special Master’s report and enter the formal dismissal order in the third or fourth quarter of this year. It is likely that Grynberg will appeal any dismissal to the 10^th Circuit Court of Appeals.

Lamb v. Kinder Morgan, Inc., et al., Civil Action No. 00-M-516, (formerly Adams v. Kinder Morgan, Inc., et al.) filed in the United States District Court for the District of Colorado. The case was originally filed on March 8, 2000 and is a purported class action. As of this date no class has been certified. Plaintiffs seek compensatory damages against all defendants jointly and severally, together with interest, attorney fees and expenses. The plaintiffs brought claims alleging securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of all people who purchased the common stock of Kinder Morgan during the class period from October 30, 1997 to June 21, 1999. The class period occurred prior to the installation of our current management team in October 1999. The complaint centers on allegations of misleading statements concerning operations of the Bushton Proce ssing Plant and certain contracts, as well as allegations of overstatement of income in violation of accounting principles generally accepted in the United States of America during the class period. On February 23, 2001, the federal district court dismissed several claims raised by the plaintiff, with prejudice, and dismissed the remaining claims, without prejudice. On April 27, 2001, the Adams plaintiffs filed their second amended complaint. On March 29, 2002, the federal district court dismissed the Adams plaintiffs’ second amended complaint with prejudice. On May 2, 2002, the Adams plaintiffs appealed the dismissal to the 10^th Circuit Court of Appeals. In a published decision, on August 11, 2003, the 10^th Circuit Court of Appeals reversed the district court’s dismissal, but upheld the dismissal of Mr. Kinder, our Chairman and Chief Executive Officer, from this action. The mandate from the 10^th Circuit Court of Appeals was issued on October 17, 2003. Briefing rega rding class certification is complete and a decision is pending. Merits discovery commenced on June 7, 2004. The Court granted Mr. Adams’ motion to withdraw as a lead plaintiff. As a result, the case is now styled as Lamb v. Kinder Morgan, Inc., et al. The parties reached a settlement in principle of this matter and have signed a Memorandum of Understanding. The settlement documents were preliminarily approved by the Court on February 23, 2005. On May 20, 2005, the Court entered an order giving final approval to the settlement. The implementation of the settlement will not result in a material impact on our results of operations, financial position or cash flows.

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KMI Form 10-Q

Darrell Sargent d/b/a Double D Production v. Parker & Parsley Gas Processing Co., American Processing, L.P. and Cesell B. Cheatham, et al., Cause No. 878, filed in the 100^th Judicial District Court, Carson County, Texas. The plaintiff filed a purported class action suit in 1999 and amended its petition in late 2002 to assert claims on behalf of over 1,000 producers who process gas through as many as ten gas processing plants formerly owned by American Processing, L.P. (“American Processing”), a former wholly owned subsidiary of Kinder Morgan, Inc., in Carson and Gray counties and other surrounding Texas counties. The plaintiff claims that American Processing (and subsequently, ONEOK, which purchased American Processing from us in 2000) improperly allocated liquids and gas proceeds to the producers. In particular, among other claims, the plaintiff challenges the methods and assump tions used at the plants to allocate liquids and gas proceeds among the producers and processors. The petition asserts claims for breach of contract and Natural Resources Code violations relating to the period from 1994 to the present. The plaintiff alleged generally in the petition that damages are “not to exceed $200 million” plus attorneys fees, costs and interest. The defendants filed a counterclaim for overpayments made to producers.

Pioneer Natural Resources USA, Inc., formerly known as Parker & Parsley Gas Processing Company (“Parker & Parsley”), is a co-defendant. Parker & Parsley claimed indemnity from American Processing based on its sale of assets to American Processing on October 4, 1995. We accepted indemnity and defense subject to a reservation of rights pending resolution of the suit. The plaintiff also named ONEOK as a defendant. We and ONEOK are defending the case pursuant to an agreement whereby ONEOK is responsible for any damages that may be attributable to the period following ONEOK’s acquisition of American Processing from us in 2000.

On or about January 21, 2003, Benson-McCown & Company (“Benson-McCown”), another producer who sold gas to American Processing and ONEOK, filed a “Plea in Intervention” in which it essentially duplicated the plaintiff’s claims and also asserted the right to bring a class action and serve as one of the class representatives. Defendants denied Benson-McCown’s claim and filed a counterclaim for overpayments made to Benson-McCown over the years.

On January 14, 2005, Defendants filed a motion to deny class certification. Subsequently, the plaintiffs agreed to dismiss and withdraw their class claims. An Agreed Order Dismissing all class claims, with prejudice, was entered by the Court on January 19, 2005. The case is proceeding on the named-plaintiffs’ individual claims, with no class action being asserted.

Harrison County Texas Pipeline Rupture

On May 13, 2005, NGPL experienced a rupture on its 36-inch diameter Gulf Coast #3 natural gas pipeline in Harrison County, Texas. The pipeline rupture resulted in an explosion and fire that severely damaged an adjacent power plant co-owned by EWO Marketing, L.P. and others. In addition, local residents within an approximate one-mile radius were evacuated by local authorities until the site was secured. According to published reports, injuries were limited to one employee at the power plant who was treated for minor injuries and released. Although we are not aware of any litigation related to this matter which has been commenced as of the date hereof, NGPL has received claims for damages to nearby homes and buildings which allegedly resulted from the explosion. NGPL and its insurers are investigating such claims and processing them in due course.

Although no assurances can be given, we believe that we have meritorious defenses to all lawsuits and legal proceedings in which we are defendants. Based on our evaluation of the above matters, and after consideration of reserves established, we believe that the resolution of such matters will not have a material adverse effect on our business, cash flows, financial position or results of operations.

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KMI Form 10-Q

In addition, we are a defendant in various lawsuits arising from the day-to-day operations of our businesses. Although no assurance can be given, we believe, based on our investigation and experience to date, that the ultimate resolution of such items will not have a material adverse impact on our business, cash flows, financial position or results of operations.

17.Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R (revised 2004), Share-Based Payment. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, and requires companies to expense the value of employee stock options and similar awards.  Significant provisions of SFAS No. 123R include the following:

·

share-based payment awards result in a cost that will be measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest. Compensation cost for awards that vest would not be reversed if the awards expire without being exercised;

·

when measuring fair value, companies can choose an option-pricing model that appropriately reflects their specific circumstances and the economics of their transactions;

·

companies will recognize compensation cost for share-based payment awards as they vest, including the related tax effects. Upon settlement of share-based payment awards, the tax effects will be recognized in the income statement or additional paid-in capital; and

·

public companies are allowed to select from three alternative transition methods – each having different reporting implications.

In April 2005, the Securities and Exchange Commission extended the effective date for public companies to implement SFAS No. 123R (revised 2004). The new Statement is now effective for non-small business entities starting with the first interim or annual period of the company’s first fiscal year beginning on or after June 15, 2005 (January 1, 2006, for us). We are currently reviewing the effects of this accounting Statement.

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143. This Interpretation clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event.

Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred – generally upon acquisition, construction, or development and (or) through the normal operation of the asset. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.

This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005

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KMI Form 10-Q

(December 31, 2005, for us). We are currently reviewing the effects of this Interpretation.

In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This Statement replaces Accounting Principles Board Opinion (“APB”) No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle.

SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. In contrast, APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle.

The provisions of this Statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (January 1, 2006 for us). Earlier application is permitted for accounting changes and corrections of errors made occurring in fiscal years beginning after June 1, 2005. The Statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of this Statement.  Adoption of this Statement will not have any immediate effect on our consolidated financial statements, and we will apply this guidance prospectively.

In June 2005, the Emerging Issues Task Force reached a consensus on Issue No. 04-5, or EITF 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF 04-5 generally provides that a sole general partner is presumed to control a limited partnership and provides guidance for purposes of assessing whether certain limited partners rights might preclude a general partner from controlling a limited partnership.

For general partners of all new limited partnerships formed, and for existing limited partnerships for which the partnership agreements are modified, the guidance in EITF 04-5 is effective after June 29, 2005. For general partners in all other limited partnerships, the guidance is effective no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005 (January 1, 2006, for us). We are currently reviewing the effects of this Issue.

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KMI Form 10-Q

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion should be read in conjunction with (i) the accompanying interim Consolidated Financial Statements and related Notes and (ii) our 2004 Form 10-K, including the Consolidated Financial Statements, related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following interim results may not be indicative of the results to be expected over the course of an entire year. In this report Kinder Morgan Energy Partners, L.P., a publicly traded pipeline master limited partnership in which we own the general partner interest and significant limited partner interests, is referred to as “Kinder Morgan Energy Partners.” Additional information on Kinder Morgan Energy Partners is contained in its report on Form 10-K for the year ended December 31, 2004 and in its report on Form 10-Q for the quarter ended June 30, 2005.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on our interim consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America as applicable to interim financial statements to be filed with the Securities and Exchange Commission and contained within this report. Certain amounts included in or affecting our financial statements and related disclosure must be estimated, requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. The reported amounts of our assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates.

In preparing our financial statements and related disclosures, we must use estimates in determining the economic useful lives of our assets, the effective income tax rate to apply to our pre-tax income, obligations under our employee benefit plans, provisions for uncollectible accounts receivable, unbilled revenues for our natural gas distribution deliveries for which meters have not yet been read, cost and timing of environmental remediation efforts, potential exposure to adverse outcomes from judgments or litigation settlements, exposures under contractual indemnifications and various other recorded or disclosed amounts. Certain of these accounting estimates are of more significance in our financial statement preparation process than others. Information regarding our accounting policies and estimates that we consider to be “critical” can be found in our 2004 Form 10-K. There have not been any signif icant changes in these policies and estimates during the first six months of 2005.

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KMI Form 10-Q

Consolidated Financial Results

	Three Months Ended June 30,				Earnings Increase
	2005		2004		(Decrease)
	(In thousands except per share amounts)
Operating Revenues	$  293,385		$  236,867		$   56,518
Gas Purchases and Other Costs of Sales	(99,559	)	(52,210	)	(47,349	)
General and Administrative Expenses	(18,566	)	(19,879	)	1,313
Other Operating Expenses	(85,192	)	(76,092	)	(9,100	)
Operating Income	90,068		88,686		1,382
Other Income and (Expenses)	120,033		83,331		36,702
Income Taxes	(88,528	)	(67,627	)	(20,901	)
Income from Continuing Operations	121,573		104,390		17,183
Gain on Disposal of Discontinued
Operations, Net of Tax	423		-		423
Net Income	$  121,996		$  104,390		$   17,606
Diluted Earnings (Loss) Per Common Share:
Income from Continuing Operations	$     0.99		$     0.84		$     0.15
Gain on Disposal of Discontinued
Operations	-		-		-
Total Diluted Earnings Per Common Share	$     0.99		$     0.84		$     0.15
Number of Shares Used in Computing Diluted
Earnings Per Common Share	123,103		124,955		(1,852	)

	Six Months Ended June 30,				Earnings Increase
	2005		2004		(Decrease)
	(In thousands except per share amounts)
Operating Revenues	$  630,268		$  589,453		$   40,815
Gas Purchases and Other Costs of Sales	(212,169	)	(185,681	)	(26,488	)
General and Administrative Expenses	(35,239	)	(42,167	)	6,928
Other Operating Expenses	(163,240	)	(150,148	)	(13,092	)
Operating Income	219,620		211,457		8,163
Other Income and (Expenses)	230,518		168,444		62,074
Income Taxes	(183,474	)	(148,469	)	(35,005	)
Income from Continuing Operations	266,664		231,432		35,232
Loss on Disposal of Discontinued
Operations, Net of Tax	(1,389	)	-		(1,389	)
Net Income	$  265,275		$  231,432		$   33,843
Diluted Earnings (Loss) Per Common Share:
Income from Continuing Operations	$     2.15		$     1.85		$     0.30
Loss on Disposal of Discontinued
Operations	(0.01	)	-		(0.01	)
Total Diluted Earnings Per Common Share	$     2.14		$     1.85		$     0.29
Number of Shares Used in Computing Diluted
Earnings Per Common Share	123,755		124,942		(1,187	)

Our income from continuing operations increased from $104.4 million in the second quarter of 2004 to $121.6 million in the second quarter of 2005, an increase of $17.2 million (16%). Income from continuing operations for the second quarter of 2005 included a net increase of $4.7 million, primarily

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KMI Form 10-Q

related to a pre-tax gain of $22 million on the sale of Kinder Morgan Management shares (see Note 7 of the accompanying Notes to Consolidated Financial Statements) and income tax expense of $13.9 million related to the gain on sale of Kinder Morgan Management shares. In addition to the items discussed above, the increase in continuing operations is comprised of a $1.4 million increase in operating income and an $18.2 million increase in “Other Income and (Expenses),” partially offset by a $7.0 million increase in income tax expense. Our net income increased from $104.4 million in the second quarter of 2004 to $122.0 million in the second quarter of 2005, an increase of $17.6 million (17%). Our income from continuing operations increased from $231.4 million in the first six months of 2004 to $266.7 million in the first six months of 2005. Income from continuing operations for the first six months of 20 05 included a net increase of $4.7 million, primarily related to the gain on sale of Kinder Morgan Management shares discussed above. In addition to the items discussed above, the increase in continuing operations is comprised of an $8.2 million increase in operating income and a $43.5 million increase in “Other Income and (Expenses),” partially offset by a $21.2 million increase in income tax expense. Our net income increased from $231.4 million in the first six months of 2004 to $265.3 million in the first six months of 2005. Following is a discussion of items affecting operating income, other income and expenses and earnings per share. Please refer to the individual business segment discussions included elsewhere herein for additional information regarding business segment results. Refer to the headings “Other Income and (Expenses),” “Income Taxes – Continuing Operations” and “Discontinued Operations” included elsewhere herein for additional information regardi ng these items.

Our results for the second quarter of 2005, in comparison to 2004, reflect an increase of $56.5 million (24%) in operating revenues and an increase of $1.4 million (2%) in operating income. The increase in operating revenues in 2005 was principally attributable to (i) increased revenues in our NGPL and Kinder Morgan Retail business segments and (ii) $3.2 million of 2005 revenues from KM Insurance Ltd., our wholly owned subsidiary formed during the second quarter of 2005 for the purpose of providing insurance services to Kinder Morgan Energy Partners and us. These increases were partially offset by our contribution of TransColorado to Kinder Morgan Energy Partners, effective November 1, 2004. Operating income was positively impacted in the second quarter of 2005, relative to 2004, by (i) increased segment earnings from our NGPL business segment and (ii) reduced general and administrative expenses. These positive impacts were partially offset by our contribution of TransColorado to Kinder Morgan Energy Partners (see the individual business segment discussions following for additional information).

Our results for the first six months of 2005, in comparison to 2004, reflect an increase of $40.8 million (7%) in operating revenues and an increase of $8.2 million (4%) in operating income. The increases in operating revenues and operating income in the first six months of 2005, relative to 2004, were due principally to the same factors affecting second quarter results, as discussed above. In addition, on a year-to-date basis, general and administrative expenses were favorably impacted by approximately $3 million received in 2005 in connection with the resolution of claims in the Enron bankruptcy proceeding.

“Other Income and (Expenses)” increased from income of $83.3 million in the second quarter of 2004 to income of $120.0 million in the second quarter of 2005, an increase of $36.7 million (44%). This increase was primarily attributable to (i) increased equity in earnings of Kinder Morgan Energy Partners in 2005, due in part to the strong performance from the assets held by Kinder Morgan Energy Partners, partially offset by an increase of $5.3 million in minority interest expense attributable to the minority interests in Kinder Morgan Management and (ii) a $22.0 million pre-tax gain from the sale of Kinder Morgan Management shares that we owned (see Note 7 of the accompanying Notes to Consolidated Financial Statements). These positive impacts were partially offset by an increase of $6.2 million in interest expense due largely to higher interest rates.

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KMI Form 10-Q

“Other Income and (Expenses)” increased from income of $168.4 million in the first six months of 2004 to income of $230.5 million in the first six months of 2005, an increase of $62.1 million (37%). This increase was primarily attributable to (i) increased equity in earnings of Kinder Morgan Energy Partners in 2005, due in part to the strong performance from the assets held by Kinder Morgan Energy Partners, partially offset by an increase of $7.7 million in minority interest expense attributable to the minority interests in Kinder Morgan Management and (ii) $26.5 million in pre-tax gains from the sale of Kinder Morgan Management shares that we owned (see Note 7 of the accompanying Notes to Consolidated Financial Statements). These positive impacts were partially offset by an increase of $9.5 million in interest expense due largely to higher interest rates. Please refer to “Other Income and (Expen ses),” included elsewhere herein for additional information.

Diluted earnings per common share from continuing operations increased from $0.84 in the second quarter of 2004 to $0.99 in the second quarter of 2005, an increase of $0.15 (18%), reflecting, in addition to the financial and operating impacts discussed preceding, a decrease of 1.9 million (1.5%) in average shares outstanding resulting principally from the net effect of (i) a decrease in shares due to our share repurchase program (see Note 11 of the accompanying Notes to Consolidated Financial Statements), (ii) an increase in shares due to the exercise of stock options by employees and the issuance of restricted shares to employees and (iii) the increased dilutive effect of stock options resulting from the increase in the market price of our shares.

Diluted earnings per common share from continuing operations increased from $1.85 in the first six months of 2004 to $2.15 in the first six months of 2005, an increase of $0.30 (16%), reflecting, in addition to the financial and operating impacts discussed preceding, a decrease of 1.2 million (1.0%) in average shares outstanding due principally to the same factors affecting the second quarter, as discussed above. In addition, in the first six months of 2005, we recorded a net loss on disposal of discontinued operations of $1.4 million, net of tax, or $0.01 per diluted common share (see “Discontinued Operations” included elsewhere herein).

Results of Operations

The following comparative discussion of our results of operations is by segment for factors affecting segment earnings, and on a consolidated basis for other factors.

We manage our various businesses by, among other things, allocating capital and monitoring operating performance. This management process includes dividing the company into business segments so that performance can be effectively monitored and reported for a limited number of discrete businesses.

Effective November 1, 2004, we contributed TransColorado Gas Transmission Company to Kinder Morgan Energy Partners. Effective with the contribution, the results of operations of TransColorado Gas Transmission Company are no longer included in our consolidated results of operations. In addition to our three remaining business segments, we derive a substantial portion of earnings from our investment in Kinder Morgan Energy Partners, which is discussed under “Earnings from Our Investment in Kinder Morgan Energy Partners” following.

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KMI Form 10-Q

Business Segment	Business Conducted	Referred to As:
Natural Gas Pipeline Company of   America and certain affiliates	The ownership and operation of a major interstate natural gas pipeline and storage system	Natural Gas Pipeline Company of America, or NGPL

TransColorado Gas Transmission   Company

Prior to its disposition on November 1, 2004, the ownership and operation of an interstate natural gas pipeline system in Colorado and New Mexico
TransColorado

Retail Natural Gas Distribution	The regulated sale and transportation of natural gas to residential, commercial and industrial customers (including a small distribution system in Hermosillo, Mexico) and the sale of natural gas to certain utility customers under the Choice Gas program	Kinder Morgan Retail
Power Generation	The operation and, in previous periods, development and construction of natural gas-fired electric generation facilities	Power

The accounting policies we apply in the generation of business segment earnings are generally the same as those applied to our consolidated operations and described in Note 1 of Notes to Consolidated Financial Statements included in our 2004 Form 10-K, except that (i) certain items below the “Operating Income” line (such as interest expense) are either not allocated to business segments or are not considered by management in its evaluation of business segment performance and (ii) equity in earnings of equity method investees, other than Kinder Morgan Energy Partners, are included. These equity method earnings are included in “Other Income and (Expenses)” in the accompanying interim Consolidated Statements of Operations. In addition, (i) certain items included in operating income (such as general and administrative expenses) are not considered by management in its evaluation of business segme nt performance and (ii) gains and losses from incidental sales of assets are included in segment earnings. With adjustment for these items, we currently evaluate business segment performance primarily based on operating income in relation to the level of capital employed. We account for intersegment sales at market prices, while we account for asset transfers at either market value or, in some instances, book value.

Following are operating results by individual business segment (before intersegment eliminations), including explanations of significant variances between the periods presented.

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KMI Form 10-Q

Natural Gas Pipeline Company of America

	Three Months Ended June 30,
	2005	2004	Increase
	(In thousands except systems throughput)
Total Operating Revenues	$ 216,243	$ 171,672	$  44,571
Gas Purchases and Other
Costs of Sales	$  62,543	$  30,134	$  32,409
Segment Earnings	$  99,400	$  93,427	$   5,973
Systems Throughput (Trillion Btus)	377.6	343.0	34.6

	Six Months Ended June 30,
	2005	2004	Increase
	(In thousands except systems throughput)
Total Operating Revenues	$ 422,716	$ 395,684	$  27,032
Gas Purchases and Other
Costs of Sales	$ 103,146	$  99,918	$   3,228
Segment Earnings	$ 213,609	$ 200,173	$  13,436
Systems Throughput (Trillion Btus)	822.5	787.4	35.1

NGPL’s segment earnings increased from $93.4 million in the second quarter of 2004 to $99.4 million in the second quarter of 2005, an increase of $6.0 million (6%). Segment earnings for the second quarter of 2005 were positively impacted, relative to 2004, by (i) increased transportation and storage service revenues in 2005 resulting, in part, from increased throughput volumes, successful re-contracting of transportation capacity, the recent expansion of our storage system and the acquisition of the Black Marlin Pipeline (see discussion below) and (ii) increased operational gas sales. These positive impacts were partially offset by (i) $4.0 million of revenue included in 2004 results recognized in conjunction with the finalization of a regulatory matter and (ii) increased operations and maintenance expenses in 2005 due, in part, to increased costs for electric compression. The increase in overall operating revenues in the second quarter of 2005, relative to 2004, was largely the result of (i) increased transportation and storage service revenues, as discussed above and (ii) increased operational gas sales volumes and increased natural gas prices in 2005. NGPL’s operational gas sales are primarily made possible by its collection of fuel in-kind pursuant to its transportation tariffs and recovery of storage cushion gas volumes. The increase in systems throughput in the second quarter of 2005, relative to 2004, was due principally to higher utilization of the Amarillo and Louisiana lines and warmer weather. The increase in systems throughput in the second quarter of 2005, relative to 2004, did not have a significant direct impact on revenues or segment earnings due to the fact that transportation revenues are derived primarily from “demand” contracts in which shippers pay a fee to reserve a set amount of system capacity for their use.

NGPL’s segment earnings increased from $200.2 million in the first six months of 2004 to $213.6 million in the first six months of 2005, an increase of $13.4 million (7%). Segment earnings for the first six months of 2005 were impacted, relative to 2004, by principally the same factors affecting second quarter results, as discussed above, except that, on a year-to-date basis, operational gas sales volumes were lower in 2005. The increase in overall operating revenues in the first six months of 2005, relative

32

KMI Form 10-Q

to 2004, was largely the result of increased transportation and storage service revenues, as discussed above, partially offset by lower operational gas sales volumes. The increase in systems throughput in the first six months of 2005, relative to 2004, was due principally to the increase in second quarter throughput volumes, as discussed above.

In June 2005, NGPL received a certificate from the FERC for its Amarillo-Gulf Coast cross-haul expansion. The $16.5 million project will add 51,000 Dth per day of capacity and is expected to be in service in April 2006. NGPL will begin drilling storage injection withdrawal wells this month to expand its Sayre storage field in Oklahoma by 10 Bcf. The $35 million project is expected to begin service in the spring of 2006 and all of the expansion capacity has been contracted for under long-term agreements. In addition, NGPL recently completed an open season for a 10 Bcf expansion at its North Lansing storage facility in Texas. Binding long-term precedent agreements have been executed on all of the additional capacity, and NGPL intends to file for project approval with the FERC later this year. The approximately $64 million expansion is expected to begin service in the spring of 2007.

In the second quarter of 2004, NGPL completed construction of 10.7 Bcf of storage service expansion at its existing North Lansing storage facility in east Texas, all of which is fully subscribed under long-term contracts. Effective September 1, 2004, NGPL acquired the Black Marlin Pipeline, a 38-mile, 30-inch pipeline that runs from Bryan County, Oklahoma to Lamar County, Texas. The Black Marlin Pipeline ties into NGPL’s Amarillo/Gulf Coast line and increased this line’s capacity by 38,000 Dth per day. This incremental capacity was fully subscribed in an open season under long-term contracts. Please refer to our 2004 Form 10-K for additional information regarding NGPL.

TransColorado

	Three Months Ended June 30, 2004		Six Months Ended June 30, 2004
	(In thousands)
Total Operating Revenues		$   7,776		$  15,681
Segment Earnings		$   5,384		$  11,011

Effective November 1, 2004, we contributed TransColorado Gas Transmission Company to Kinder Morgan Energy Partners for total consideration of $275.0 million (approximately $210.8 million in cash and 1.4 million Kinder Morgan Energy Partners common units). In conjunction with this contribution, we recorded a pre-tax loss of $0.6 million. As of November 1, 2004, we no longer include the results of operations of TransColorado Gas Transmission Company in our consolidated results of operations.

Kinder Morgan Retail

	Three Months Ended June 30,		Increase
	2005	2004	(Decrease)
	(In thousands except systems throughput)
Total Operating Revenues	$  58,697	$  42,630	$  16,067
Gas Purchases and Other Costs of Sales	$  35,998	$  21,082	$  14,916
Segment Earnings	$   4,944	$   4,971	$     (27	)
Systems Throughput (Trillion Btus)1	6.9	6.2	0.7
1 Excludes transport volumes of intrastate pipelines.

33

KMI Form 10-Q

	Six Months Ended June 30,		Increase
	2005	2004	(Decrease)
	(In thousands except systems throughput)
Total Operating Revenues	$ 179,829	$ 154,089	$  25,740
Gas Purchases and Other Costs of Sales	$ 106,683	$  83,298	$  23,385
Segment Earnings	$  38,011	$  38,652	$    (641	)
Systems Throughput (Trillion Btus)1	22.1	24.6	(2.5	)
1 Excludes transport volumes of intrastate pipelines.

Kinder Morgan Retail’s segment earnings in the second quarter of 2005 decreased by less than 1% from the second quarter of 2004. Segment earnings were positively impacted in the second quarter of 2005, relative to 2004, by continued customer growth. The positive impact of customer growth was offset by increased operations and maintenance and depreciation expenses due to continued system expansion. The increase in operating revenues in the second quarter of 2005, relative to 2004, was principally due to (i) increased natural gas commodity prices in 2005 (which is accompanied by a corresponding increase in gas purchase costs), (ii) a higher percentage of our Wyoming customers choosing our pass-on commodity rates in 2005 rather than transportation only service (which increases natural gas sales revenues and is also accompanied by a corresponding increase in gas purchase costs) and (iii) continued customer gro wth, principally in Colorado.

Kinder Morgan Retail’s segment earnings decreased by $0.6 million (2%) from the first six months of 2004 to the first six months of 2005. Segment results for the first six months of 2005, relative to 2004, were impacted by principally the same factors affecting second quarter results, as discussed above, except that, on a year-to-date basis, segment earnings were negatively impacted by reduced space heating demand in the first quarter of 2005, primarily due to warmer weather in our services territories (which effects are also partially reduced by our weather hedging program). Please refer to our 2004 Form 10-K for additional information regarding Kinder Morgan Retail.

Power

	Three Months Ended June 30,
	2005	2004	Increase
	(In thousands)
Total Operating Revenues	$  15,212	$  14,789	$     423
Gas Purchases and Other Costs of Sales	$   1,018	$     915	$     103
Segment Earnings	$   4,477	$   3,908	$     569

	Six Months Ended June 30,		Increase
	2005	2004	(Decrease)
	(In thousands)
Total Operating Revenues	$  24,490	$  23,999	$     491
Gas Purchases and Other Costs of Sales	$   2,340	$   2,386	$     (46	)
Segment Earnings	$   8,843	$   7,631	$   1,212

34

KMI Form 10-Q

Power’s segment earnings increased from $3.9 million in the second quarter of 2004 to $4.5 million in the second quarter of 2005, an increase of $0.6 million (15%). Segment earnings for the second quarter of 2005 were positively impacted, relative to 2004, by increased equity in earnings of Thermo Cogeneration Partnership due to the favorable resolution of claims in the Enron bankruptcy proceeding.

Power’s segment earnings increased from $7.6 million in the first six months of 2004 to $8.8 million in the first six months of 2005, an increase of $1.2 million (16%). Segment earnings for the first six months of 2005 were positively impacted, relative to 2004, by increased equity in earnings of Thermo Cogeneration Partnership due to (i) the favorable resolution of claims in the Enron bankruptcy proceeding and (ii) higher capacity revenues. These positive impacts were partially offset by legal costs incurred in 2005 relating to the Wrightsville power facility, which was placed into bankruptcy by Mirant in 2003. Please refer to our 2004 Form 10-K for additional information regarding Power.

Earnings from Our Investment in Kinder Morgan Energy Partners

The impact on our pre-tax earnings from our investment in Kinder Morgan Energy Partners was as follows:

	Three Months Ended June 30,				Increase
	2005		2004		(Decrease)
	(In thousands)
General Partner Interest, Including Minority
Interest in the Operating Limited Partnerships	$ 119,605		$  97,912		$  21,693
Limited Partner Units (Kinder Morgan
Energy Partners)	9,731		9,228		503
Limited Partner i-units (Kinder Morgan
Management)	27,826		25,662		2,164
	157,162		132,802		24,360
Pre-tax Minority Interest in Kinder Morgan
Management	(26,199	)	(18,312	)	(7,887	)
Pre-tax Earnings from Investment in Kinder
Morgan Energy Partners	$ 130,963		$ 114,490		$  16,473

	Six Months Ended June 30,				Increase
	2005		2004		(Decrease)
	(In thousands)
General Partner Interest, Including Minority
Interest in the Operating Limited Partnerships	$ 233,543		$ 191,427		$  42,116
Limited Partner Units (Kinder Morgan
Energy Partners)	20,416		18,827		1,589
Limited Partner i-units (Kinder Morgan
Management)	57,248		51,315		5,933
	311,207		261,569		49,638
Pre-tax Minority Interest in Kinder Morgan
Management	(47,746	)	(36,567	)	(11,179	)
Pre-tax Earnings from Investment in Kinder
Morgan Energy Partners	$ 263,461		$ 225,002		$  38,459

The increases in our earnings from this investment in the second quarter and first six months of 2005, in comparison to the corresponding periods of 2004, are principally due to improved operating results from Kinder Morgan Energy Partners’ various businesses. For 2005, pre-tax earnings attributable to our investment in Kinder Morgan Energy Partners are expected to increase by approximately 18% due to, among other factors, improved performance from its existing assets. However, there are factors beyond the control of Kinder Morgan Energy Partners that may affect its results, including developments in the regulatory arena and as yet unforeseen competitive developments or acquisitions. Additional

35

KMI Form 10-Q

information on Kinder Morgan Energy Partners is contained in its Quarterly Report on Form 10-Q for the three months ended June 30, 2005 and its Annual Report on Form 10-K for the year ended December 31, 2004.

Other Income and (Expenses)

	Three Months Ended June 30,				Earnings Increase
	2005		2004		(Decrease)
	(In thousands)
Interest Expense	$ (38,564	)	$ (32,361	)	$  (6,203	)
Interest Expense – Deferrable Interest Debentures	(5,478	)	(5,478	)	-
Equity in Earnings of Kinder Morgan Energy Partners	157,162		132,802		24,360
Equity in Earnings of Power Segment1	3,075		2,254		821
Equity in Earnings of Horizon Pipeline2	232		441		(209	)
Minority Interests	(19,629	)	(15,089	)	(4,540	)
Other, Net	23,235		762		22,473
	$ 120,033		$  83,331		$  36,702

	Six Months Ended June 30,				Earnings Increase
	2005		2004		(Decrease)
	(In thousands)
Interest Expense	$ (74,328	)	$ (64,795	)	$  (9,533	)
Interest Expense – Deferrable Interest Debentures	(10,956	)	(10,956	)	-
Equity in Earnings of Kinder Morgan Energy Partners	311,207		261,569		49,638
Equity in Earnings of Power Segment1	6,028		4,673		1,355
Equity in Earnings of Horizon Pipeline2	592		829		(237	)
Minority Interests	(31,328	)	(24,397	)	(6,931	)
Other, Net	29,303		1,521		27,782
	$ 230,518		$ 168,444		$  62,074

___________________

1	Included in Power segment earnings.
2	Included in Natural Gas Pipeline Company of America segment earnings.

“Other Income and (Expenses)” increased from income of $83.3 million in the second quarter of 2004 to income of $120.0 million in the second quarter of 2005, an increase of $36.7 million (44%). This increase was principally due to (i) increased equity in the earnings of Kinder Morgan Energy Partners in 2005, due in part to the strong performance from the assets held by Kinder Morgan Energy Partners, partially offset by an increase of $5.3 million in minority interest expense attributable to the minority interests in Kinder Morgan Management and (ii) a $22.0 million pre-tax gain, reflected in “Other, Net” in the table above, from the sale of Kinder Morgan Management shares that we owned (see Note 7 of the accompanying Notes to Consolidated Financial Statements). These positive impacts were partially offset by an increase of $6.2 million in interest expense due largely to higher interest rates .

“Other Income and (Expenses)” increased from income of $168.4 million in the first six months of 2004 to income of $230.5 million in the first six months of 2005, an increase of $62.1 million (37%). This increase was principally due to (i) increased equity in the earnings of Kinder Morgan Energy Partners in 2005, due in part to the strong performance from the assets held by Kinder Morgan Energy Partners, partially offset by an increase of $7.7 million in minority interest expense attributable to the minority interests in Kinder Morgan Management and (ii) a $26.5 million pre-tax gain from the sale of Kinder Morgan Management shares that we owned (see Note 7 of the accompanying Notes to Consolidated Financial Statements). These positive impacts were partially offset by an increase of $9.5 million in interest expense due largely to higher interest rates.

36

KMI Form 10-Q

Income Taxes – Continuing Operations

The income tax provision increased from $67.6 million in the second quarter of 2004 to $88.5 million in the second quarter of 2005, an increase of $20.9 million (31%) due principally to (i) an increase in pre-tax income from continuing operations and (ii) the additional tax provision due to our gains from sales of Kinder Morgan Management shares that we owned (see Notes 3 and 7 of the accompanying Notes to Consolidated Financial Statements), partially offset by a decrease in the estimated state effective tax rate used in computing our income tax provision.

Our income tax provision for the second quarter of 2005 contains three primary components: (i) tax on income from continuing operations, (ii) tax on minority interest earnings (i.e., Kinder Morgan Management units not owned by us) and (iii) tax on the gain on the sale of Kinder Morgan Management shares owned by us.

The income tax provision increased from $148.5 million in the first six months of 2004 to $183.5 million in the first six months of 2005, an increase of $35.0 million (24%) due principally to the same factors affecting the second quarter, as discussed above.

Income Taxes – Realization of Deferred Tax Assets

At December 31, 2004, we had a capital loss carryforward of approximately $56.1 million. A capital loss carryforward can be utilized to reduce capital gain during the five years succeeding the year in which a capital loss is incurred. The amounts and the years in which our capital loss carryforward expires are $52.5 million during 2005, $1.6 million during 2006 and $2.0 million during 2008.

We have concluded that it is more likely than not that this deferred tax asset will be realized through the sale of assets that will generate sufficient capital gain to fully utilize the capital loss carryforward during the periods specified above. Our ownership of Kinder Morgan Energy Partners common units and Kinder Morgan Management shares are specific assets that could be sold to generate capital gain. We sold approximately 2.1 million Kinder Morgan Management shares during the first six months of 2005, generating a gain for tax purposes of approximately $41.8 million. We owned approximately 13.1 million Kinder Morgan Management shares at June 30, 2005.

No valuation allowance has been provided with respect to this deferred tax asset.

Discontinued Operations

During 1999, we adopted and implemented a plan to discontinue a number of lines of business. During 2000, we essentially completed the disposition of these discontinued operations. For the three months ended June 30, 2005, a gain of approximately $0.4 million (net of tax of $0.2 million) was recorded to reflect the settlement of previously recorded liabilities. For the six months ended June 30, 2005, incremental losses of approximately $1.4 million (net of tax benefits of $0.8 million) were recorded to increase previously recorded liabilities to reflect updated estimates. The cash flow impacts associated with discontinued operations are discussed under “Cash Flows” following. Note 9 of the accompanying Notes to Consolidated Financial Statements contains additional information on these matters.

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KMI Form 10-Q

Liquidity and Capital Resources

Primary Cash Requirements

Our primary cash requirements, in addition to normal operating, general and administrative expenses, are for debt service, capital expenditures, common stock repurchases and quarterly cash dividends to our common shareholders. Our capital expenditures (other than sustaining capital expenditures), our common stock repurchases and our quarterly cash dividends to our common shareholders are discretionary. We expect to fund these expenditures with existing cash and cash flows from operating activities. In addition to utilizing cash generated from operations, we could meet these cash requirements through borrowings under our credit facilities or by issuing short-term commercial paper, long-term notes or additional shares of common stock.

Invested Capital

The following table illustrates the sources of our invested capital. Our ratio of total debt to total capital has declined significantly since 2001. This decline has resulted from a number of factors, including our increased cash flows from operations as discussed under “Cash Flows” following. In recent periods, we have significantly increased our dividends per common share and have announced our intention to consider further increases on a periodic basis, and we maintain an ongoing program to repurchase outstanding shares of our common stock. For these reasons, among others, any declines in our ratio of total debt to total capital in the future may be smaller.

In addition to the direct sources of debt and equity financing shown in the following table, we obtain financing indirectly through our ownership interests in unconsolidated entities as shown under “Significant Financing Transactions” following. Our largest such unconsolidated investment is in Kinder Morgan Energy Partners. See “Investment in Kinder Morgan Energy Partners” following.

The discussion under the heading “Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2004 Form 10-K includes a comprehensive discussion of (i) our investments in and obligations to unconsolidated entities, (ii) our contractual obligations and (iii) our contingent liabilities. These disclosures, which reflected balances and contractual arrangements existing as of December 31, 2004, also reflect current balances and contractual arrangements except for changes discussed following. Changes in our long-term debt and commercial paper are discussed under “Net Cash Flows from Financing Activities” following and in Note 10 of the accompanying Notes to Consolidated Financial Statements.

38

KMI Form 10-Q

	June 30,		December 31,
	2005		2004		2003		2002
	(Dollars in thousands)
Long-term Debt:
Outstanding Notes and Debentures	$2,507,916		$2,257,950		$2,837,487		$2,852,181
Deferrable Interest Debentures Issued to
Subsidiary Trusts1	283,600		283,600		283,600		-
Value of Interest Rate Swaps2	119,749		88,243		88,242		139,589
	2,911,265		2,629,793		3,209,329		2,991,770
Minority Interests	1,136,439		1,105,436		1,010,140		967,802
Common Equity, Excluding Accumulated
Other Comprehensive Loss	2,891,637		2,919,496		2,691,800		2,399,716
Capital Trust Securities1	-		-		-		275,000
	6,939,341		6,654,725		6,911,269		6,634,288
Less Value of Interest Rate Swaps	(119,749	)	(88,243	)	(88,242	)	(139,589	)
Capitalization	6,819,592		6,566,482		6,823,027		6,494,699
Short-term Debt, Less Cash and
Cash Equivalents3	158,456		328,480		121,824		465,614
Invested Capital	$6,978,048		$6,894,962		$6,944,851		$6,960,313
Capitalization:
Outstanding Notes and Debentures	36.8%		34.4%		41.6%		43.9%
Minority Interests	16.7%		16.8%		14.8%		14.9%
Common Equity	42.4%		44.5%		39.4%		37.0%
Capital Trust Securities	-		-		-		4.2%
Deferrable Interest Debentures Issued to
Subsidiary Trusts	4.1%		4.3%		4.2%		-
Invested Capital:
Total Debt4	38.2%		37.5%		42.6%		47.7%
Equity, Including Capital Trust Securities,
Deferrable Interest Debentures Issued to
Subsidiary Trusts and Minority Interests	61.8%		62.5%		57.4%		52.3%

¹

As a result of our adoption of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, effective December 31, 2003, the subsidiary trusts associated with these securities are no longer consolidated.

²

See “Significant Financing Transactions” following.

³

Cash and cash equivalents netted against short-term debt were $4,944, $176,520, $11,076 and $35,653 for June 30, 2005 and December 31, 2004, 2003 and 2002, respectively.

⁴

Outstanding notes and debentures plus short-term debt, less cash and cash equivalents.

Short-term Liquidity

Our principal sources of short-term liquidity are our revolving bank facility, our commercial paper program (which is supported by our revolving bank facility) and cash provided by operations. As of June 30, 2005, we had available an $800 million five-year credit facility dated August 18, 2004. We are currently in negotiations to extend the maturity of this credit facility by one year and to modify its pricing. This credit facility can be used for general corporate purposes, including as backup for our commercial paper program. At June 30, 2005 and July 22, 2005, we had $158.4 million and $191.7 million, respectively, of commercial paper issued and outstanding. After inclusion of applicable outstanding letters of credit, which reduce borrowing capacity, the remaining available borrowing capacity under the bank facility was $572.1 million and $538.6 million at June 30, 2005 and July 22, 2005, respectively.

39

KMI Form 10-Q

Our current maturities of long-term debt of $5 million at June 30, 2005 represents $5 million of current maturities of our 6.50% Series Debentures due September 1, 2013. Apart from our notes payable and current maturities of long-term debt, our current assets exceed our current liabilities by approximately $119.5 million at June 30, 2005. Given our expected cash flows from operations and our unused debt capacity as discussed preceding, including our five-year credit facility, and based on our projected cash needs in the near term, we do not expect any liquidity issues to arise. Our next significant debt maturity is our $300 million of 6.80% Senior Notes in 2008.

Announcement of Dividend Increase

On July 20, 2005, our board of directors declared an increase in our quarterly dividend from $0.70 per common share ($2.80 annualized) to $0.75 per common share ($3.00 annualized). The increased quarterly dividend will be payable August 12, 2005 to shareholders of record as of July 29, 2005.

Significant Financing Transactions

On August 14, 2001, we announced a program to repurchase $300 million of our outstanding common stock, which program was increased to $400 million, $450 million, $500 million, $550 million, $750 million and $800 million in February 2002, July 2002, November 2003, April 2004, November 2004 and April 2005, respectively. As of June 30, 2005, we had repurchased a total of approximately $744.9 million (13,147,000 shares) of our outstanding common stock under the program, of which $14.9 million (196,500 shares) and $183.7 million (2,418,300 shares) were repurchased in the three months and six months ended June 30, 2005, respectively. We repurchased $37.2 million (631,200 shares) and $39.3 million (666,200 shares) of our common stock in the three months and six months ended June 30, 2004, respectively.

We had outstanding fixed-to-floating interest rate swap agreements with a notional principal amount of $1.25 billion at June 30, 2005. These agreements effectively convert the interest expense associated with our 7.25% Series Debentures due in 2028 and $750 million of our 6.50% Senior Notes due in 2012 from fixed to floating rates based on the three-month London Interbank Offered Rate (“LIBOR”) plus a credit spread. These swaps are accounted for as fair value hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. These agreements are further described under “Risk Management” in Item 7A of our 2004 Form 10-K.

On March 25, 2004, Kinder Morgan Management closed the issuance and sale of 360,664 listed shares in a limited registered offering. None of the shares from the offering were purchased by Kinder Morgan, Inc. Kinder Morgan Management used the net proceeds of approximately $14.9 million from the offering to buy additional i-units from Kinder Morgan Energy Partners.

On March 1, 2005, our $500 million of 6.65% Senior Notes matured, and we paid the holders of the notes, utilizing a combination of cash and incremental short-term borrowings.

On March 15, 2005, we issued $250 million of our 5.15% Senior Notes due March 1, 2015. The proceeds of $248.5 million, net of underwriting discounts and commissions, were used to repay short-term commercial paper debt which was incurred to pay our 6.65% Senior Notes that matured on March 1, 2005.

Certain of our customers are experiencing financial problems that have had a significant impact on their creditworthiness. We have implemented and will continue to work to implement, as appropriate in the future, to the extent allowable under applicable laws, tariffs and regulations, prepayments and other security requirements such as letters of credit to enhance our credit position relating to amounts owed

40

KMI Form 10-Q

from these customers. We cannot assure that one or more of our financially distressed customers will not default on their obligations to us or that such a default or defaults will not have a material adverse effect on our business.

Pursuant to our continuing commitment to operational excellence and our focus on safe reliable operations, we have implemented, and intend to implement in the future, enhancements to certain of our operational practices in order to strengthen our environmental and asset integrity performance. These enhancements have resulted and may result in higher operating costs; however, we believe these enhancements will provide us the greater long-term benefits of improved environmental and asset integrity performance.

Investment in Kinder Morgan Energy Partners

At June 30, 2005, we owned, directly, and indirectly in the form of i-units corresponding to the number of shares of Kinder Morgan Management we owned, approximately 32.8 million limited partner units of Kinder Morgan Energy Partners. These units, which consist of 14.4 million common units, 5.3 million Class B units and 13.1 million i-units, represent approximately 15.6 percent of the total limited partner interests of Kinder Morgan Energy Partners. In addition, we are the sole stockholder of the general partner of Kinder Morgan Energy Partners, which holds an effective 2 percent interest in Kinder Morgan Energy Partners and its operating partnerships. Together, our limited partner and general partner interests represented approximately 17.3 percent of Kinder Morgan Energy Partners’ total equity interests at June 30, 2005. We receive quarterly distributions on the i-units owned by Kinder Morgan Management in additional i-units and distributions on our other units in cash.

In addition to distributions received on our limited partner interests as discussed above, we also receive an incentive distribution from Kinder Morgan Energy Partners as a result of our ownership of the general partner interest in Kinder Morgan Energy Partners. This incentive distribution is calculated in increments based on the amount by which quarterly distributions to unit holders exceed specified target levels as set forth in Kinder Morgan Energy Partners’ partnership agreement, reaching a maximum of 50% of distributions allocated to the general partner for distributions above $0.23375 per limited partner unit.

We reflect our investment in Kinder Morgan Energy Partners under the equity method of accounting and, accordingly, report our share of Kinder Morgan Energy Partners’ earnings as “Equity in Earnings” in our interim Consolidated Statement of Operations in the period in which such earnings are reported by Kinder Morgan Energy Partners. See Notes 7 and 8 of the accompanying Notes to Consolidated Financial Statements for additional information regarding our investment in Kinder Morgan Energy Partners.

Cash Flows

The following discussion of cash flows should be read in conjunction with the accompanying interim Consolidated Statements of Cash Flows and related supplemental disclosures, and the Consolidated Statements of Cash Flows and related supplemental disclosures included in our 2004 Form 10-K.

Net Cash Flows from Operating Activities

“Net Cash Flows Provided by Operating Activities” decreased from $245.6 million for six months ended June 30, 2004 to $165.8 million for the six months ended June 30, 2005, a decrease of $79.8 million (32.5%). This negative variance is principally due to (i) a $30.3 million increased use of cash for hedging activities, due to increases in NGPL hedge volumes and natural gas prices, (ii) a $25.0 million

41

KMI Form 10-Q

pension payment and an $8.5 million postretirement benefit plan payment, (iii) a $22.7 million increase in cash paid for income taxes during 2005 and (iv) a net increased use of cash of $57.8 million for gas in underground storage. Significant period-to-period variations in cash used or generated from gas in storage transactions are due to changes in injection and withdrawal volumes as well as fluctuations in natural gas prices. These negative impacts were partially offset by (i) a $46.4 million increase in cash distributions received in 2005 attributable to our interest in Kinder Morgan Energy Partners and (ii) an increase of $9.8 million in 2005 cash attributable to deferred purchased gas costs.

Net Cash Flows from Investing Activities

“Net Cash Flows Provided By (Used in) Investing Activities” decreased from a use of $44.4 million for the six months ended June 30, 2004 to a source of $73.1 million for the six months ended June 30, 2005, a decrease of $117.5 million. This decreased use of cash is principally due to (i) $22.3 million net increased proceeds from margin deposits associated with hedging activities utilizing energy derivative instruments, (ii) $92.5 million of proceeds from the sale of Kinder Morgan Management shares, (see Note 7 of the accompanying Notes to Consolidated Financial Statements) and (iii) the fact that the six months ended June 30, 2004 included an additional $17.5 million investment in Kinder Morgan Energy Partners.  Partially offsetting these factors is the fact that the six months ended June 30, 2004 included $25.7 million of proceeds from the sales of other assets.

Net Cash Flows from Financing Activities

“Net Cash Flows Used in Financing Activities” increased from $205.5 million for the six months ended June 30, 2004 to $410.4 million for the six months ended June 30, 2005, an increase of $204.9 million (99.7%). This increase is principally due to (i) $500 million of cash used to retire our $500 million 6.65% Senior Notes, (ii) an $150.3 million increase in cash paid during 2005 to repurchase our common shares, (iii) a $32.3 million increase in cash paid for dividends in 2005, principally due to the increased dividends declared per share and (iv) the fact that the six months ended June 30, 2004 included $14.9 million of proceeds, net of issuance costs, from the issuance of Kinder Morgan Management shares. Partially offsetting these factors were (i) $248.5 million of proceeds, net of issuance costs, from the issuance of our 5.15% Senior Notes due March 1, 2015 (See Note 10 of the accompanying Notes to Consolidated Financial Statements), (ii) a $62.4 million reduction in short-term debt during the six months ended June 30, 2004 versus incremental short-term borrowings of $158.4 million during the six months ended June 30, 2005 and (iii) an $11.8 million increased source of cash from short-term advances to unconsolidated affiliates, principally Kinder Morgan Energy Partners, during 2005.

Recent Accounting Pronouncements

Refer to Note 17 of the accompanying Notes to Consolidated Financial Statements for information regarding recent accounting pronouncements.

Information Regarding Forward-looking Statements

This filing includes forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” or the negative of those terms or other variations of them or comparable terminology. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow or to pay dividends are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may

42

KMI Form 10-Q

differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors which could cause actual results to differ from those in the forward-looking statements include:

·

price trends and overall demand for natural gas liquids, refined petroleum products, oil, carbon dioxide, natural gas, electricity, coal and other bulk materials and chemicals in the United States;

·

economic activity, weather, alternative energy sources, conservation and technological advances that may affect price trends and demand;

·

changes in our tariff rates or those of Kinder Morgan Energy Partners implemented by the FERC or another regulatory agency or, with respect to Kinder Morgan Energy Partners, the California Public Utilities Commission;

·

Kinder Morgan Energy Partners’ ability and our ability to acquire new businesses and assets and integrate those operations into existing operations, as well as the ability to make expansions to our respective facilities;

·

difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to or from Kinder Morgan Energy Partners’ terminals or pipelines or our pipelines;

·

Kinder Morgan Energy Partners’ ability and our ability to successfully identify and close acquisitions and make cost-saving changes in operations;

·

shut-downs or cutbacks at major refineries, petrochemical or chemical plants, ports, utilities, military bases or other businesses that use Kinder Morgan Energy Partners’ or our services or provide services or products to Kinder Morgan Energy Partners or us;

·

changes in laws or regulations, third-party relations and approvals, decisions of courts, regulators and governmental bodies that may adversely affect our business or our ability to compete;

·

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

·

our ability to offer and sell equity securities and debt securities or obtain debt financing in sufficient amounts to implement that portion of our business plan that contemplates growth through acquisitions of operating businesses and assets and expansions of our facilities;

·

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

·

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

·

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

·

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

·

capital markets conditions;

43

KMI Form 10-Q

·

the political and economic stability of the oil producing nations of the world;

·

national, international, regional and local economic, competitive and regulatory conditions and developments;

·

our ability to achieve cost savings and revenue growth;

·

inflation;

·

interest rates;

·

the pace of deregulation of retail natural gas and electricity;

·

foreign exchange fluctuations;

·

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

·

the timing and success of business development efforts; and

·

unfavorable results of litigation involving Kinder Morgan Energy Partners and the fruition of contingencies referred to in Kinder Morgan Energy Partners’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Our future results also could be adversely impacted by unfavorable results of litigation and the fruition of contingencies referred to in Notes 15 and 16 of the accompanying Notes to Consolidated Financial Statements.

You should not put undue reliance on any forward-looking statements. See Items 1 and 2 “Business and Properties – Risk Factors” of our annual report filed on Form 10-K for the year ended December 31, 2004, for a more detailed description of these and other factors that may affect the forward-looking statements. When considering forward-looking statements, one should keep in mind the risk factors described in “Risk Factors” above. The risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 2004, in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in our 2004 Form 10-K. See also Note 13 of the accompanying Notes to Consolidated Financial Statements.

Item 4.  Controls and Procedures.

As of June 30, 2005, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the evaluation, our Chief Executive

44

KMI Form 10-Q

Officer and our Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective in all material respects to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required, and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting during the quarter ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

45

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

See Note 16 of the accompanying Notes to Consolidated Financial Statements in Part I, Item 1, which is incorporated herein by reference.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the quarter ended June 30, 2005, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

Our Purchases of Our Common Stock

Period	Total Number of Shares Purchased1		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs2		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 to   April 30, 2005		196,500		$ 75.74		196,500		$ 55,083,777
May 1 to   May 31, 2005		-		$     -		-		$ 55,083,777
June 1 to   June 30, 2005		-		$     -		-		$ 55,083,777
Total		196,500		$ 75.74		196,500		$ 55,083,777

1	All purchases were made pursuant to our publicly announced repurchase plan.
2	On August 14, 2001, we announced a plan to repurchase $300 million of our outstanding common stock, which program was increased to $400 million, $450 million, $500 million, $550 million, $750 million and $800 million in February 2002, July 2002, November 2003, April 2004, November 2004 and April 2005, respectively.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Submission of Matters to a Vote of Security Holders.

a)

The Company held its Annual Meeting of Shareholders on May 10, 2005 (the “Annual Meeting”).

b)

Proxies for the Annual Meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. There was no solicitation in opposition to management’s nominees for directors as listed in the Proxy Statement and all such nominees were elected, which included Messrs. Bliss, Morgan and Randall. In addition, those directors continuing in office after the meeting included Messrs. Austin, Battey, Gardner, Hybl, Kinder, Sarofim and True. The number of votes for and withheld for the nominees elected at the meeting were as follows:

	For	Withheld
Stewart A. Bliss	109,937,530	2,133,704
Michael C. Morgan	109,460,022	2,611,212
Edward Randall, III	109,766,800	2,304,434

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KMI Form 10-Q

c) The following matters were also voted on at the Annual Meeting:

(1) A proposal to amend and adopt our Restated Articles of Incorporation to increase our authorized Common Stock, par value $5.00 per share, from 150,000,000 shares to 300,000,000 shares was approved and the number of affirmative votes, negative votes, abstentions and broker non-votes with respect to the matter were as follows:

For	103,962,776
Against	7,360,705
Abstain	747,753
Broker Non-votes	N/A

(2) A proposal to ratify and approve our 2005 Annual Incentive Plan was approved and the number of affirmative votes, negative votes, abstentions and broker non-votes with respect to the matter were as follows:

For	109,647,248
Against	1,532,132
Abstain	891,854
Broker Non-votes	N/A

(3) A proposal to ratify and approve our Non-Employee Directors Stock Awards Plan was approved and the number of affirmative votes, negative votes, abstentions and broker non-votes with respect to the matter were as follows:

For	85,445,357
Against	5,606,481
Abstain	1,040,786
Broker Non-votes	19,978,610

(4) A proposal to ratify and approve the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2005 was approved and the number of affirmative votes, negative votes, abstentions and broker non-votes with respect to the matter were as follows:

For	110,881,213
Against	510,340
Abstain	679,681
Broker Non-votes	N/A

Item 5.  Other Information.

At its July 20, 2005 meeting, the compensation committee of our board of directors approved a special contribution of an additional 1% of base pay into the Kinder Morgan Savings Plan (a defined contribution 401(k) plan) for each eligible employee. Each eligible employee will receive an additional 1% company contribution based on eligible base pay to his or her Savings Plan account each pay period beginning with the first pay period of August 2005 and continuing through the last pay period of July 2006.

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KMI Form 10-Q

The 1% contribution will be in the form of our common stock (the same as the current 4% contribution). The 1% contribution will be in addition to, and does not change or otherwise impact, the 4% contribution that eligible employees currently receive. It may be converted to any other Savings Plan investment fund at any time and it will vest on the second anniversary of the employee’s date of hire. Since this additional 1% company contribution is discretionary, compensation committee approval will be required annually for each special contribution.

On May 4, 2005, we announced that C. Park Shaper, formerly our Executive Vice President and Chief Financial Officer, had been promoted and named our President, remaining a member of the Office of the Chairman, and that Steve Kean, formerly Kinder Morgan Energy Partners’ President – Texas Intrastate Pipelines, had been promoted and named our Executive Vice President, Operations, becoming a member of the Office of the Chairman. In addition, we announced that Kim Allen had been promoted and named our Chief Financial Officer, retaining her role in charge of investor relations, and that David Kinder, our Vice President, Corporate Development, would also assume the role of Treasurer, formerly held by Ms. Allen. We also announced that (i) Deb Macdonald, our President – Natural Gas Pipelines, would resign from that position effective October 2005; (ii) Scott Parker, President of NGPL, would be promoted e ffective October 2005 to our President – Natural Gas Pipelines; (iii) David Devine would become President of NGPL effective October 2005; and (iv) Tom Martin had been promoted to Kinder Morgan Energy Partners’ President – Texas Intrastate Pipelines. Until Ms. Macdonald’s resignation in October 2005, each of Ms. Macdonald and Mr. Parker are serving as Co-Presidents – Natural Gas Pipelines.

Item 6.  Exhibits.

 3.1 Amended and Restated Articles of Incorporation of Kinder Morgan, Inc. and amendments thereto.

31.1
31.2 Section 13a – 14(a) / 15d – 14(a) Certification of Chief Executive Officer
Section 13a – 14(a) / 15d – 14(a) Certification of Chief Financial Officer

32.1
   32.2 Section 1350 Certification of Chief Executive Officer
   Section 1350 Certification of Chief Financial Officer

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KMI Form 10-Q

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	KINDER MORGAN, INC. (Registrant)
August 1, 2005	/s/ Kimberly J. Allen
	Kimberly J. Allen Vice President and Chief Financial Officer

49

EX-3.1

Exhibit 3.1

CERTIFICATE OF RESTATEMENT OF ARTICLES OF INCORPORATION

OF

K N ENERGY, INC.

STATE OF KANSAS

)

)  ss

COUNTY OF PHILLIPS

)

We, Larry D. Hall, President and William S. Garner, Jr., Secretary of K N Energy, Inc., a Kansas Corporation (hereinafter called the “Corporation”), whose registered office is in Phillipsburg, Phillips County, Kansas, DO HEREBY CERTIFY:

That the Board of Directors of the Corporation, at a regular meeting duly held on the 23^rd of May, 1989, adopted a resolution setting forth Restated Articles of Incorporation of the Corporation, and declared their advisability.  Said Restated Articles of Incorporation were amended with approval of the Corporation’s Shareholders on July 13, 1994, and are as follows, namely:

K N ENERGY, INC.

___________

RESTATED ARTICLES OF INCORPORATION

___________

The following are the Restated Articles of Incorporation of K N Energy, Inc., which corporation was originally incorporated under the name of Kansas Pipe Line & Gas Company in Articles filed with the Secretary of State of Kansas on May 18, 1927.  These Restated Articles were duly adopted by the Board of Directors of the Company at their regular meeting on August 16, 1988 in accordance with the provisions of Section 17-6605 of the Kansas Statutes Annotated.

FIRST

The name of the Corporation shall be K N ENERGY, INC.

SECOND

The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Kansas General Corporation Code.

THIRD

The location of the principal place of business of the Corporation and its registered office in this state is 205 “F” Street, City of Phillipsburg, Phillips County, Kansas.  The Corporation shall be its own Resident Agent and for such purpose its business office shall be its registered office.

FOURTH

That the term for which the Corporation is to exist is perpetual.

FIFTH

SECTION 1

Except as otherwise provided in Article Sixth, the number of directors which shall constitute the whole Board of Directors of the Corporation shall be the number from time to time fixed by the By-laws of the Corporation; provided that such number of directors shall not be less than nine, nor more than fifteen, each of whom shall be a stockholder of the Corporation; and provided, further, that any change in such minimum or maximum number of directors shall be made only by amendment of this Article Fifth.  Nominees for directorships receiving the highest number of votes shall be elected.  The Board of Directors shall be divided into three classes:  Class I, Class II, and Class III.  Such classes shall be as nearly equal in number as possible.  The term of office of the initial Class I directors shall expire at the annual meeting of the stockholders in 1976; the term of o ffice of the initial Class II directors shall expire at the annual meeting of stockholders in 1977; and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders in 1978, or thereafter in each case when their respective successors are elected and qualified.  At each annual election held thereafter, the directors chosen to succeed those whose terms have expired shall be identified as being of the same class as the directors that they succeed and shall be elected for a term expiring at the third succeeding annual meeting of stockholders or thereafter in each case when their respective successors are elected and qualified.  When the number of directors is changed, any increase or decrease in the number of directorships shall be apportioned among the classes so as to make all classes as nearly equal in number as possible.

SECTION 2

No director of the Corporation shall be removed from his office as a director unless all other directors constituting the Board of Directors at the time unanimously vote in favor of such removal, in which event his removal shall be considered accomplished.  No director of the Corporation shall be removed from his office as a director by vote or other action of stockholders or otherwise unless the director to be removed has been convicted of a felony by a court of competent jurisdiction and such conviction has become no longer subject to direct appeal or unless the director to be removed has been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation by a court of competent jurisdiction and such adjudication has become no longer subject to direct appeal.  In the event of such conviction, or

finding of negligence or misconduct a director may be removed by the stockholders in the manner provided in the By-laws of the Corporation.

SIXTH

SECTION 1

The minimum amount of capital with which the Corporation will commence business is $1,000.00.

SECTION 2

1.

That the total number of shares of all classes of stock which the Corporation shall have authority to issue will be 27,200,000.

2.

That the number of shares which are to have a par value shall be 50,000,000 of the par value of $5 each, all of which shares shall be one class of common stock (hereinafter referred to as “Common Stock”).

3.

That the number of shares that are to be without par value will be 2,200,000 of which 200,000 shall be Class A Preferred Stock (hereinafter referred to as the “Class A Preferred Stock”), and of which 2,000,000 shall be Class B Preferred Stock (hereinafter referred to as the “Class B Preferred Stock).

SECTION 3

1.

Definitions.  As used in this Article Sixth or in any resolution adopted by the Board of Directors providing for the issue of any particular series of Class A Preferred Stock or Class B Preferred Stock authorized by these Articles of Incorporation or any amendment thereto, the following terms shall have the following meanings, respectively:

(a)

The term “arrearages”, whenever used in connection with dividends on any share of Class A Preferred Stock or Class B Preferred Stock, shall refer to the condition that exists as to dividends, to the extent that they are cumulative (either unconditionally, or conditionally to the extent that the conditions have been fulfilled), on such shares which shall not have been paid or declared and set apart for payment to the date or for the period indicated; but the term shall not refer to the condition that exists as to dividends, to the extent that they are non-cumulative, on such shares which shall not have been paid or declared and set apart for payment.

(b)

The term “stock junior to the Class A Preferred Stock”, whenever used with reference to the Class A Preferred Stock, shall mean the Class B Preferred Stock, Common Stock and any other stock of the Corporation over which the Class A Preferred Stock has preference or priority in the payment of dividends and in the distribution of assets on any dissolution, liquidation or winding up of the Corporation.

(c)

The term “stock junior to the Class B Preferred Stock”, whenever used with reference to the Class B Preferred Stock, shall mean the Common Stock and any other stock of the Corporation over which the Class B Preferred Stock has preference or priority in the payment of dividends and in the distribution of assets on any dissolution, liquidation or winding up of the Corporation.

(d)

The term “subsidiary” means any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency, is, at the time of determination thereof, directly or indirectly owned by the Corporation, or by one or more subsidiaries of the Corporation, or by the Corporation and one or more subsidiaries. As used in this definition, the term “corporation” shall include comparable types of business organizations authorized under the laws of any state, territory or possession of the United States or any foreign country however designated.

SECTION 4

That the voting powers (full or limited, or without voting powers) designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of the shares of Class A Preferred Stock, Class B Preferred Stock and Common Stock and the authority of the Board of Directors of the Corporation to fix by resolution such of the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof (sometimes hereinafter referred to in this Article Sixth as “powers, preferences and rights”), are as follows:

A.

CLASS A PREFERRED STOCK

1.

Authority of the Board of Directors of the Corporation to issue Class A Preferred Stock in Series.  The Class A Preferred Stock consists of (i) shares constituting a series designated and hereinafter referred to as “Class A $5 Cumulative Preferred Stock”, shares of which have heretofore been issued and designated as “$5 Cumulative Preferred Stock”, (ii) shares constituting a series designated and hereinafter referred to as “Class A $5.65 Cumulative Preferred Stock”, shares of which have heretofore been issued and designated as “$5.65 Cumulative Preferred Stock”, and (iii) additional authorized shares the issuance of which may be provided for by the Board of Directors of the Corporation as set forth in this Subdivision A of Section 4.  The voting powers (full or limited, or without voting powers), designations, preferences and relative , participating, optional or other special rights, and qualifications, limitations or restrictions, not inconsistent with the provisions of this Article Sixth, of the Class A $5 Cumulative Preferred Stock and of the Class A $5.65 Cumulative Preferred Stock are respectively fixed by and set forth in paragraph 9 of this Subdivision A of Section 4 and in the Certificate of Resolutions adopted by the Board of Directors of the Corporation providing for the issuance of shares of the Class A $5.65 Cumulative Preferred Stock filed in the office of the Secretary of State of Kansas on September 28, 1953.

The Class A Preferred Stock may be issued from time to time in one or more series.  Subject to the provisions of these Articles of Incorporation or any amendment thereto, authority is expressly granted to the Board of Directors of the Corporation to authorize the issue of one or more series of Class A Preferred Stock, and to fix by resolutions providing for the issue of each such series the powers, preferences and rights thereof, to the full extent now or hereafter permitted by law, including but not be limited to the following:

(a)

The number of shares of such series (which may subsequently be increased by resolutions of the Board of Directors of the Corporation) and the distinctive designation thereof;

(b)

The dividend rate of such series and any limitations, restrictions or conditions on the payment of such dividends;

(c)

The terms and conditions, if any, on which, and the price or prices at which, the shares of such series may be redeemed;

(d)

The terms of any purchase, retirement or sinking fund to be provided for the shares of such series;

(e)

Restrictions upon the declaration or payment of dividends or other distributions on, or the acquisition or retirement by the Corporation of, the Common Stock to take effect upon the occurrence of any default in the provisions for a sinking fund, if any, for the particular series and to remain in effect so long as such default continues; and provisions extending for the benefit of the particular series for so long as any shares thereof remain outstanding, similar restrictions with respect to the stock of the Corporation imposed by the terms of any of its funded indebtedness then outstanding;

(f)

The terms and conditions, if any, upon which the shares of such series shall be convertible into or exchangeable for shares of any other class or classes, or of any other series of the same or any class or classes of stock of the Corporation;

(g)

The voting powers, if any, of such series in addition to the voting powers provided in paragraphs 5 and 8 of Subdivision A of Section 4; and

(h)

Any other variance in the relative powers, preferences and rights as between different series not inconsistent with these Articles of Incorporation or any amendments thereto, to the full extent now or hereafter allowed by law.

The Class A Preferred Stock of each series shall rank on a parity with the Class A Preferred Stock of every other series in priority of payment of dividends and in the distribution of assets in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, to the extent of the preferential amounts to which the Class A Preferred Stock of the respective series shall be entitled under the provisions of these Articles of Incorporation or any amendment thereto or the resolutions of the Board of Directors of the

Corporation providing for the issue of such series.  All shares of any one series of Class A Preferred Stock shall be identical except as to the dates of issue and the dates from which dividends on shares of the series issued on different dates shall accumulate (if cumulative).

2.

Dividend rights.

(a)

The holders of shares of Class A Preferred Stock of each series shall be entitled to receive, when and as declared by the Board of Directors of the Corporation, preferential dividends, from the date fixed by the resolutions of the Board of Directors of the Corporation authorizing the issuance thereof, in cash payable at such rate, from such date, and on such quarterly dividend payment dates and, if cumulative, cumulative from such date or dates, as may be fixed by the provisions of these Articles of Incorporation or any amendment thereto or by the resolutions of the Board of Directors of the Corporation providing for the issue of such series.  The holders of shares of Class A Preferred Stock shall not be entitled to receive any dividends thereon other than those specifically provided for by these Articles of Incorporation or any amendment thereto, or such resolutions of the Board of Directors of the Corporation, nor shall any arrearages in dividends on the Class A Preferred Stock bear any interest.

(b)

So long as any of the Class A Preferred Stock is outstanding, no dividends (other than dividends payable in stock junior to the Class A Preferred Stock and cash in lieu of fractional shares in connection with any such dividend) shall be paid or declared in cash or otherwise, nor shall any other distribution be made, on any stock junior to the Class A Preferred Stock, unless

(i)

there shall be no arrearages in dividends on the Class A Preferred Stock for any past quarterly dividend period, and dividends in full for the current quarterly dividend period shall have been paid or declared on all of the Class A Preferred Stock (cumulative and non-cumulative); and

(ii)

the Corporation shall have paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all sinking funds, if any, for the Class A Preferred Stock of any series; and

(iii)

the Corporation shall not be in default on any of its obligations to redeem any of the Class A Preferred Stock.

(c)

So long as any of the Class A Preferred Stock is outstanding, no shares of any stock junior to the Class A Preferred Stock shall be purchased, redeemed or otherwise acquired by the Corporation or by any subsidiary except (i) in connection with a reclassification or exchange of any stock junior to the Class A Preferred Stock through the issuance of other stock junior to the Class A Preferred Stock at the time outstanding, or (ii) in connection with the purchase, redemption or other acquisition of any stock junior to the Class A Preferred Stock with proceeds of a reasonably contemporaneous sale of other stock junior to the Class A Preferred Stock at the time outstanding or (iii) payments in cash in lieu of fractional shares upon the conversion of any convertible
 

stock junior to the Class A Preferred Stock, nor shall any funds be set aside or made available for any sinking fund for the purchase or redemption of any stock junior to the Class A Preferred Stock, unless
 

(i)

there shall be no arrearages in dividends on Class A Preferred Stock for any past quarterly dividend period, and dividends in full for the current quarterly dividend period shall have been paid or declared on all of the Class A Preferred Stock (cumulative and non-cumulative); and

(ii)

the Corporation shall have paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all sinking funds, if any, for the Class A Preferred Stock of any series; and

(iii)

the Corporation shall not be in default on any of its obligations to redeem any of the Class A Preferred Stock.

(d)

Subject to the foregoing provisions and not otherwise, such dividends (payable in cash, property or stock junior to the Class A Preferred Stock) as may be determined by the Board of Directors of the Corporation may be declared and paid on the shares of any stock junior to the Class A Preferred Stock from time to time, and in the event of the declaration and payment of any such dividends, the holders of shares of such junior stock shall be entitled, to the exclusion of holders of shares of Class A Preferred Stock, to share ratably therein according to their respective interests.

(e)

Dividends in full shall not be declared or paid or set apart for payment on any series of Class A Preferred Stock, unless there shall be no arrearages in dividends on any Class A Preferred Stock for any past quarterly dividend period and dividends in full for the current quarterly dividend period shall have been paid or declared on all Class A Preferred Stock to the extent that such dividends are cumulative, and any dividends paid or declared when dividends are not so paid or declared in full shall be shared ratably by the holders of all series of Class A Preferred Stock in proportion to such respective arrearages and unpaid and undeclared current quarterly dividends.

3.

Liquidation rights.

(a)

In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of shares of Class A Preferred Stock of each series shall be entitled to receive in full out of the Corporation’s assets the sum of One Hundred Dollars ($100) for each share of Class A Preferred Stock held by them, plus any arrearages in dividends thereon to the date fixed for the payment in liquidation, before any distribution shall be made to the holders of shares of any stock junior to the Class A Preferred Stock.  After such payment in full to the holders of shares of the Class A Preferred Stock, the remaining assets of the Corporation shall then be distributable exclusively among the holders of shares of any stock junior to the Class A Preferred Stock, according to their respective interests.

(b)

If the assets of the Corporation are insufficient to permit the payment of the full preferential amounts payable to the holders of shares of Class A Preferred Stock of the respective series in the event of a liquidation, dissolution or winding up, then the assets available for distribution to holders of shares of Class A Preferred Stock shall be distributed ratably to such holders in proportion to the full preferential amounts payable on the respective shares.

(c)

A consolidation or merger of the Corporation with or into one or more other corporations or a sale of all or substantially all of the assets of the Corporation shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation.

4.

Redemption.

(a)

The Corporation may, at the option of the Board of Directors, redeem the whole or any part of the Class A Preferred Stock, or of any series thereof, at any time or from time to time within the period during which such stock is, according to these Articles of Incorporation or any amendment thereto, or the resolutions of the Board of Directors of the Corporation providing for the issue thereof, redeemable at the option of the Board of Directors, by paying such redemption price thereof as shall have been fixed by these Articles of Incorporation or any amendment thereto or by the resolutions of the Board of Directors of the Corporation providing for the issue of the Class A Preferred Stock to be redeemed, including an amount in the case of each share so to be redeemed equal to any arrearages in dividends thereon to the date fixed for redemption (the total amount so to be paid be ing hereinafter referred to as the “redemption price”).  The Class A $5 Cumulative Preferred Stock and the Class A $5.65 Cumulative Preferred Stock shall be redeemable at any time at the option of the Board of Directors of the Corporation.

(b)

Unless expressly provided otherwise in the resolutions of the Board of Directors of the Corporation providing for the issue of the Class A Preferred Stock to be redeemed, (i) notice of each such redemption shall be mailed not less than thirty days nor more than ninety days prior to the date fixed for redemption to each holder of record of shares of the Class A Preferred Stock to be redeemed, at his address as the same may appear on the books of the Corporation, and (ii) in case of a redemption of a part only of any series of the Class A Preferred Stock, the shares of such series to be redeemed shall be selected pro rata or by lot or in such other equitable manner as the Board of Directors of the Corporation may determine.  The Board of Directors of the Corporation shall have full power and authority, subject to the limitations and provisions contained in these Articles of Incorporation or any amendment thereto or in the resolutions of the Board of Directors of the Corporation providing for the issue of the Class A Preferred Stock to be redeemed, to prescribe the manner in which and the terms and conditions upon which the Class A Preferred Stock may be redeemed from time to time.

(c)

If any such notice of redemption shall have been duly given, then on and after the date fixed in such notice of redemption (unless default shall be made by the

Corporation in the payment or deposit of the redemption price pursuant to such notice) all arrearages in dividends, if any, on the shares of Class A Preferred Stock so called for redemption shall cease to accumulate, and on such date all rights of the holders of shares of Class A Preferred Stock so called for redemption shall cease and terminate except the right to receive the redemption price upon surrender of their certificates for redemption and such rights, if any, of conversion or exchange as may exist with respect to such Class A Preferred Stock under the provisions of these Articles of Incorporation or any amendment thereto or in the resolutions of the Board of Directors of the Corporation providing for the issue of such Class A Preferred Stock.

(d)

If, before the redemption date specified in any notice of the redemption of any Class A Preferred Stock, the Corporation shall deposit the redemption price with a bank or trust company in the continental United States having a capital and surplus of at least $5,000,000 according to its last published statement of condition, in trust for payment on the redemption date to the holders of shares of Class A Preferred Stock to be redeemed, from and after the date of such deposit all rights of the holders of shares of Class A Preferred Stock so called for redemption shall cease and terminate except the right to receive the redemption price upon surrender of their certificates for redemption and such rights, if any, of conversion or exchange as may exist with respect to such Class A Preferred Stock under the provisions of these Articles of Incorporation or any amendment thereto or i n the resolutions of the Board of Directors of the Corporation providing for the issue of such Class A Preferred Stock.  Any funds so deposited which are not required for such redemption because of the exercise of any such right of conversion or exchange subsequent to the date of such deposit shall be returned to the Corporation forthwith.  The Corporation shall be entitled to receive from the depositary, from time to time, the interest, if any, allowed on such funds deposited with it, and the holders of the shares so redeemed shall have no claim to any interest.  Any funds so deposited and remaining unclaimed at the end of six years from the redemption date shall, if thereafter requested by the Board of Directors of the Corporation, be repaid to the Corporation.

(e)

Shares of Class A Preferred Stock of any series may also be subject to redemption, in the manner hereinabove prescribed under this paragraph 4 of Subdivision A of Section 4, through operation of any sinking fund created therefor, at the redemption prices and under the terms and provisions contained in the resolutions of the Board of Directors of the Corporation providing for the issue of such series.

(f)

The Corporation shall not be required to register a transfer of any share of Class A Preferred Stock (i) within fifteen days preceding a selection for redemption of shares of the series of Class A Preferred Stock of which such share is a part or (ii) which has been selected for redemption.

(g)

During the continuance of any arrearages in dividends for any past quarterly dividend period or a failure in fulfillment of any sinking fund or redemption obligation on any series of Class A Preferred Stock, the Corporation shall not purchase or redeem less than all of the shares of Class A Preferred Stock or of any other stock ranking on a parity with the Class A Preferred Stock as to dividends and upon liquidation, nor permit any

subsidiary to do so without the consent given in writing or affirmative vote given in person or by proxy at a meeting called for the purpose, by the holders of at least fifty percent (50%) of all the shares of Class A Preferred Stock then outstanding; provided that (i) to meet the requirements of any purchase, retirement or sinking fund provisions with respect to any series, the Corporation may use shares of such series acquired by it prior to such arrearages in dividends or failure of payment and then held by it as treasury stock, valued at the redemption price, and (ii) the Corporation may complete the purchase or redemption of shares of Class A Preferred Stock or of any other stock ranking on a parity with the Class A Preferred Stock as to dividends and upon liquidation for which a purchase contract was entered into for any purchase, retirement or sinking fund purposes, or the notice of redemption of which was initially mailed, prior to such arrearages in dividends or failure of payment.

(h)

If any obligation to retire shares of Class A Preferred Stock is not paid in full on all series as to which such obligation exists, the number of shares of each such series to be retired pursuant to any such obligation shall be in proportion to the respective amounts which would be payable if all amounts payable for the retirement of such series were discharged in full.

5.

Restrictions on certain action affecting Class A Preferred Stock.  The Corporation will not, without the consent given in writing or affirmative vote given in person or by proxy at a meeting held for the purpose,

(a)

by the holders of at least fifty percent (50%) of the shares of Class A Preferred Stock then outstanding,

(i)

amend, alter or repeal any of the provisions of these Articles of Incorporation, or any amendment thereto, or By-laws of the Corporation, so as to affect adversely the voting powers, rights or preferences of the holders of shares of Class A Preferred Stock or to reduce the time for any notice to which the holders of shares of Class A Preferred Stock may be entitled; provided, however, that the amendment of the provisions of these Articles of Incorporation, as amended, so as to increase the authorized amount of Common Stock, Class B Preferred Stock, Class A Preferred Stock, any other class of stock junior to the Class A Preferred Stock or any stock of any class ranking on a parity with the Class A Preferred Stock shall not be deemed to affect adversely the powers, rights or preferences of the holders of shares of Class A Preferred Stock.

(ii)

create any other class or classes of stock or any security convertible into, or exchangeable for or evidencing the right to purchase any stock of a class ranking on a parity with the Class A Preferred Stock, either as to dividends or upon liquidation;

(iii)

increase the authorized amount of or create any class or classes of stock ranking prior to the Class A Preferred Stock; or

(iv)

merge or consolidate with or into any other corporation, unless the corporation resulting from such merger or consolidation will have after such merger or consolidation no class of stock either authorized or outstanding ranking prior to the Class A Preferred Stock, and no securities either authorized or outstanding which are convertible or exchangeable into stock ranking prior to the Class A Preferred Stock except the same number of shares of prior stock and the same amount of such convertible securities with the same rights and preferences as the prior stock and such convertible securities of the Corporation, respectively, authorized and outstanding immediately preceding such merger or consolidation, and unless each holder of shares of Class A Preferred Stock, immediately preceding such a merger or consolidation shall receive the same number of shares, with substantially th e same rights and preferences, of the resulting corporation; provided, however, that no such consent of the holders of shares of Class A Preferred Stock then outstanding shall be required if, at or prior to the taking effect of the event which would otherwise require such consent, provisions shall be made for the redemption of all shares of such Class A Preferred Stock.

(b)

by the holders of at least fifty percent (50%) of the shares of any series of Class A Preferred Stock then outstanding, amend, alter or repeal any of the provisions of these Articles of Incorporation or any amendment thereto or of the resolutions of the Board of Directors of the Corporation providing for the issue of such series so as to affect adversely the powers, preferences or rights of the holders of shares of Class A Preferred Stock of such series; provided, however, that no such consent of the holders of shares of any series of Class A Preferred Stock shall be required if, at or prior to the taking effect of the event which would otherwise require such consent, provision shall have been made for the redemption of all shares of such series.

6.

Status of Class A Preferred Stock purchased, redeemed or converted.  Shares of Class A Preferred Stock purchased, redeemed or converted into or exchanged for shares of any other class or series shall be deemed to be authorized for unissued shares of Class A Preferred Stock undesignated as to series.

7.

Voting Rights.  On all matters upon which the holders of shares of Common Stock of the Corporation are entitled to vote, unless otherwise provided in these Articles of Incorporation or any amendment thereto or the resolutions of the Board of Directors of the Corporation providing for the issuance of shares of one or more series of Class A Preferred Stock, each holder of shares of Class A Preferred Stock shall have the right to vote upon a share-for-share basis with the holders of shares of Common Stock.

8.

Election of Directors by holders of shares of Class A Preferred Stock in event of Nondeclaration of Dividends.

(a)

The provisions of this paragraph 8 shall apply only to the Class A $5 Cumulative Preferred Stock, Class A $5.65 Cumulative Preferred Stock and to those other series of Class A Preferred Stock to which such provisions are expressly made applicable by these Articles of Incorporation or any amendment thereto or resolutions of

the Board of Directors of the Corporation providing for the issue of such series (hereinafter referred to as the applicable Class A Preferred Stock).

(b)

If 30 days prior to the date of any annual meeting of the stockholders declarations of dividends (including non-cumulative dividends) on the shares of any series of applicable Class A Preferred Stock shall be omitted (i) in an aggregate amount equal to 3 (but less than 6) full quarterly dividends, the number of authorized directorships shall be increased by six if twelve directorships are authorized immediately prior to such meeting, or by that number of full directorships which will represent at least one-third of the total number of directorships giving effect to the increase (but no more) if other than twelve directorships are authorized immediately prior to such meeting, and the holders of shares of applicable Class A Preferred Stock shall have the exclusive and special right, voting separately as a class and without regard to series, to elect at such annual meeting of s tockholders or special meeting held in place thereof, directors to fill such vacancies so created, which directors shall not be included in the classes created by Article Fifth or (ii) in an aggregate amount equal to 6 full quarterly dividends, the number of authorized directorships shall be increased by the number of authorized directorships in existence immediately prior to such meeting plus one additional directorship, and the holders of shares of applicable Class A Preferred Stock shall have the exclusive and special right, voting separately as a class and without regard to series, to elect at such annual meeting of stockholders or special meeting held in place thereof, directors to fill such vacancies so created, which directors shall not be included in the classes created by Article Fifth, in each case until four consecutive quarterly dividends shall have been paid on or declared and set apart for payment on the shares of such series, if the shares of such series are non-cumulative, or until all arrear ages in dividends and dividends in full for the currently quarterly period shall have been paid on or declared and set apart for payment on the shares of such series, if the shares of such series are cumulative, whereupon all voting rights as a class of the holders of shares of applicable Class A Preferred Stock provided for under this paragraph 8 Subdivision A of Section 4 shall be divested from the holders of shares of applicable Class A Preferred Stock (subject, however, to being at any time or from time to time similarly revived if declarations of dividends for subsequent quarterly periods shall be omitted).

(c)

At any meeting at which the holders of shares of applicable Class A Preferred Stock shall be entitled to vote as a class for the election of directors as above provided, the holders of a majority of the shares of applicable Class A Preferred Stock then outstanding present in person or by proxy shall constitute a quorum for the election of such directors and for no other purpose, and the vote of the holders of a majority of the shares of applicable Class A Preferred Stock so present at any such meeting at which there shall be such a quorum shall be sufficient to elect such directors.  The persons so elected as directors by the holders of shares of applicable Class A Preferred Stock shall hold office until (i) their successors shall have been elected by such holders or (ii) until the annual meeting next following the divestiture of the right of the holders of shares of ap plicable Class A Preferred Stock to vote as a class in the election of directors as provided in subparagraph (b) of this paragraph 8 of Subdivision A of Section 4.  If a vacancy occurs in a directorship elected by the holders of shares of applicable Class A

Preferred Stock voting as a class, a successor may be appointed by the remaining director or directors so elected by the holders of shares of applicable Class A Preferred Stock.  Directors elected pursuant to this paragraph 8 of Subdivision A of Section 4 shall not be removed otherwise than as provided in Article Fifth.

(d)

At any such meeting or any adjournment thereof, (i) the absence of a quorum of the holders of shares of applicable Class A Preferred Stock shall not prevent the election of the directors other than those to be elected by holders of shares of applicable Class A Preferred Stock voting as a class, and the absence of a quorum of holders of the shares entitled to vote for directors other than those to be elected by the holders of shares of applicable Class A Preferred Stock voting as a class shall not prevent the election of the directors to be elected by the holders of shares of applicable Class A Preferred Stock voting as a class, and (ii) in the absence of a quorum of the holders of shares of applicable Class A Preferred Stock, the holders of a majority of the shares of applicable Class A Preferred Stock present in person or by proxy shall have power to adjourn from time to ti me the meeting for the election of the directors which they are entitled to elect voting as a class, without notice other than announcement at the meeting until a quorum shall be present.

9.

Class A $5 Cumulative Preferred Stock.  The preferences and relative, participating, optional and other special rights and qualifications, limitations or restrictions of said shares of the Class A $5 Cumulative Preferred Stock shall be as hereinafter set forth, namely:

(a)

The annual dividend rate upon the Class A $5 Cumulative Preferred Stock shall be $5;

(b)

The quarterly dividend payment dates of the Class A $5 Cumulative Preferred Stock shall be the first days of January, April, July and October in each year;

(c)

The Class A $5 Cumulative Preferred Stock may be redeemed at the price of $105 per share, plus accrued and unpaid dividends.

B.  CLASS B PREFERRED STOCK

1.

Authority of the Board of Directors of the Corporation to issue Class B Preferred Stock in Series.  The Class B Preferred Stock may be issued from time to time in one or more series.  Subject to the provisions of these Articles of Incorporation or any amendment thereto, authority is expressly granted to the Board of Directors of the Corporation to authorize the issue of one or more series of Class B Preferred Stock, and to fix by resolutions providing for the issue of each such series the powers, preferences and rights thereof, to the full extent now or hereafter permitted by law, including but not limited to the following:

(a)

The number of shares of such series (which may subsequently be increased by resolutions of the Board of Directors of the Corporation) and the distinctive designation thereof.

(b)

The dividend rate of such series and any limitations, restrictions or conditions on the payment of such dividends;

(c)

The terms and conditions, if any, on which, and the price or prices at which, the shares of such series may be redeemed;

(d)

The amounts which the holders of the shares of such series are entitled to receive upon any liquidation, dissolution or winding up the Corporation;

(e)

The terms of any purchase, retirement or sinking fund to be provided for the shares of such series;

(f)

Restrictions upon the declaration or payment of dividends or other distributions on, or the acquisition or retirement by the Corporation of, the Common Stock, to take effect upon the occurrence of any default in the provisions for a sinking fund, if any, for the particular series and to remain in effect so long as such default continues; and provisions extending for the benefit of the particular series for so long as any shares thereof remain outstanding, similar restrictions with respect to the stock of the Corporation imposed by the terms of any of its funded indebtedness then outstanding;

(g)

The terms and conditions, if any, upon which the shares of such series shall be convertible into or exchangeable for shares of any other class or classes, or of any other series of the same or any other class or classes of stock of the Corporation;

(h)

The voting powers, if any, of such series in addition to the voting powers provided in paragraphs 5 and 8 of this Subdivision B of Section 4; and

(i)

Any other variance in the relative powers, preferences and rights as between different series not inconsistent with these Articles of Incorporation or any amendments thereto, to the full extent now or hereafter allowed by law.

The Class B Preferred Stock of each series shall rank on a parity with the Class B Preferred Stock of every other series in priority of payment of dividends and in the distribution of assets in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, to the extent of the preferential amounts to which the Class B Preferred Stock of the respective series shall be entitled under the provisions of these Articles of Incorporation or any amendment thereto or the resolutions of the Board of Directors of the Corporation providing for the issue of such series.  All shares of any one series of Class B Preferred Stock shall be identical except as to the dates of issue and the dates from which dividends on shares of the series issued on different dates shall accumulate (if cumulative).

2.

Dividend rights.

(a)

The holders of shares of Class B Preferred Stock of each series shall be entitled to receive, when and as declared by the Board of Directors of the Corporation, preferential dividends from the date fixed by the resolutions of the Board of Directors of

the Corporation authorizing the issuance thereof, in cash payable at such rate, from such date, and on such quarterly dividend payment dates and, if cumulative, cumulative from such date or dates, as may be fixed by the provisions of these Articles of Incorporation or any amendment thereto or by the resolutions of the Board of Directors of the Corporation providing for the issue of such series.  The holders of shares of Class B Preferred Stock shall not be entitled to receive any dividends thereon other than those specifically provided for by these Articles of Incorporation or any amendment thereto, or such resolutions of the Board of Directors of the Corporation, nor shall any arrearages in dividends on the Class B Preferred Stock bear any interest.

(b)

So long as any of the Class B Preferred Stock is outstanding, no dividends (other than dividends payable in stock junior to the Class B Preferred Stock and cash in lieu of fractional shares in connection with any such dividend) shall be paid or declared in cash or otherwise, nor shall any other distribution be made, on any stock junior to the Class B Preferred Stock, unless

(i)

there shall be no arrearages in dividends on the Class B Preferred Stock for any past quarterly dividend period, and dividends in full for the current quarterly dividend period shall have been paid or declared on all of the Class B Preferred Stock (cumulative and non-cumulative) and

(ii)

the Corporation shall have paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all sinking funds, if any, for the Class B Preferred Stock of any series; and

(iii)

the Corporation shall not be in default on any of its obligations to redeem any of the Class B Preferred Stock.

(c)

So long as any of the Class B Preferred Stock is outstanding, no shares of any stock junior to the Class B Preferred Stock shall be purchased, redeemed or otherwise acquired by the Corporation or by any subsidiary except (i) in connection with a reclassification or exchange of any stock junior to the Class B Preferred Stock through the issuance of other stock junior to the Class B Preferred Stock at the time outstanding, or (ii) in connection with the purchase, redemption or other acquisition of any stock junior to the Class B Preferred Stock with proceeds of a reasonably contemporaneous sale of other stock junior to the Class B Preferred Stock at the time outstanding, or (iii) payments in cash in lieu of fractional shares upon the conversions of any convertible stock junior to the Class A Preferred Stock, nor shall any funds be set aside or made available for any sinki ng fund for the purchase or redemption of any stock junior to the Class B Preferred Stock, unless

(i)

there shall be no arrearages in dividends on Class B Preferred Stock for any past quarterly dividend period, and dividends in full for the current dividend period shall have been paid or declared on all of the Class B Preferred Stock (cumulative or non-cumulative); and

(ii)

the Corporation shall have paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all sinking funds, if any, for the Class B Preferred Stock of any series; and

(iii)

the Corporation shall not be in default on any of its obligations to redeem any of the Class B Preferred Stock.

(d)

Subject to the foregoing provisions and not otherwise, such dividends (payable in cash, property or stock junior to the Class B Preferred Stock) as may be determined by the Board of Directors of the Corporation may be declared and paid on the shares of any stock junior to the Class B Preferred Stock from time to time, and in the event of the declaration and payment of any such dividends, the holders of shares of such junior stock shall be entitled, to the exclusion of holders of shares of Class B Preferred Stock, to share ratably therein according to their respective interests.

(e)

Dividends in full shall not be declared or paid or set apart for payment on any series of Class B Preferred Stock, unless there shall be no arrearages in dividends on any Class B Preferred Stock for any past quarterly dividend period and dividends in full for the current quarterly dividend period shall have been paid or declared on all Class B Preferred Stock to the extent that such dividends are cumulative and any dividends paid or declared when dividends are not so paid or declared in full shall be shared ratably by the holders of shares of all series of Class B Preferred Stock in proportion to such respective arrearages and unpaid and undeclared current quarterly dividends.

(f)

Dividends shall not be declared or paid or set apart for payment on any series of Class B Preferred Stock, unless there shall be no arrearages in dividends on any series of Class A Preferred Stock entitled to cumulative dividends for any past quarterly dividend period and dividends in full for the current dividend period shall have been paid or declared or set apart for payment on all Class A Preferred Stock.

3.

Liquidation rights.

(a)

In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of shares of Class B Preferred Stock of each series shall be entitled to receive, subject to the prior rights of the holders of shares of Class A Preferred Stock set forth in paragraph 3 of Subdivision A of Section 4, the full preferential amount fixed by these Articles of Incorporation or any amendment thereto, or by the resolutions of the Board of Directors of the Corporation providing for the issue of such series, including any arrearages in dividends thereon to the date fixed for the payment in liquidation, before any distribution shall be made to the holders of shares of any stock junior to the Class B Preferred Stock.  After such payment in full to the holders of shares of the Class B Preferred Stock, the remaining assets of the Corporation shall then be distributable exclusively among the holders of shares of any stock junior to the Class B Preferred Stock, according to their respective interests.

(b)

If the assets of the Corporation are insufficient to permit the payment of the full preferential amounts payable to the holders of shares of Class B Preferred Stock of the respective series in the event of a liquidation, dissolution or winding up, then the assets available for distribution to holders of shares of Class B Preferred Stock shall be distributed ratably to such holders in proportion to the full preferential amounts payable on the respective shares.

(c)

A consolidation or merger of the Corporation with or into one or more other corporations or a sale of all or substantially all of the assets of the Corporation shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation.

4.

Redemption.

(a)

The Corporation may, at the option of the Board of Directors, redeem the whole or any part of the Class B Preferred Stock, or of any series thereof, at any time or from time to time within the period during which such stock is, according to the resolutions of the Board of Directors of the Corporation providing for the issue thereof, redeemable at the option of the Board of Directors of the Corporation, by paying such redemption price thereof, as shall have been fixed by these Articles of Incorporation or any amendment thereto or by the resolutions of the Board of Directors of the Corporation providing for the issue of the Class B Preferred Stock to be redeemed, including an amount in the case of each share so to be redeemed equal to any arrearages in dividends thereon to the date fixed for redemption (the total amount so to be paid being hereinafter referred to as the “ redemption price”).

(b)

Unless expressly provided otherwise in the resolutions of the Board of Directors of the Corporation providing for the issue of the Class B Preferred Stock to be redeemed, (i) notice of each such redemption shall be mailed not less than thirty days nor more than ninety days prior to the date fixed for redemption to each holder of record of shares of the Class B Preferred Stock to be redeemed, at his address as the same may appear on the books of the Corporation, and (ii) in case of a redemption of a part only of any series of the Class B Preferred Stock, the shares of such series to be redeemed shall be selected pro rata or by lot or in such other equitable manner as the Board of Directors of the Corporation may determine.  The Board of Directors of the Corporation shall have full power and authority, subject to the limitations and provisions contained in these Articles of Incorporation or any amendment thereto or in the resolutions of the Board of Directors of the Corporation providing for the issue of the Class B Preferred Stock to be redeemed, to prescribe the manner in which and the terms and conditions upon which the Class B Preferred Stock may be redeemed from time to time.

(c)

If any such notice of redemption shall have been duly given, then on and after the date fixed in such notice of redemption (unless default shall be made by the Corporation in the payment or deposit of the redemption price pursuant to such notice) all arrearages in dividends, if any, on the shares of Class B Preferred Stock so called for redemption shall cease to accumulate, and on such date all rights of the holders of shares

of the Class B Preferred Stock so called for redemption shall cease and terminate except the right to receive the redemption price upon surrender of their certificates for redemption and such rights, if any, of conversion or exchange as may exist with respect to such Class B Preferred Stock under the provisions of these Articles of Incorporation or any amendment thereto or in the resolutions of the Board of Directors of the Corporation providing for the issue of such Class B Preferred Stock.

(d)

If, before the redemption date specified in any notice of the redemption of any Class B Preferred Stock, the Corporation shall deposit the redemption price with a bank or trust company in the continental United States, having a capital and surplus of at least $5,000,000 according to its last published statement of condition, in trust for payment on the redemption date to holders of shares of Class B Preferred Stock to be redeemed, from and after the date of such deposit all rights of the holders of shares of Class B Preferred Stock so called for redemption shall cease and terminate except the right to receive the redemption price upon surrender of their certificates for redemption and such rights, if any, of conversion or exchange as may exist with respect to such Class B Preferred Stock under the provisions of these Articles of Incorporation or any amendment thereto or in t he resolutions of the Board of Directors of the Corporation providing for the issue of such Class B Preferred Stock.  Any funds so deposited which are not required for such redemption because of the exercise of any such right of conversion or exchange subsequent to the date of such deposit shall be returned to the Corporation forthwith.  The Corporation shall be entitled to receive from the depositary, from time to time, the interest, if any, allowed on such funds deposited with it, and the holders of the shares so redeemed shall have no claim to any interest.  Any funds so deposited and remain unclaimed at the end of six years from the redemption date shall, if thereafter requested by the Board of Directors of the Corporation, be repaid to the Corporation.

(e)

Shares of Class B Preferred Stock of any series may also be subject to redemption, in the manner hereinabove described under this paragraph 4 of Subdivision B of Section 4, through operation of any sinking fund created therefor, at the redemption prices and under the terms and provisions contained in the resolutions of the Board of Directors of the Corporation providing for the issue of such series.

(f)

The Corporation shall not be required to register a transfer of any share of Class B Preferred Stock (i) within fifteen days preceding a selection for redemption of shares of the series of Class B Preferred Stock of which such share is a part or (ii) which has been selected for redemption.

(g)

During the continuance of any arrearages in dividends for any past quarterly dividend period or a failure in fulfillment of any sinking fund or redemption obligation on any series of Class B Preferred Stock, the Corporation shall not purchase or redeem less than all of the shares of Class B Preferred Stock or of any other stock ranking on a parity with the Class B Preferred Stock as to dividends and upon liquidation, nor permit any subsidiary to do so without the consent given in writing or affirmative vote given in person or by proxy at a meeting called for the purpose, by the holders or at least fifty percent (50%) of all shares of Class B Preferred Stock then outstanding; provided that (i)

to meet the requirements of any purchase, retirement or sinking fund provisions with respect to any series, the Corporation may use shares of such series acquired by it prior to such arrearages in dividends or failure of payment and then held by it as treasury stock, valued at the redemption price, and (ii) the Corporation may complete the purchase of redemption of shares of Class B Preferred Stock or any other stock ranking on a parity with the Class B Preferred Stock as to dividends and upon liquidation for which a purchase contract was entered into for any purchase, retirement or sinking fund purposes, or the notice of redemption of which was initially mailed, prior to such arrearages in dividends or failure of payment.

(h)

If any obligation to retire shares of Class B Preferred Stock is not paid in full on all series as to which such obligation exists, the number of shares of each such series to be retired pursuant to any such obligation shall be in proportion to the respective amounts which would be payable if all amounts payable for the retirement of such series were discharged in full.

5.

Restrictions on certain actions affecting Class B Preferred Stock.  The Corporation will not, without the consent given in writing or affirmative vote given in person or by proxy at a meeting held for the purpose,

(a)

by the holders of at least fifty percent (50%) of the shares of Class B Preferred Stock then outstanding,

(i)

amend, alter or repeal any of the provisions of these Articles of Incorporation, or any amendment thereto, or By-laws of the Corporation, so as to affect adversely the voting powers, rights or preferences of the holders of shares of Class B Preferred Stock or reduce the time for any notice to which the holders of shares of Class B Preferred Stock may be entitled; provided, however, that the amendment of the provisions of these Articles of Incorporation, as amended, so as to increase the authorized amount of Common Stock, Class B Preferred Stock, any other class of stock junior to the Class B Preferred Stock, any stock of any class ranking on a parity with the Class B Preferred Stock or the Class A Preferred Stock shall not be deemed to affect adversely the powers, rights or preferences of the holder of shares of Class B Preferred Stock;

(ii)

create any other class or classes of stock or any security convertible into, or exchangeable for or evidencing the right to purchase any stock of a class ranking on a parity with the Class B Preferred Stock, either as to dividends or upon liquidation;

(iii)

create any class or classes of stock ranking prior to the Class B Preferred Stock; or

(iv)

merge or consolidate with or into any other corporation, unless the corporation resulting from such merger or consolidation will have after such merger or consolidation no class of stock either authorized or outstanding ranking prior to the Class B Preferred Stock, and no securities either authorized or outstanding which are convertible into or exchangeable for stock ranking prior to the Class B Preferred Stock

except the same number of shares of prior stock and the same amount of such convertible securities with the same rights and preferences as the prior stock and such convertible securities of the Corporation, respectively, authorized and outstanding immediately preceding such merger or consolidation, and unless each holder of shares of Class B Preferred Stock immediately preceding such a merger or consolidation shall receive the same number of shares, with substantially the same rights and preferences, of the resulting corporation;

provided, however, that no such consent of the holders of shares of Class B Preferred Stock then outstanding shall be required if, at or prior to the taking effect of the event which would otherwise require such consent, provision shall be made for the redemption of all shares of Class B Preferred Stock.

(b)

by the holders of at least fifty percent (50%) of the shares of any series of Class B Preferred Stock then outstanding, amend, alter or repeal any of the provisions of these Articles of Incorporation or any amendment thereto or of the resolutions of the Board of Directors of the Corporation providing for the issue of such series so as to affect adversely the powers, preferences or rights of the holders of shares of Class B Preferred Stock of such series; provided, however, that no such consent of the holders of shares of any series of Class B Preferred Stock shall be required if, at or prior to the taking effect of the event which would otherwise require such consent, provision shall have been made for the redemption of all shares of such series.

6.

Status of Class B Preferred Stock purchased, redeemed or converted.  Shares of Class B Preferred Stock purchased, redeemed or converted into or exchanged for shares of any other class or series shall be deemed to be authorized but unissued shares of Class B Preferred Stock undesignated as to series.

7.

Voting Rights.  On all matters upon which the holders of shares of Common Stock of the Corporation are entitled to vote, unless otherwise provided in these Articles of Incorporation or any amendment thereto or the resolutions of the Board of Directors providing for the issuance of shares of one or more series of Class B Preferred Stock, each holder of shares of Class B Preferred Stock shall have the right to vote upon a share-for-share basis with the holders of shares of Common Stock.

8.

Election of Directors by holders of shares of Class B Preferred Stock in event of Nondeclaration of Dividends.

(a)

The provisions of this paragraph 8 of Subdivision B of Section 4 shall apply only to those series of Class B Preferred Stock to which such provisions are expressly made applicable by these Articles of Incorporation or any amendment thereto or resolutions of the Board of Directors of the Corporation providing for the issue of such series (hereinafter referred to as the applicable Class B Preferred Stock), subject to the rights of the holders of Class A Preferred Stock.

(b)

If 30 days prior to the date of any annual meeting of the stockholders, holders of shares of Class A Preferred Stock are not entitled to exclusive and special voting rights in the election of directors pursuant to paragraph 8 of Subdivision A of Section 4 and declarations of dividends (including non-cumulative dividends) on the shares of any series of applicable Class B Preferred Stock shall be omitted (i) in an aggregate amount equal to 3 (but less than 6) full quarterly dividends, the number of authorized directorships shall be increased by six, if twelve directorships are authorized immediately prior to such meeting, or by the number of full directorships which will represent at least one-third of the total number of directorships giving effect to the increase (but no more) if other than twelve directorships are authorized immediately prior to such meeting, and the holder s of shares of applicable Class B Preferred Stock shall have the exclusive and special right, voting separately as a class and without regard to series, to elect at such annual meeting of stockholders or special meeting held in place thereof, directors to fill such vacancies so created, which directors shall not be included in the classes created by Article Fifth or (ii) in an aggregate amount equal to 6 full quarterly dividends, the number of authorized directorships shall be increased by the number of authorized directorships in existence immediately prior to such meeting plus one additional directorship, and the holders of shares of applicable Class B Preferred Stock shall have the exclusive and special right, voting separately as a class and without regard to series, to elect at such annual meeting of stockholders or special meeting held in place thereof, directors to fill such vacancies so created, which directors shall not be included in the classes created by Article Fifth, in each case until four con secutive quarterly dividends shall have been paid on or declared and set apart for payment on the shares of such series, if the shares of such series are non-cumulative, or until all arrearages in dividends and dividends in full for the current quarterly period shall have been paid on or declared and set apart for payment on the shares of such series, if the shares of such series are cumulative whereupon all voting rights as a class of the holders of shares of applicable Class B Preferred Stock provided for under this paragraph 8 Subdivision B of Section 4 shall be divested from the holders of shares of applicable Class B Preferred Stock (subject, however, to being at any time or from time to time similarly revived if declarations of dividends for subsequent quarterly periods shall be omitted).

(c)

At any meeting at which the holders of shares of applicable Class B Preferred Stock shall be entitled to vote as a class for the election of such directors as above provided, the holders of a majority of the shares of applicable Class B Preferred Stock then outstanding present in person or by proxy shall constitute a quorum for the election of such directors and for no other purpose, and the vote of the holders of a majority of the shares of applicable Class B Preferred Stock so present at any such meeting at which there shall be such a quorum shall be sufficient to elect such directors.  The persons so elected as directors by the holders of shares of applicable Class B Preferred Stock shall hold office until (i) their successors shall have been elected by such holders of (ii) until the annual meeting next following the divestiture of the right of the holders of shares of applicable Class B Preferred Stock to vote as a class in the election of directors as provided in subparagraph (b) of this paragraph 8 of Subdivision B of Section 4.  If a vacancy occurs in a directorship elected by the holders of shares of applicable Class B Preferred Stock voting as a class, a successor may be appointed by the remaining director

or directors so elected by the holders of shares of applicable Class B Preferred Stock.  Directors elected pursuant to this paragraph 8 of Subdivision B of Section 4 shall not be removed otherwise than as provided in Article Fifth.

(d)

At any such meeting or any adjournment thereof, (i) the absence of a quorum of the holders of shares of applicable Class B Preferred Stock shall not prevent the election of the directors other than those to be elected by holders of shares of applicable Class B Preferred Stock voting as a class, and the absence of a quorum of holders of the shares entitled to vote for directors other than those to be elected by the holders of shares of applicable Class B Preferred Stock voting as a class shall not prevent the election of the directors to be elected by the holders of shares of applicable Class B Preferred Stock voting as a class, and (ii) in the absence of a quorum of the holders of shares of applicable Class B Preferred Stock, the holders of a majority of the shares of applicable Class B Preferred Stock present in person or by proxy shall have power to adjourn from time to ti me the meeting for the election of the directors which they are entitled to elect voting as a class, without notice other than announcement at the meeting until a quorum shall be present.

C.  COMMON STOCK

1.

Dividends rights.  Subject to provisions of law and the preferences of the Class A Preferred Stock and the Class B Preferred Stock, the holders of shares of the Common Stock of the Corporation shall be entitled to receive dividends at such time and in such amounts as may be determined by the Board of Directors of the Corporation.

2.

Voting rights.  The holders of shares of the Common Stock of the Corporation shall have one vote for each share on each matter submitted to a vote of the stockholders of the Corporation.

3.

Liquidation rights.  In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation and the preferential amounts to which the holders of shares of Class A Preferred Stock and Class B Preferred Stock shall be entitled, the holders of shares of the Common Stock shall be entitled to share ratably in the remaining assets of the Corporation.

D. GENERAL PROVISIONS

1.

Authority to authorize additional shares.  The authorized number of shares of Common Stock, Class A Preferred Stock and Class B Preferred Stock of the Corporation may be increased at any time and from time to time upon affirmative vote of the holders of a majority of all the shares of stock of the Corporation at the time outstanding.

2.

Authority for issuance of shares.  The Board of Directors of the Corporation shall have authority to authorize the issuance, from time to time without any vote or other action by the holders of shares of stock of the Corporation, of shares of Common Stock, Class A Preferred

Stock and Class B Preferred Stock and any authorized shares of Common Stock into which such shares of stock are convertible to such persons and for such consideration and on such terms as  the Board of Directors of the Corporation from time to time in its discretion lawfully may determine.  Shares of Common Stock, Class A Preferred Stock and Class B Preferred Stock so issued, for which the consideration has been paid to the Corporation, shall be full paid stock, and the holders of shares of such stock shall not be liable to any further call or assessments thereon.  Authorized shares of Common Stock issued upon the conversion of any other stock of the Corporation shall be full paid stock, and the holders of such stock shall not be liable to any further call or assessments thereon.

3.

Abandonment of dividends and distributions.  Anything herein contained to the contrary notwithstanding any and all right, title, interest, and claim in or to any dividends declared, or other distributions made, by the Corporation, whether in cash, stock or otherwise, on the Stock of the Corporation which are unclaimed by the stockholder entitled thereto for a period of six years after the close of business on the payment date, shall be and be deemed to be extinguished and abandoned; and such unclaimed dividends or other distributions in the possession of the Corporation, its transfer agents or other agents or depositaries, shall at such time become the absolute property of the Corporation free and clear of any and all such claims of any persons whatsoever.

4.

No stockholder of this Corporation and no holder of any other security issued by this Corporation shall, by reason of his holding any of its shares of stock or other securities have any preemptive or preferential right to purchase or subscribe for any shares of stock of this Corporation, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase any of its shares of stock now or hereafter to be authorized, whether or not the issuance of any such shares, or such notes, debentures, bonds or other securities would adversely affect the dividend, voting or other rights of such stockholder or other security holders, other than such rights, if any, as the Board of Directors, in its discretion from time to time may grant, and at such price as the Board of Directors in its discretion may fix and the Board of Direct ors may issue shares of stock of this Corporation, or any notes, debentures, bonds, or other securities convertible into or carrying options or warrants to purchase any of its shares of stock without offering any such shares, either in whole or in part, to existing stockholders of the Corporation.

SEVENTH

SECTION 1

For the purposes of this Article Seventh: (i) the term “Person” shall include any individual, corporation, partnership, trust, unincorporated organization or other entity, any syndicate or group or any two or more of the foregoing that have any agreement or understanding (or, with or without an agreement or understanding, act in concert) with respect to acquiring, holding, voting or disposing of securities of the Corporation, and shall include also any “affiliate” or “associate” (as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1975) of any Person: (ii) any Person shall be deemed to be the beneficial owner of any securities of the

Corporation which such Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; (iii) the term “Substantial Part” shall mean any assets having a then fair market value, in the aggregate, or more than $5,000,000; (iv) the term “Subsidiary” shall mean any corporation in which the Corporation owns, directly or indirectly, more than 50% of the voting securities; (v) the term “Substantial Amount” shall mean any securities of the Corporation having a then fair market value of more than $5,000,000; (vi) the outstanding securities of any class of the Corporation shall include securities deemed owned through application of the preceding clauses of this Section 2 of this Article Seventh, but shall not include any other securities which may be issuable pursuant to any agreement or upon exercise of conversion rights, w arrants or options, or otherwise; and (vii) a “Required Vote”  shall mean the affirmative vote of at least the holders of two-thirds (2/3) of all of the securities of the Corporation then entitled to vote at a meeting of stockholders, considered for the purposes of this Article Seventh as one class.

SECTION 2

Except as set forth in Section 4 of this Article Seventh, a Required Vote shall be necessary (i) for the adoption of any agreement for the merger or consolidation of the Corporation with or into any other Person, or (ii) to authorize any sale, lease, exchange, mortgage, pledge or other disposition of all, or substantially all, or any Substantial Part of the assets of the Corporation or any Subsidiary to any other Person, or (iii) to authorize the issuance or transfer by the Corporation of any Substantial Amount of securities of the Corporation in exchange for the securities or assets of any other Person, if, in any such case, as of the record date for the determination of security holders entitled to notice thereof and to vote thereon, such other Person is the beneficial owner, directly or indirectly, of more than 5% of the outstanding securities of the Corporation then entitled to vote at a m eeting of stockholders, considered for the purposes of this Article Seventh as one class.  The Required Vote shall be in lieu of any lesser vote of the holders of the voting securities of the Corporation voting as one class otherwise required by law or by agreement, but shall be in addition to any class vote or other vote otherwise required by law, these Articles of Incorporation or by any agreement or contract to which the Corporation is a party.

SECTION 3

The Board of Directors of the Corporation shall have the power and duty to determine for the purposes of this Article Seventh, on the basis of information known to the Corporation, whether this Article Seventh applies to any transaction, including but not limited to whether (i) such transaction involves a Substantial Part of the assets of the Corporation and its subsidiaries, (ii) one or more Persons are to be deemed to be a single Person, (iii) a Person is an “affiliate” or “associate” (as defined above) of another, (iv) any Person beneficially owns more than 5% of the outstanding securities of the Corporation then entitled to vote at a meeting of stockholders, (v) a Person has an agreement or understanding, or is acting in concert, with respect to acquiring, holding, voting or disposing of securities of the Corporation, and (vi) the memorandum of understanding referr ed to in Section 4 of this Article Seventh is substantially consistent with the transaction covered thereby.  Determinations of the Board of Directors of the Corporation shall be conclusive and binding for all purposes of this Article Seventh.

SECTION 4

The provisions of this Article Seventh shall not be applicable to (i) any agreement or transaction referred to in Section 2 of this Article Seventh, if the Board of Directors of the Corporation shall by resolution have approved a memorandum of understanding with the other Person who is a party to such agreement or transaction with respect to, and substantially consistent with, such transaction and such resolution shall have been approved either (A) prior to the time that such Person shall have become a holder of more than 5% of the outstanding securities of the Corporation then entitled to vote at a meeting of stockholders, or (B) by sufficient members of the Board of Directors who were directors prior to the time that such Person shall have become a holder of more than 5% of the outstanding securities of the Corporation then entitled to vote at a meeting of stockholders, to constitute a major ity of the total number of directorships (including vacant directorships), or (ii) any merger or consolidation of the Corporation with or into any Person, or any sale, lease or exchange of any of the assets of any Person to the Corporation or any subsidiary thereof if a majority of the outstanding shares of all classes of stock then entitled to vote at a meeting of stockholders of such Person is owned by the Corporation and its Subsidiaries.

EIGHTH

The power to make, alter or repeal the By-laws of the Corporation shall be vested exclusively in the Board of Directors of the Corporation.

NINTH

SECTION 1

The Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, including attorneys’ fees, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Co rporation; and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not apposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe, that his conduct was unlawful.

SECTION 2

The Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit including attorney’s fees if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to whi ch such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

SECTION 3

The Board of Directors of the Corporation shall have the power, in its discretion, to cause the Corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding referred to in Sections 1 or 2 of this Article Ninth by reason of the fact that (although not a director or officer of the Corporation) he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise to the extent that any such person would have been entitled to be indemnified under Sections 1 and 2 had he at all times been a director or officer of the Corporation.

SECTION 4

To the extent that a person who is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, of any other corporation, partnership, joint venture, trust or other enterprise with which he is or was serving in such capacity at the request of the Corporation, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith, including attorneys’ fees.

SECTION 5

Any indemnification under Sections 1, 2 or 3 of this Article Ninth, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 or 2.  Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders.

SECTION 6

Expenses incurred by a director or officer in defending a civil, criminal, administrative or investigative action, suit or proceeding, or threat thereof, may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he shall not be entitled to be indemnified by the Corporation as authorized by this Article Ninth.  Such expenses incurred by other employees and agents may be so paid upon such term and condition, if any, as the Board of Directors deems appropriate.

SECTION 7

The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-law, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue unless otherwise provided when authorized or ratified, as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

SECTION 8

For purposes of this Article, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

SECTION 9

For purposes of this Article, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article.

SECTION 10

The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article Ninth.

TENTH

Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them, secured or unsecured, or between this Corporation and its stockholders, or any class of them, any court, state or federal, of competent jurisdiction with the state of Kansas may on the application in a summary way of this Corporation, or of any creditor, secured or unsecured, or stockholders thereof, or on the application of trustees in dissolution, or on the application of any receiver or receivers appointed for this Corporation by any Court, state or federal, of competent jurisdiction, order a meeting of the creditors or class of creditors, secured or unsecured, or of the stockholders of this Corporation, as the case may be, to be summoned in such manner as said court directs.  If a majority in number representing three-fourths in value of the creditors or class of creditors , or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

ELEVENTH

The Corporation may voluntarily liquidate and dissolve only if the proposed liquidation and dissolution is approved by the affirmative vote of at least the holders of two-thirds (2/3) of all of the securities of the Corporation then entitled to vote at a meeting of stockholders, considered for the purposes of this Article Eleventh as one class.

TWELFTH

The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in any manner now or hereafter prescribed by statute; provided that no amendment to these Articles of Incorporation shall amend, alter, change or repeal any of the provisions of Article Fifth, Article Seventh, Article Eighth, Article Eleventh or this Article Twelfth; unless the amendment effectuating such amendment, alteration, change or repeal shall have received the affirmative vote of the holders of at least two-thirds (2/3) of all the securities of the Corporation then entitled to vote on such amendment, alteration, change or repeal, considered as one class.  Such two-thirds (2/3) affirmative vote shall be in addition to any vote of the holders of securities of the Corporation otherwise required by law, these Articles of Incorporation, or any agreement or co ntract to which the Corporation is a party.

THIRTEENTH

SECTION 1

For the purpose of this Article Thirteenth: (i) the term “Person” shall include any individual, corporation, partnership, trust, unincorporated organization or other entity, any syndicate or group of any two or more of the foregoing that have any agreement or

understanding (or, with or without an agreement or understanding, act in concert) with respect to acquiring, holding, voting or disposing of voting securities of the Corporation, and shall include also any affiliate or associate of any Person; (ii) any Person shall be deemed to be the beneficial owner of any voting securities of the Corporation (a) which such Person beneficially owns, as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1985, and (b) which such Person has the right to acquire pursuant to any agreement or upon exercise of conversion rights, warrants or options, or otherwise; (iii) the term “Substantial Part” shall mean any assets having a then fair market value, in the aggregate, of more than $5,000,000; (iv) the term “Subsidiary” shall mean any corporation in which the Corporation owns, directly or indirectly, more than 50% of the voting securities; (v) the term “Substantial Amount” shall mean any voting securities of the Corporation having a then fair market value or more than $5,000,000; (vi) the outstanding voting securities of any class of the Corporation shall include voting securities deemed owned through application of the preceding clauses of this Section 1 of this Article Thirteenth, but shall not include any other voting securities which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; (vii) the term “Related Person” shall mean and include any Person which is the beneficial owner, directly or indirectly, of 10% or more of the outstanding voting securities of the Corporation (considered for the purposes of this Article Thirteenth as one class); (viii) the term “Related Person Director” shall mean and include each director of the Corporation who is himself or herself a Related Per son or an affiliate or associate of a Related Person or an officer, director, employee or agent of a Related Person or of an affiliate or associate of a Related Person; (ix) the term “Interested Related Person” shall mean and include a Related Person that is a party to, or is an affiliate or associate of a party to, or will experience an increase in its proportionate interest in the outstanding voting securities of any class of the Corporation as a result of, an agreement, authorization or transaction referred to in Section 2 of this Article Thirteenth; (x) the term “Required Vote” shall mean the affirmative vote or consent of the holders of 80% of the outstanding voting securities of all classes of the Corporation entitled to vote in elections of directors (considered for the purposes of this Article Thirteenth as one class); (xi) the terms “affiliate” and “associate” shall have the meanings ascribed to them in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1985; and (xii) the term “Fair Market Price” of any voting security of any class shall mean the highest sale price reported during the 30-day period immediately preceding the date in question of such security (a) on the Composite Tape of the New York Stock Exchange-Listed Stocks, or (b) if such voting security is not quoted on such Composite Tape, on the New York Stock Exchange, or (c) if such voting security is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such voting security is listed, or (d) if such voting security is not listed on any such exchange, the highest asked quotation for such voting security reporting during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations Systems or any system then in use.  If no such quotations are available, the “Fair Market Price” of any voting security of any class shall mean the fair value on the date in question of such voting security as determined by a majority of the directors who are not Related Person Directors.

SECTION 2

Except as set forth in Section 4 of this Article Thirteenth, a Required Vote shall be necessary (i) for the adoption of any agreement for the merger or consolidation of the Corporation or any of its subsidiaries with or into any Related Person; or (ii) to authorize any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all, or substantially all, or any Substantial Part of the assets of the Corporation or of any Subsidiary to any Related Person; or (iii) to authorize the issuance or transfer by the Corporation and its subsidiaries of any Substantial Amount of voting securities of the Corporation in exchange for the securities or assets of any Related Person; or (iv) to authorize any recapitalization of the Corporation or any Subsidiary, or merger or consolidation of the Corporation with any Subsidiary, which has the effect, directly or indirectly, of increasing the propor tionate interest of any Related Person in the outstanding voting securities of any class of the Corporation or any Subsidiary.  The Required Vote shall be in lieu of any lesser vote of the holders of the voting securities of the Corporation voting as one class otherwise required by law or by agreement, but shall be in addition to any class vote or other vote otherwise required by law, these Articles of Incorporation or by any agreement or contract to which the Corporation is a party.

SECTION 3

The Board of Directors of the Corporation, acting by resolution adopted by a majority of those members of the Board of Directors who are not themselves Related Person Directors, shall have the power and duty to determine for the purposes of this Article Thirteenth on the basis of information known to the Corporation, whether this Article Thirteenth applies to any transaction, including but not limited to whether (i) such transaction involves a Substantial Part of the assets of the Corporation or any Subsidiary, (ii) such transaction involves a Substantial Amount of the voting securities of the Corporation, (iii) one or more Persons are to be deemed to be a single Person, (iv) a Person is an affiliate or associate of another, (v) any Person beneficially owns more than 10% of the outstanding voting securities of the Corporation, (vi) any Person has the right to acquire voting securities of the C orporation, (vii) any Person has any agreement or understanding with respect to acquiring, holding, voting or disposing of voting securities of the Corporation, (viii) any Person is acting in concert with any Person, (ix) an amount equals or exceeds the highest per share price paid or payable by an Interested Related Person for voting securities of the Corporation or (x) an amount equals or exceeds the Fair Market Price of the voting securities of the Corporation, (xi) a form of consideration other than cash is the same form as that used by an Interested Related Person to acquire the largest number of voting securities of the Corporation previously acquired by an Interested Related Person, (xii) an investment banking firm is a major investment banking firm of national reputation, (xiii) a fee to be paid by investment banking firm is reasonable, or (xiv) an investment banking firm has been previously associated with an Interested Related Person within the three years immediately preceding its selection.   ;Determinations of the Board of Directors of the Corporation shall be conclusive and binding for all purposes of this Article Thirteenth.

SECTION 4

The provisions of this Article Thirteenth shall not be applicable to any agreement or transaction referred to in Section 2 of this Article Thirteenth if either:

(i)

such agreement or transaction shall have been approved by a resolution adopted by three-fourths of those members of the Board of Directors of the Corporation holding office at the time such resolution is adopted who are not themselves Related Person Directors; or

(ii)

all of the following conditions have been met: (a) the aggregate amount of the cash and the fair market value (as determined by the investment banking firm referred to in clause (d) below) of consideration other than cash to be received per voting security in the transaction by holders of voting securities of the Corporation is not less than the higher of (1) the highest price per voting security (including any brokerage commissions, transfer taxes, soliciting dealer’s fees, dealer-management compensation and similar expenses) paid or payable by any Interested Related Person in connection with the acquisition of beneficial ownership of any voting securities within the three-year period immediately prior to the record date for the determination of stockholders of the Corporation entitled to vote on or consent to the transaction, and (2) the Fair Market Price per voting s ecurity on such record date; (b) the consideration to be received by holders of voting securities of the Corporation other than any Interested Related Person shall be either in cash or in the form used by any Interested Related Person in connection with the acquisition of the largest number of voting securities of the Corporation previously acquired by any interested Related Person; (c) at the record date for the determination of stockholders of the Corporation entitled to vote on the proposed transaction, there shall be one or more directors of the Corporation who are not Related Person Directors; and (d) a proxy or information statement describing the proposed transaction and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to the holders of outstanding voting securities of the Corporation entitled to vote in elections of directors as of the record date for the determination of stockholders of the Corporation entitled to vote on such proposed transaction, at least 30 days prior to the consummation of such transaction (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions), and such proxy or information statement shall contain in a prominent place (1) any recommendations as to the advisability (or inadvisability) of the proposed transaction that those members of the Board of Directors who are not Related Person Directors of the Corporation may choose to state, and (2) if deemed advisable by a majority of the directors of the Corporation who are not Related Person Directors, the opinion of an investment banking firm as to both (A) the fair market value of any consideration other than cash to be received in the proposed transaction by holders of voting securities of the Corporation (as required by clause (a) above), and (B) the fairness (or not) of the terms of the proposed transaction from the po int of view of the financial interests of the holders of voting securities of the Corporation other than Interested

Related Persons.  Such investment banking firm shall be engaged solely on behalf of the holders of voting securities of the Corporation other than Interested Related Person Directors, shall be paid a reasonable fee for its services by the Corporation upon receipt of such opinion and shall be a major investment banking firm of national reputation that has not been associated with any Interested Related Person during the three year period immediately preceding its selection for this purpose.

For purposes of clause (a) above, the term “consideration other than cash to be received” shall include voting securities of the Corporation retained by its stockholders in the event of a transaction in which the Corporation is the surviving corporation.

SECTION 5

In addition to any other requirements for amendments to these Articles of Incorporation, no amendment to these Articles of Incorporation shall amend, alter, change or repeal any of the provisions of this Article Thirteenth unless the amendment effectuating such amendment, alteration, change or repeal shall have received the affirmative vote of the holders of 80% of the outstanding voting securities of all classes of the Corporation entitled to vote in elections of directors (considered for the purposes of this Article Thirteenth as one class), provided that this Section 5 of Article Thirteenth shall not apply to any amendment to these Articles of Incorporation approved by a resolution adopted by three-fourths (3/4) of those members of the Board of Directors of the Corporation holding office at the time such resolution is adopted who are not themselves Related Person Directors.

FOURTEENTH

A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under the provisions of K.S.A. 17-6424 and amendments thereto, or (iv) for any transaction from which the director derived any improper personal benefit.  If the Kansas General Corporation Code is amended, after approval by the stockholders of this article, to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Kansas General C orporation Code, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

FIFTEENTH

In the election of directors of the Corporation, the principle of cumulative voting shall not apply.  Every shareholder entitled to vote at such election shall have the right to vote, in person

or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote.

K N ENERGY, INC.

BY:  /s/ Larry D. Hall

        Larry D. Hall, President

BY:  /s/ William S. Garner, Jr.

        William S. Garner, Jr., Secretary

CERTIFICATE OF CORRECTION

of

Certificate of Amendment to Articles of Incorporation

of

K N ENERGY, INC.

Pursuant to Section 17-6003(f) of the General

Corporation Code of the State of Kansas

K N Energy, Inc., a Kansas corporation (the “Corporation”), through the undersigned duly authorized officers, in accordance with the provisions of Section 17-6003(f) of the General Corporation Code of the State of Kansas, DOES HEREBY CERTIFY:

1.

A Certificate of Amendment to Articles of Incorporation of K N Energy, Inc. was filed by the Secretary of State of Kansas on July 13, 1994, and recorded in the office of the Recorder of Deeds of Phillips County on July 15, 1994, in Book 314, pages 781-785, and said Certificate of Amendment requires correction as permitted by subsection (f) of Section 17-6003 of the General Corporation Code of the State of Kansas.

2.

The inaccuracy resulting from such Certificate of Amendment, and to be corrected by this Certificate of Correction, is as follows:  The Number “27,200,000” in Article Sixth, Section 2, Part 1 of the Restated Articles of Incorporation should be “52,200,000.”

3.

Article Sixth, Section 2, Part 1 is corrected to read as follows:

*1.

  “That the total number of shares of all classes of stock which the

Corporation shall have authority to issue shall be 52,200,000”.

IN WITNESS WHEREOF, this Certificate of Correction is executed on behalf of the Corporation by its President, and attested by its Secretary, this 30^th day of August, 1995.

K N ENERGY, INC.

By:  /s/ William S. Garner, Jr.

        Vice President, General Counsel

        and Secretary

ATTEST:

By:  /s/ Martha B. Wyrsch

        Martha B. Wyrsch

        Assistant Secretary

STATE OF COLORADO

)

)  ss.

COUNTY OF JEFFERSON

)

Be it remembered that before me, a Notary Public in and for the aforesaid county and state, personally appeared:  William S. Garner, Jr., Vice President, General Counsel and Secretary, of K N Energy, Inc., a corporation, who are known to me to be the same persons who executed the foregoing Certificate of Correction, and duly acknowledged the execution of the same this 12^th day of September, 1995.

         [SEAL]

/s/ Christine Lorato

Notary Public

My appointment or commission expires:

December 31, 1998

STATE OF COLORADO

)

)  ss.

COUNTY OF JEFFERSON

)

Be it remembered that before me, a Notary Public in and for the aforesaid county and state, personally appeared:  Martha B. Wyrsch, Assistant Secretary, of K N Energy, Inc., a corporation, who are known to me to be the same persons who executed the foregoing Certificate of Correction, and duly acknowledged the execution of the same this 12^th day of September, 1995.

         [SEAL]

/s/ Christine Lorato

Notary Public

My appointment or commission expires:

December 31, 1998

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF RESTATEMENT OF

ARTICLES OF INCORPORATION

OF

K N ENERGY, INC.

The undersigned, K N Energy, Inc., a Kansas corporation (the “Company”), for the purpose of amending the Certificate of Restatement  of Articles of Incorporation of the Company, in accordance with the Kansas General Corporation Code, does hereby make and execute this Certificate of Amendment of the Certificate of Restatement of Articles of Incorporation and does hereby certify that:

1.

The amendment of the Certificate of Restatement of Articles of Incorporation proposed by the directors and adopted by the stockholders of the Company is as follows:

RESOLVED, that Article Sixth, Section 2, Subparagraphs 1 and 2 of the Restated Articles of Incorporation of the Company be superseded and replaced with the following:

SECTION 2

1.  That the total number of shares of all classes of stock which the Corporation shall have the authority to issue shall be 152,200,000.

2.  That the number of shares which are to have a par value shall be 150,000,000 of the par value of $5 each, all of which shares shall be one class of common stock (hereinafter referred to as the “Common Stock”).

2.

Such amendment has been duly adopted in accordance with the provisions of Section 17-6602 of the Kansas Statutes Annotated.

IN WITNESS WHEREOF, this Certificate of Amendment has been executed by the Company by its President and attested by its Secretary on the 30^th day of April 1998.

K N ENERGY, INC.

By:  /s/ Larry D. Hall

        Larry D. Hall, President

ATTEST:

/s/ Martha B. Wyrsch

Martha B. Wycsch, Secretary

STATE OF COLORADO

)

)  ss.

COUNTY OF JEFFERSON

)

BE IT REMEMBERED, that on this 30^th day of April 1998 before me, the undersigned, a Notary Public in and for the said County and State, personally appeared:  Larry D. Hall and Martha B. Wyrsch, who declared that they are the President and Secretary, respectively, of the company named in the foregoing certificate, and acknowledged that they executed the foregoing certificate on behalf of the company.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written.

/s/ Christine Lorato

Notary Public

My appointment or commission expires:

December 31, 1998

         [SEAL]

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF RESTATEMENT OF

ARTICLES OF INCORPORATION

OF

K N ENERGY, INC.

The undersigned, K N Energy, Inc., a Kansas corporation (the “Corporation”), for the purpose of amending the Certificate of Restatement  of Articles of Incorporation of the Corporation, in accordance with the Kansas General Corporation Code, does hereby make and execute this Certificate of Amendment of the Certificate of Restatement of Articles of Incorporation and does hereby certify that:

1.

The amendment of the Certificate of Restatement of Articles of Incorporation proposed by the directors and adopted by the stockholders of the Company is as follows:

RESOLVED, that Article First of the Restated Articles of Incorporation of the Corporation be and it hereby is, superseded and replaced in its entirety with the following:

FIRST

The name of the Corporation shall be Kinder Morgan, Inc.

2.

Such amendment has been duly adopted in accordance with the provisions of Section 17-6602 of the Kansas Statutes Annotated.

IN WITNESS WHEREOF, this Certificate of Amendment has been executed by the Corporation by its Chairman and Chief Executive Officer and attested by its Assistant Secretary on the 7^th day of October, 1999.

K N ENERGY, INC.

By:  /s/ Stewart A. Bliss

        Stewart A. Bliss

        Chairmand and Chief Executive Officer

ATTEST:

/s/ Michael S. Richards

Michael S. Richards, Assistant Secretary

STATE OF COLORADO

)

)  ss.

COUNTY OF JEFFERSON

)

BE IT REMEMBERED, that on this 7^th day of October, 1999, before me, the undersigned, a Notary Public in and for the said County and State, personally appeared:  Stewart A. Bliss and Michael S. Richards, who declared that they are the Chairman and Chief Executive Officer and Assistant Secretary, respectively, of the corporation named in the foregoing certificate, and acknowledged that they executed the foregoing certificate on behalf of the corporation.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written.

/s/ Marcia L. Keppy

Notary Public

My appointment or commission expires:

April 21, 2001

         [SEAL]

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF RESTATEMENT OF

ARTICLES OF INCORPORATION

OF

KINDER MORGAN, INC.

The undersigned, Kinder Morgan, Inc., a Kansas corporation (the “Company”), for the purpose of amending the Certificate of Restatement of Articles of Incorporation of the Company, in accordance with the Kansas General Corporation Code, does hereby make and execute this Certificate of Amendment of the Certificate of Restatement of Articles of Incorporation and does hereby certify that:

1.

The Amendment of the Certificate of Restatement of Articles of Incorporation proposed by the directors and adopted by the stockholders of the Company is as follows:

RESOLVED, that Article Sixth, Section 2, Subparagraphs 1 and 2 of the Restated Articles of Incorporation of the Company be superseded and replaced with the following:

SECTION 2

1.  That the total number of shares of all classes of stock which the Corporation shall have the authority to issue shall be 302,200,000.

2.  That the number of shares which are to have a par value shall be 300,000,000 of the par value of $5 each, all of which shares shall be one class of common stock (hereinafter referred to as the “Common Stock”).

2.

Such amendment has been duly adopted in accordance with the provisions of Section 17-6602 of the Kansas Statutes Annotated.

I declare under penalty of perjury under the laws of the State of Kansas that the foregoing is true and correct.

Executed on the 10^th day of May, 2005.  

KINDER MORGAN, INC.

By:   /s/ Richard D. Kinder

        Chairman, Chief Executive Officer

Attested to:

By:

/s/ Joseph Listengart

Joseph Listengart, Secretary

EX-31.1

Exhibit 31.1

KINDER MORGAN, INC.
CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

	I, Richard D. Kinder, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Kinder Morgan, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

  
b)   
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 1, 2005
	/s/ Richard D. Kinder
	Richard D. Kinder Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

KINDER MORGAN, INC.
CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

	I, Kimberly J. Allen, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Kinder Morgan, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

  
b)   
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2005
	/s/ Kimberly J. Allen
	Kimberly J. Allen Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

KINDER MORGAN, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906

OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kinder Morgan, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 1, 2005	/s/ Richard D. Kinder
	Richard D. Kinder Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

KINDER MORGAN, INC.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kinder Morgan, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 1, 2005	/s/ Kimberly J. Allen
	Kimberly J. Allen Vice President and Chief Financial Officer