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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the fiscal year ended December 31, 2003

OR

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

Commission File Number 1-13603

TE Products Pipeline Company, Limited Partnership

2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
(Address of principal executive offices, including zip code)

(713) 759-3636
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

          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 twelve 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 þ No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

Documents Incorporated by Reference: None

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FORWARD-LOOKING STATEMENTS

          The matters discussed in this Report include “forward-looking statements” within the meaning of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this document that address activities, events or developments that we expect or anticipate will or may occur in the future, including such things as estimated future capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success, references to intentions as to future matters and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties, including general economic, market or business conditions, the opportunities (or lack thereof) that may be presented to and pursued by us, competitive actions by other pipeline companies, changes in laws or regulations and other factors, many of which are beyond our control. Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements, and we cannot assure you that actual results or developments that we anticipate will be realized or, even if substantially realized, will have the expected consequences to or effect on us or our business or operations.

Items 1 and 2. Business and Properties

General

          TE Products Pipeline Company, Limited Partnership (the “Partnership”), a Delaware limited partnership, was formed in March 1990. TEPPCO Partners, L.P. (the “Parent Partnership”) owns a 99.999% interest in us as the sole limited partner. TEPPCO GP, Inc. (“TEPPCO GP” or “General Partner”), a subsidiary of the Parent Partnership, holds a 0.001% General Partner interest in us. Texas Eastern Products Pipeline Company, LLC (the “Company”), a Delaware limited liability company, serves as the general partner of our Parent Partnership. The Company is a wholly owned subsidiary of Duke Energy Field Services, LLC (“DEFS”), a joint venture between Duke Energy Corporation (“Duke Energy”) and ConocoPhillips. Duke Energy holds an interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining 30%. TEPPCO GP, as general partner, performs all of the management and operating functions required for us according to the Agreement of Limited Partnership of TE Products Pipeline Company, Limited Partnership (the “Partnership Agreement”). We reimburse our General Partner and the Company for all reasonable direct and indirect expenses that they incur in managing us.

          As used in this Report, “we,” “us,” and “our” means TE Products Pipeline Company, Limited Partnership.

          We operate and report in one business segment: transportation and storage of refined products, liquefied petroleum gases (“LPGs”) and petrochemicals. Our interstate transportation operations, including rates charged to customers, are subject to regulations prescribed by the Federal Energy Regulatory Commission (“FERC”). We refer to refined products, LPGs and petrochemicals in this Report, collectively, as “petroleum products” or “products.”

          Effective January 1, 2002, our Parent Partnership realigned its business segments to reflect its entry into the natural gas gathering business and the expanded scope of its natural gas liquids (“NGLs”) operations. As part of this realignment, on May 31, 2002, we transferred our investment in TEPPCO Colorado, LLC (“TEPPCO Colorado”), which fractionates NGLs, to TEPPCO Midstream Companies, L.P. (“TEPPCO Midstream”) for the book value of TEPPCO Colorado’s net assets, which was $4.1 million. In connection with the transfer, we received $4.1 million in cash from TEPPCO Midstream. As a result of the transfer, the results of operations of TEPPCO Colorado for the periods presented are reflected as discontinued operations (see Note 19. Discontinued Operations in the Notes to Consolidated Financial Statements). We have reclassified prior periods presented to reflect the current presentation.

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          Our strategy is to expand and improve service in our current markets, maintain the integrity of our pipeline systems and pursue growth initiatives that are balanced between internal projects and acquisitions. We intend to leverage the advantages inherent in our pipeline systems to maintain our status as a preferred provider in our market areas. We also intend to grow by acquiring assets, from both third parties and affiliates, which complement existing businesses or to establish new core businesses. We routinely evaluate opportunities to acquire assets and businesses that will complement existing operations with a view to increasing earnings and cash available for distribution. We may fund additional acquisitions with cash flow from operations, borrowings and capital contributions from the Parent Partnership, the issuance of debt in the capital markets or any combination thereof.

Operations

          We own, operate or have investments in properties located in 14 states. We also conduct business through our 50% owned equity investments in Centennial Pipeline LLC (“Centennial”) and Mont Belvieu Storage Partners, L.P. (“MB Storage”). Our operations consist of interstate transportation, storage and terminaling of petroleum products; short-haul shuttle transportation of LPGs at the Mont Belvieu, Texas, complex through MB Storage; intrastate transportation of petrochemicals and other ancillary services.

          As an interstate common carrier, our pipeline offers interstate transportation services, pursuant to tariffs filed with the FERC, to any shipper of refined petroleum products and LPGs who requests these services, provided that the products tendered for transportation satisfy the conditions and specifications contained in the applicable tariff. In addition to the revenues received by our pipeline system from our interstate tariffs, we also provide storage and marketing services at key points along our pipeline systems. Substantially all of the petroleum products transported and stored in our pipeline systems are owned by our customers. Petroleum products are received at terminals located principally on the southern end of the pipeline system, stored, scheduled into the pipeline in accordance with customer nominations and shipped to delivery terminals for ultimate delivery to the final distributor (including gas stations and retail propane distribution centers) or to other pipelines. Pipelines are generally the lowest cost method for intermediate and long-haul overland transportation of petroleum products. Our pipeline system is the only pipeline that transports LPGs from the upper Texas Gulf Coast to the Northeast.

          We depend in large part on the level of demand for refined petroleum products and LPGs in the geographic locations that we serve and the ability and willingness of customers having access to the pipeline system to supply this demand. We cannot predict the impact of future fuel conservation measures, alternate fuel requirements, governmental regulation or technological advances in fuel economy and energy-generation devices, all of which could reduce the demand for refined petroleum products and LPGs in the areas we serve.

          The following table lists the material properties and investments of and ownership percentages in our assets as of December 31, 2003:

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Centennial Pipeline Equity Investment

          In August 2000, we entered into agreements with Panhandle Eastern Pipeline Company (“PEPL”), a subsidiary of CMS Energy Corporation, and Marathon Ashland Petroleum LLC (“Marathon”) to form Centennial. Each participant originally owned a one-third interest in Centennial. Centennial, which commenced operations in April 2002, owns an interstate refined petroleum products pipeline extending from the upper Texas Gulf Coast to central Illinois. Centennial constructed a 74-mile, 24-inch diameter pipeline connecting our facility in Beaumont, Texas, with an existing 720-mile, 26-inch diameter pipeline extending from Longville, Louisiana, to Bourbon, Illinois. The Centennial pipeline intersects our existing mainline pipeline near Creal Springs, Illinois, where Centennial constructed a new two million barrel refined petroleum products storage terminal. Marathon operates the mainline Centennial pipeline, and we operate the Beaumont origination point and the Creal Springs terminal.

          Our interest in Centennial is not subject to any encumbrances from mortgages or other secured debt. Centennial has unsecured debt, one third of which, up to $50.0 million in principal, was originally guaranteed by each owner, including us. On February 10, 2003, we and Marathon each acquired an additional interest in Centennial from PEPL for $20.0 million each, increasing our percentage ownerships in Centennial to 50% each. We and Marathon have each guaranteed one-half of Centennial’s debt, up to a maximum of $75.0 million each. Through December 31, 2003, including the amount paid for the acquisition of the additional ownership interest in February 2003, we have invested $104.9 million in Centennial.

Mont Belvieu Storage Equity Investment

          In February 2000, we entered into a joint marketing and development alliance with Louis Dreyfus in which our Mont Belvieu LPGs storage and shuttle transportation system was jointly marketed by Louis Dreyfus and us. The purpose of the alliance was to expand services to the upper Texas Gulf Coast energy marketplace by increasing pipeline throughput and the mix of products handled through the existing system and establishing new receipt and delivery connections. The alliance was a service-oriented, fee-based venture with no commodity trading activity. We operated the facilities for the alliance. The alliance stipulated that if certain earnings thresholds were achieved, a partnership between Louis Dreyfus and us was to be created effective January 1, 2003. All terms and earnings thresholds were met; therefore, as of January 1, 2003, we and Louis Dreyfus formed MB Storage.

          The economic terms of the MB Storage partnership are the same as those under the joint marketing and development alliance. We contributed property, plant and equipment with a net book value of $67.4 million to MB Storage. We continue to operate the facilities for MB Storage. Louis Dreyfus had invested $6.1 million for expansion projects for MB Storage that we were required to reimburse if the original joint development and marketing agreement was terminated by either party. This deferred liability was also contributed and converted to the capital account of Louis Dreyfus in MB Storage. We and Louis Dreyfus each own a 50% ownership interest in MB Storage. Through December 31, 2003, excluding the contribution of property, plant and equipment upon formation of the partnership, we have contributed $2.5 million to MB Storage. In December 2003, we received a distribution of $5.3 million from MB Storage.

          Our interest in MB Storage is not subject to any encumbrances from mortgages or other secured debt. We receive the first $1.8 million per quarter (or $7.15 million on an annual basis) of MB Storage’s gross income less mandatory capital expenditures plus capital contributions, as defined in the operating agreement. Any amount of MB Storage’s gross income in excess of the $7.15 million is allocated evenly between Louis Dreyfus and us, except for depreciation expense. Each partner is allocated depreciation expense based upon assets each originally contributed to MB Storage. Depreciation expense on assets constructed or acquired by MB Storage is allocated evenly between Louis Dreyfus and us. For the year ended December 31, 2003, our sharing ratio in the earnings of MB Storage was approximately 70.4%.

          MB Storage’s asset base in the Mont Belvieu fractionation and storage complex, which is the largest complex of its kind in the United States, serving the fractionation, refining and petrochemical industries, provides substantial capacity and flexibility for the transportation, terminaling and storage of NGLs, LPGs and refined products. MB Storage receives revenue from the shuttling of product from refineries and fractionators to pipelines, refineries and petrochemical facilities on the upper Texas Gulf Coast. MB Storage has approximately 33 million

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barrels of LPGs storage capacity and approximately 5 million barrels of refined products storage capacity, including storage capacity leased to outside parties, at the Mont Belvieu fractionation and storage complex. MB Storage includes a short-haul transportation shuttle system, consisting of a complex system of pipelines and interconnects, that ties Mont Belvieu to virtually every refinery and petrochemical facility on the upper Texas Gulf Coast. MB Storage also provides truck and rail car loading capability. Total shuttle volumes for the three years ended December 31, 2003, 2002 and 2001, were 33.1 million barrels, 28.9 million barrels and 23.1 million barrels, respectively.

Refined Products, LPGs and Petrochemical Pipeline Systems

          We are one of the largest pipeline common carriers of refined petroleum products and LPGs in the United States. We own and operate an approximately 4,600-mile pipeline system (together with the receiving, storage and terminaling facilities mentioned below, the “Pipeline System”) extending from southeast Texas through the central and midwestern United States to the northeastern United States. Our Pipeline System includes delivery terminals for outloading product to other pipelines, tank trucks, rail cars or barges, and substantial storage facilities at numerous locations. We also own two marine receiving terminals, one near Beaumont and the other at Providence, Rhode Island. The Providence terminal is not physically connected to the Pipeline System. Our Pipeline System also includes three parallel 12-inch diameter petrochemical pipelines between Mont Belvieu and Port Arthur, each approximately 70 miles in length.

          All properties comprising our Pipeline System are wholly owned by us and none are mortgaged or encumbered to secure funded debt. We have guaranteed up to $75.0 million of Centennial’s unsecured debt (see Centennial Pipeline Equity Investment above) and have also guaranteed the unsecured debt of our Parent Partnership (see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition and Liquidity).

          Products are transported in liquid form from the upper Texas Gulf Coast through two parallel underground pipelines that extend to Seymour, Indiana. From Seymour, segments of our Pipeline System extend to the Chicago, Illinois; Lima, Ohio; Selkirk, New York; and Philadelphia, Pennsylvania, areas. Our Pipeline System east of Todhunter, Ohio, is dedicated solely to LPGs transportation and storage services, primarily for propane.

          Excluding the storage facilities of Centennial and MB Storage, our Pipeline System includes 27 storage facilities with an aggregate storage capacity of 16 million barrels of refined petroleum products and 6 million barrels of LPG storage, including storage capacity leased to outside parties. Our Pipeline System makes deliveries to customers at 56 locations including 19 truck racks, rail car facilities and marine facilities that we own. Deliveries to other pipelines occur at various facilities owned by us or by third parties.

          Our Pipeline System is comprised of a 20-inch diameter line extending in a generally northeasterly direction from Baytown, Texas (located approximately 30 miles east of Houston), to a point in southwest Ohio near Lebanon and Todhunter. A second line, which also originates at Baytown, is 16 inches in diameter until it reaches Beaumont, at which point it reduces to a 14-inch diameter line. This second line extends along the same path as the 20-inch diameter line to our Pipeline System’s terminal in El Dorado, Arkansas, before continuing as a 16-inch diameter line to Seymour. Our Pipeline System also has smaller diameter lines that extend laterally from El Dorado to Helena, Arkansas, from Tyler, Texas, to El Dorado and from McRae, Arkansas, to West Memphis, Arkansas. The line from El Dorado to Helena has a 10-inch diameter. The line from Tyler to El Dorado varies in diameter from 8 inches to 10 inches. The line from McRae to West Memphis has a 12-inch diameter. Our Pipeline System also includes a 14-inch diameter line from Seymour to Chicago, Illinois, and a 10-inch diameter line running from Lebanon to Lima, Ohio. This 10-inch diameter pipeline connects to the Buckeye Pipe Line Company system that serves, among others, markets in Michigan and eastern Ohio. Our Pipeline System also has a 6-inch diameter pipeline connection to the Greater Cincinnati/Northern Kentucky International Airport and an 8-inch diameter pipeline connection to the George Bush Intercontinental Airport in Houston. In addition, our Pipeline System contains numerous lines, ranging in size from 6 inches to 20 inches in diameter, associated with the gathering and distribution system, extending from Baytown to Beaumont; Texas City to Baytown; Pasadena, Texas to Baytown and Baytown to Mont Belvieu.

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          Our Pipeline System continues eastward from Todhunter, Ohio, to Greensburg, Pennsylvania, at which point it branches into two segments, one ending in Selkirk, New York (near Albany), and the other ending at Marcus Hook, Pennsylvania (near Philadelphia). Our Pipeline System east of Todhunter and ending in Selkirk is an 8-inch diameter line, and the line starting at Greensburg and ending at Marcus Hook varies in diameter from 6 inches to 8 inches.

          In December 2002, we completed an upgrade of our Princeton, Indiana, LPG truck rack to increase its capacity. During the fourth quarter of 2003, we completed a Phase I project to expand our delivery capacity of LPGs in the Northeast. The Phase I expansion increased delivery capability to the Northeast during the peak winter months by approximately one million barrels. The expansion consisted of the construction of three new pump stations located between Middletown, Ohio, and Coshocton, Ohio. During the fourth quarter of 2003, we began projects to increase our truck rack capacity in the Northeast at locations in New York and Pennsylvania in order to improve customer service to those areas. These projects are scheduled to be completed in early 2004. Additionally, in 2004, we have begun a Phase II project to further expand our delivery capability to the Northeast by constructing three new pump stations located between Coshocton and Greensburg, Pennsylvania, and two new pump stations located between Greensburg and Watkins Glen, New York. The Phase II projects are anticipated to be completed during the fourth quarter of 2004. We have also approved a project for construction of a new truck loading terminal in Bossier City, Louisiana, which is scheduled to be completed by the end of 2004.

          We also own three 12-inch diameter common carrier petrochemical pipelines between Mont Belvieu and Port Arthur. Each of these pipelines is approximately 70 miles in length. The pipelines transport ethylene, propylene and natural gasoline. We entered into a 20-year agreement in 2002 with a major petrochemical producer for guaranteed throughput commitments. During the years ended December 31, 2003, 2002 and 2001, we recognized $11.9 million, $11.9 million and $10.7 million, respectively, of revenue under the throughput and deficiency contract. We began transporting product through these pipelines in September 2001.

          We believe that our Pipeline System is in compliance with applicable federal, state and local laws and regulations and accepted industry standards and practices. We perform regular maintenance on all the facilities of our Pipeline System and have an ongoing process of inspecting our Pipeline System and making repairs and replacements when necessary or appropriate. In addition, we conduct periodic air patrols of our Pipeline System to monitor pipeline integrity and third-party right of way encroachments.

Major Business Sector Markets

          Our major operations are the transportation, storage and terminaling of refined petroleum products and LPGs along our mainline system. Product deliveries, in millions of barrels (MMBbls) on a regional basis, for the years ended December 31, 2003, 2002 and 2001, were as follows:

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           The mix of products delivered varies seasonally. Gasoline demand is generally stronger in the spring and summer months and LPGs demand is generally stronger in the fall and winter months. Weather and economic conditions in the geographic areas served by our Pipeline System also affect the demand for, and the mix of, the products delivered.

          Refined products and LPGs deliveries for the years ended December 31, 2003, 2002 and 2001, were as follows:

     Refined Products Mainline Transportation

          Our Pipeline System transports refined petroleum products from the upper Texas Gulf Coast, eastern Texas and southern Arkansas to the Central and Midwest regions of the United States with deliveries in Texas, Louisiana, Arkansas, Missouri, Illinois, Kentucky, Indiana and Ohio. At these points, refined petroleum products are delivered to terminals that we own, connecting pipelines and customer-owned terminals.

          The volume of refined petroleum products transported by our Pipeline System is directly affected by the demand for refined products in the geographic regions that our system serves. This market demand varies based upon the different end uses to which the refined products deliveries are applied. Demand for gasoline, which accounted for approximately 58% of the volume of refined products transported through the Pipeline System during 2003, depends upon price, prevailing economic conditions and demographic changes in the markets that we serve. Demand for distillates is affected by truck and railroad freight, the price of natural gas used by utilities, which use distillates as a substitute for natural gas when the price of natural gas is high, and usage for agricultural operations, which is affected by weather conditions, government policy and crop prices. Demand for jet fuel depends upon prevailing economic conditions and military usage.

          Market prices for refined petroleum products affect the demand in the markets we serve. Therefore, quantities and mix of products transported may vary. Transportation tariffs of refined petroleum products vary among specific product types. As a result, market price volatility may affect transportation volumes and revenues from period to period.

     LPGs Mainline Transportation

          Our Pipeline System transports LPGs from the upper Texas Gulf Coast to the Central, Midwest and Northeast regions of the United States. The Pipeline System east of Todhunter, Ohio, is devoted solely to the transportation of LPGs. Because propane demand is generally sensitive to weather in the winter months, year-to-year variations of propane deliveries have occurred and will likely continue to occur. Our Pipeline System also transports normal butane and isobutane in the Midwest and Northeast for use in the production of motor gasoline.

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          Our ability to serve propane markets in the Northeast is enhanced by our marine import terminal at Providence. This facility includes a 400,000-barrel refrigerated storage tank along with ship unloading and truck loading facilities. Effective May 2001, we entered into an agreement with an affiliate of DEFS to commit sole utilization of the Providence terminal to an affiliate of DEFS. We operate the terminal and provide propane loading services to an affiliate of DEFS. The agreement, with an affiliate of DEFS, terminates in May 2004, and we are currently renegotiating the agreement. During the years ended December 31, 2003, 2002 and 2001, revenues of $3.2 million, $2.3 million and $1.5 million from an affiliate of DEFS, respectively, were recognized pursuant to this agreement.

     Other Operating Revenues

          We also earn revenue from terminaling activities and other ancillary services associated with the transportation and storage of refined petroleum products and LPGs. From time to time, we sell excess product inventory. Other operating revenues include revenues related to intrastate transportation of petrochemicals under a throughput and deficiency contract.

Customers

          Our customers for the transportation of refined petroleum products include major integrated oil companies, independent oil companies, the airline industry and wholesalers. End markets for these deliveries are primarily retail service stations, truck stops, railroads, agricultural enterprises, refineries and military and commercial jet fuel users.

          Propane customers include wholesalers and retailers who, in turn, sell to commercial, industrial, agricultural and residential heating customers, as well as utilities who use propane as a back-up fuel source. Refineries constitute our major customers for butane and isobutane, which are used as a blend stock for gasolines and as a feed stock for alkylation units, respectively.

          At December 31, 2003, we had approximately 130 customers. During the year ended December 31, 2003, total revenues (and percentage of total revenues) attributable to the top 10 customers were $149.5 million (57%), of which Marathon Ashland Petroleum LLC accounted for approximately 18% of total revenues. During the years ended December 31, 2002 and 2001, total revenues (and percentage of total revenues) attributable to the top 10 customers were $101.6 million (51%) and $115.0 million (44%), respectively. During the years ended December 31, 2002 and 2001, no single customer accounted for 10% or more of our revenues.

Credit Policies and Procedures

          We manage our exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures. We utilize letters of credit and guarantees for certain of our receivables. However, these procedures and policies do not fully eliminate customer credit risk. During the years ended December 31, 2003 and 2002, a few of our small to medium-sized customers filed for bankruptcy protection. During the years ended December 31, 2003 and 2002, we expensed approximately $0.8 million and $0.7 million, respectively, of uncollectible receivables related to customer bankruptcies or other non-payments.

Competition

          Our Pipeline System conducts operations without the benefit of exclusive franchises from government entities. Interstate common carrier transportation services are provided through the system pursuant to tariffs filed with the FERC.

          Because pipelines are generally the lowest cost method for intermediate and long-haul overland movement of refined petroleum products and LPGs, our Pipeline System’s most significant competitors (other than indigenous

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production in our markets) are pipelines in the areas where the Pipeline System delivers products. Competition among common carrier pipelines is based primarily on transportation charges, quality of customer service and proximity to end users. We believe our Pipeline System is competitive with other pipelines serving the same markets; however, comparison of different pipelines is difficult due to varying product mix and operations.

          Trucks, barges and railroads competitively deliver products in some of the areas served by our Pipeline System. Trucking costs, however, render that mode of transportation less competitive for longer hauls or larger volumes. Barge fees for the transportation of refined products are generally lower than our tariffs. We face competition from rail movements of LPGs from Sarnia, Ontario, Canada, and waterborne imports into New Hampshire.

Title to Properties

          We believe we have satisfactory title to all of our assets. The properties are subject to liabilities in certain cases, such as customary interests generally contracted in connection with acquisition of the properties, liens for taxes not yet due, easements, restrictions and other minor encumbrances. We believe none of these liabilities materially affect the value of our properties or our interest in the properties or will materially interfere with their use in the operation of our business.

Capital Expenditures

          Capital expenditures, excluding acquisitions, totaled $58.4 million for the year ended December 31, 2003. Revenue generating projects include those projects which expand service into new markets or expand capacity into current markets. Capital expenditures to sustain existing operations include projects required by regulatory agencies or required life-cycle replacements. System upgrade projects improve operational efficiencies or reduce cost. We capitalize interest costs incurred during the period that construction is in progress. The following table identifies capital expenditures for the year ended December 31, 2003 (in millions):

          Revenue generating capital spending totaled $26.4 million and was used primarily for the expansion of our pumping capacity of LPGs into the Northeast markets, expansion of our North Houston terminal facility, increased storage capacity at the Princeton, Indiana, terminal and expansion of delivery capacity at various other locations. In order to sustain existing operations, we spent $18.2 million for various pipeline projects. An additional $11.5 million was spent on system upgrade projects.

          We estimate that capital expenditures, excluding acquisitions, for 2004 will be approximately $66.3 million (which includes $2.0 million of capitalized interest). We expect to spend approximately $48.2 million for revenue generating projects and facility improvements which will include the expansion of our pipelines extending from Seymour to Indianapolis, Indiana, further expansions of our Northeast pipeline system and construction of a new truck loading terminal in Bossier City, Louisiana. We expect to spend approximately $16.1 million to sustain existing operations, including life-cycle replacements for equipment at various facilities and pipeline and tank replacements. We continually review and evaluate potential capital improvements and expansions that would be complementary to our present system. These expenditures can vary greatly depending on the magnitude of our transactions. We may finance capital expenditures through internally generated funds, debt or capital contributions from our Parent Partnership or any combination thereof.

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Regulation

          Our interstate common carrier pipeline operations are subject to rate regulation by the FERC under the provisions of the Interstate Commerce Act, the Energy Policy Act of 1992 and rules and orders promulgated thereunder. FERC regulation requires that interstate petroleum products and crude oil pipeline rates be posted publicly and that these rates be “just and reasonable” and nondiscriminatory.

          Rates of interstate petroleum products pipeline companies, like us, are currently regulated by the FERC primarily through an index methodology, which allows a pipeline to change its rates based on the change from year to year in the Producer Price Index for finished goods (“PPI Index”). Effective as of February 24, 2003, FERC Order on Remand modified the PPI Index from PPI – 1% to PPI. On April 22, 2003, several shippers filed a petition in the United States Court of Appeals for the District of Columbia Circuit, Flying J. Inc., Lion Oil Company, Sinclair Oil Corporation and Tesoro Refining and Marketing Company vs. Federal Energy Regulatory Commission, Docket No. 03-1107, seeking a review of whether the FERC’s adoption of the PPI Index was reasonable and supported by the evidence. Oral arguments are scheduled for early 2004.

          As an alternative to using the PPI Index, interstate petroleum products pipeline companies may elect to support rate filings by using a cost-of-service methodology, competitive market showings (“Market-Based Rates”) or agreements between shippers and petroleum products pipeline companies that the rate is acceptable.

          We have been granted permission by the FERC to utilize Market-Based Rates for all of our refined products movements other than the Little Rock, Arkansas, Arcadia and Shreveport-Arcadia, Louisiana destination markets, which are currently subject to the PPI Index. With respect to LPG movements, we use the PPI Index.

          In a 1995 decision involving an unrelated pipeline limited partnership, the FERC partially disallowed the inclusion of income taxes in that partnership’s cost of service. In another FERC proceeding involving a different pipeline limited partnership, the FERC held that the pipeline limited partnership may not claim an income tax allowance for income attributable to non-corporate limited partners. These FERC decisions do not affect our current rates and rate structure because we do not use the cost-of-service methodology to support our rates. However, the FERC decisions might become relevant to us should we (i) elect in the future to use the cost-of-service methodology or (ii) be required to use such methodology to defend initial rates or our indexed rates against a shipper protest alleging that an indexed rate increase substantially exceeds actual cost increases. Should these circumstances arise, there can be no assurance with respect to the effect of these precedents on our rates in view of the uncertainties involved in this issue.

Environmental Matters

          Our operations are subject to federal, state and local laws and regulations governing the discharge of materials into the environment. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of injunctions delaying or prohibiting certain activities and the need to perform investigatory and remedial activities. Although we believe our operations are in material compliance with applicable environmental laws and regulations, risks of significant costs and liabilities are inherent in pipeline operations, and we cannot assure you that significant costs and liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly strict environmental laws and regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from our operations, could result in substantial costs and liabilities to us. We believe that changes in environmental laws and regulations will not have a material adverse effect on our financial position, results of operations or cash flows in the near term.

     Water

          The Federal Water Pollution Control Act of 1972, as renamed and amended as the Clean Water Act (“CWA”), and analogous state laws impose strict controls against the discharge of oil and its derivatives into navigable waters. The CWA provides penalties for any discharges of petroleum products in reportable quantities and imposes substantial potential liability for the costs of removing petroleum or other hazardous substances. State laws for the control of water pollution also provide varying civil and criminal penalties and liabilities in the case of a

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release of petroleum or its derivatives in navigable waters or into groundwater. Spill prevention control and countermeasure requirements of federal laws require appropriate containment berms and similar structures to help prevent a petroleum tank release from impacting navigable waters.

          Contamination resulting from spills or releases of petroleum products is an inherent risk within the petroleum pipeline industry. To the extent that groundwater contamination requiring remediation exists along our pipeline systems as a result of past operations, we believe any such contamination could be controlled or remedied without having a material adverse effect on our financial position, but such costs are site specific, and we cannot assure you that the effect will not be material in the aggregate.

          The primary federal law for oil spill liability is the Oil Pollution Act of 1990 (“OPA”), which addresses three principal areas of oil pollution -- prevention, containment and cleanup, and liability. OPA applies to vessels, offshore platforms and onshore facilities, including terminals, pipelines and transfer facilities. In order to handle, store or transport oil, shore facilities are required to file oil spill response plans with the appropriate federal agency being either the United States Coast Guard, the United States Department of Transportation Office of Pipeline Safety (“OPS”) or the Environmental Protection Agency (“EPA”). Numerous states have enacted laws similar to OPA. Under OPA and similar state laws, responsible parties for a regulated facility from which oil is discharged may be liable for removal costs and natural resource damages.

          The EPA has adopted regulations that require us to have permits in order to discharge certain storm water run-off. Storm water discharge permits may also be required by certain states in which we operate. These permits may require us to monitor and sample the storm water run-off.

     Air Emissions

          Our operations are subject to the federal Clean Air Act (the “Clean Air Act”) and comparable state laws. Amendments to the Clean Air Act, as well as recent or soon to be adopted changes to state implementation plans for controlling air emissions in regional, non-attainment areas, may require our operations to incur future capital expenditures in connection with the addition or modification of existing air emission control equipment and strategies. In addition, some of our facilities are included within the categories of hazardous air pollutant sources, which are subject to increasing regulation under the Clean Air Act. The Clean Air Act requires federal operating permits for major sources of air emissions. Under this program, a federal operating permit (a “Title V” permit) may be issued. The permit acts as an umbrella that includes other federal, state and local preconstruction and/or operating permit provisions, emission standards, grandfathered rates and record keeping, reporting and monitoring requirements in a single document. The federal operating permit is the tool that the public and regulatory agencies use to review and enforce a site’s compliance with all aspects of clean air regulation at the federal, state and local level. We have completed applications for the facilities for which these regulations apply.

     Risk Management Plans

          We are subject to the EPA’s Risk Management Plan (“RMP”) regulations at certain locations. This regulation is intended to work with the Occupational Safety and Health Act (“OSHA”) Process Safety Management regulation (see “Safety Matters” below) to minimize the offsite consequences of catastrophic releases. The regulation requires a regulated source, in excess of threshold quantities, to develop and implement a risk management program that includes a five-year accident history, an offsite consequence analysis, a prevention program and an emergency response program. We believe the operating expenses of the RMP regulations will not have a material adverse effect on our financial position, results of operations or cash flows.

     Solid Waste

          We generate hazardous and non-hazardous solid wastes that are subject to requirements of the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes. We also utilize waste minimization and recycling processes to reduce the volumes of our waste. Amendments to RCRA required the EPA to promulgate regulations banning the land disposal of all hazardous wastes unless the wastes meet certain treatment standards or the land-disposal method meets certain waste containment criteria. From time to time, the EPA considers the adoption of stricter disposal standards for non-hazardous wastes, including crude oil and gas wastes.

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The adoption of such stricter standards for non-hazardous wastes, or any future re-designation of non-hazardous wastes as hazardous wastes will likely increase our operating expenses as well as for the industry in general.

     Superfund

          The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as “Superfund,” imposes liability, without regard to fault or the legality of the original act, on certain classes of persons who contributed to the release of a “hazardous substance” into the environment. These persons include the owner or operator of a facility where a release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at a facility. Under CERCLA, these persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some instances, third parties to take actions in response to threats to the public health or the environment and to seek to recover the costs they incur from the responsible classes of persons. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. In the course of our ordinary operations, our pipeline systems generate wastes that may fall within CERCLA’s definition of a “hazardous substance.” In the event a disposal facility previously used by us requires clean up in the future, we may be responsible under CERCLA for all or part of the costs required to clean up sites at which such wastes have been disposed.

     Other Environmental Proceedings

          In 1994, the Louisiana Department of Environmental Quality (“LDEQ”) issued a compliance order for environmental contamination at our Arcadia, Louisiana, facility. This contamination may be attributable to our operations, as well as to adjacent petroleum terminals operated by other companies. In 1999, our Arcadia facility and adjacent terminals were directed by the Remediation Services Division of the LDEQ to pursue remediation of this contamination. At December 31, 2003, we have an accrued liability of $0.3 million for remediation costs at our Arcadia facility. We do not expect that the completion of the remediation program proposed to the LDEQ will have a future material adverse effect on our financial position, results of operations or cash flows.

          In December 1999, we were notified by the EPA of potential liability for alleged waste disposal at Container Recycling, Inc., located in Kansas City, Kansas. We were also asked to respond to an EPA Information Request. Our response to the information request has been filed with the EPA Region VII office. Based on information we have received from the EPA, as well as through our internal investigations, we are pursuing dismissal from this matter.

          In November 2002, we were notified by the EPA of a potential liability for alleged waste disposal at Industrial Pollution Control located in Jackson, Mississippi. Based on the pro-rata share of waste disposed of at the facility, the potentially responsible parties were requested to file a tolling agreement. We filed this agreement with the EPA in December 2002. Our contribution of total waste disposed of at the facility was estimated to be less than 1%, and we agreed in August 2003 to pay our pro-rata share of the remediation costs which amounted to $12,000. This matter has been fully resolved with the EPA, and no further action is expected.

          On March 17, 2003, we experienced a release of 511 barrels of jet fuel from a storage tank at our Blue Island terminal located in Cook County, Illinois. As a result of the release, we have entered into an Agreed Order with the State of Illinois. The Agreed Order requires us, in part, to complete a site investigation plan to delineate the scope of any potential contamination resulting from the release and to remediate any contamination present above regulatory standards. This site investigation plan has been completed and submitted to the State of Illinois. The Agreed Order does not contain any provision for any fines or penalties; however, it does not preclude the State of Illinois from assessing these at a later date. We do not expect that the completion of the remediation program will have a future material adverse effect on our financial position, results of operations or cash flows.

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DOT Pipeline Compliance Matters

          We are subject to regulation by the United States Department of Transportation (“DOT”) under the Accountable Pipeline and Safety Partnership Act of 1996, sometimes referred to as the Hazardous Liquid Pipeline Safety Act (“HLPSA”), and comparable state statutes relating to the design, installation, testing, construction, operation, replacement and management of our pipeline facilities. The HLPSA covers petroleum and petroleum products and requires any entity that owns or operates pipeline facilities to comply with such regulations, to permit access to and copying of records and to file certain reports and provide information as required by the Secretary of Transportation. The HLPSA was reauthorized in 2002. We believe we are in material compliance with these HLPSA regulations.

          We are subject to the DOT regulation requiring qualification of pipeline personnel. The regulation requires pipeline operators to develop and maintain a written qualification program for individuals performing covered tasks on pipeline facilities. The intent of this regulation is to ensure a qualified work force and to reduce the probability and consequence of incidents caused by human error. The regulation establishes qualification requirements for individuals performing covered tasks, and amends certain training requirements in existing regulations. A written qualification program was completed in April 2001, and our employees performing a covered task were qualified by the October 2002 deadline. We believe we are in material compliance with these DOT regulations.

          We are also subject to the OPS Integrity Management regulations which specify how companies with greater than 500 miles of pipeline should assess, evaluate, validate and maintain the integrity of pipeline segments that, in the event of a release, could impact High Consequence Areas (“HCA”). HCA are defined as highly populated areas, unusually sensitive environmental areas and commercially navigable waterways. The regulation requires the development and implementation of an Integrity Management Program (“IMP”) that utilizes internal pipeline inspection, pressure testing, or other equally effective means to assess the integrity of HCA pipeline segments. The regulation also requires periodic review of HCA pipeline segments to ensure adequate preventative and mitigative measures exist and that companies take prompt action to address integrity issues raised by the assessment and analysis. In compliance with these OPS regulations, we identified our HCA pipeline segments and developed an IMP by the March 31, 2002 deadline. The regulations require that initial HCA baseline integrity assessments must be conducted within seven years, with all subsequent assessments conducted on a five-year cycle. During 2003, we continued with the baseline evaluation efforts initiated in 2002 and completed the evaluation and associated repair of approximately 1,200 miles of our pipeline system.

Safety Matters

          We are also subject to the requirements of the federal OSHA and comparable state statutes. We believe we are in material compliance with OSHA and state requirements, including general industry standards, record keeping requirements and monitoring of occupational exposures.

          The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require us to organize and disclose information about the hazardous materials used in our operations. Certain parts of this information must be reported to employees, state and local governmental authorities and local citizens upon request. We are subject to OSHA Process Safety Management (“PSM”) regulations, which are designed to prevent or minimize the consequences of catastrophic releases of toxic, reactive, flammable or explosive chemicals. These regulations apply to any process which involves a chemical at or above the specified thresholds or any process which involves a flammable liquid or gas, as defined in the regulations, stored on-site in one location, in a quantity of 10,000 pounds or more. We utilize certain covered processes and maintain storage of LPGs in pressurized tanks, caverns and wells, in excess of 10,000 pounds at various locations. Flammable liquids stored in atmospheric tanks below their normal boiling point without benefit of chilling or refrigeration are exempt. We believe we are in material compliance with the OSHA regulations.

          In general, we expect to increase our expenditures during the next decade to comply with stricter industry and regulatory safety standards such as those described above. While such expenditures cannot be accurately

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estimated at this time, we do not believe that they will have a future material adverse effect on our financial position, results of operations or cash flows.

Employees

          We do not have any employees, officers or directors. The General Partner is responsible for our management. The Company is responsible for the management of our Parent Partnership. As of December 31, 2003, the Company had 1,061 employees.

Available Information

          We file annual, quarterly and other reports and other information with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain additional information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including us.

          We also make available free of charge on or through our Internet website (http://www.teppco.com) or through our Investor Relations Department (1-800-659-0059) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information statements and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 3. Legal Proceedings

          In the fall of 1999 and on December 1, 2000, the Company and the Parent Partnership were named as defendants in two separate lawsuits in Jackson County Circuit Court, Jackson County, Indiana, styled Ryan E. McCleery and Marcia S. McCleery, et al. v. Texas Eastern Corporation, et al. (including the Company and the Parent Partnership) and Gilbert Richards and Jean Richards v. Texas Eastern Corporation, et al. (including the Company and Parent Partnership). In both cases, the plaintiffs contend, among other things, that we and other defendants stored and disposed of toxic and hazardous substances and hazardous wastes in a manner that caused the materials to be released into the air, soil and water. They further contend that the release caused damages to the plaintiffs. In their complaints, the plaintiffs allege strict liability for both personal injury and property damage together with gross negligence, continuing nuisance, trespass, criminal mischief and loss of consortium. The plaintiffs are seeking compensatory, punitive and treble damages. We have filed an answer to both complaints, denying the allegations, as well as various other motions. These cases are not covered by insurance. Discovery is ongoing, and we are defending ourselves vigorously against the lawsuits. The plaintiffs have not stipulated the amount of damages that they are seeking in the suits. We cannot estimate the loss, if any, associated with these pending lawsuits.

          On December 21, 2001, we were named as a defendant in a lawsuit in the 10th Judicial District, Natchitoches Parish, Louisiana, styled Rebecca L. Grisham et al. v. TE Products Pipeline Company, Limited Partnership. In this case, the plaintiffs contend that our pipeline, which crosses the plaintiffs’ property, leaked toxic products onto their property and, consequently, caused damages to them. We have filed an answer to the plaintiffs’ petition denying the allegations, and we are defending ourselves vigorously against the lawsuit. The plaintiffs have not stipulated the amount of damages they are seeking in the suit; however, this case is covered by insurance. We do not believe that the outcome of this lawsuit will have a material adverse effect on our financial position, results of operations or cash flows.

          In May 2003, the Company was named as a defendant in a lawsuit styled John R. James, et al. v. J Graves Insulation Company, et al., as filed in the first Judicial District Court, Caddo Parish, Louisiana. There are numerous

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plaintiffs identified in the action that are alleged to have suffered damages as the result of alleged exposure to asbestos-containing products and materials. According to the petition and as a result of a preliminary investigation, the Company believes that the only claim asserted against it results from one individual for the period from July 1971 through June 1972, who is alleged to have worked on a facility owned by the Company’s predecessor. This period represents a small portion of the total alleged exposure period from January 1964 through December 2001 for this individual. The individual’s claims involve numerous employers and alleged job sites. Currently, the Company has been unable to confirm involvement by the Company or its predecessors with the alleged location, and it is currently uncertain whether this case is covered by insurance. Discovery is planned, and the Company intends to defend itself vigorously against this lawsuit. The plaintiffs have not stipulated the amount of damages that they are seeking in this suit. We are obligated to reimburse the Company for any costs it incurs related to this lawsuit. We cannot estimate the loss, if any, associated with this pending lawsuit. We do not believe that the outcome of this lawsuit will have a material adverse effect on our financial position, results of operations or cash flows.

          On April 2, 2003, Centennial was served with a petition in a matter styled Adams, et al. v. Centennial Pipeline Company LLC, et al. This matter involves approximately 2,000 plaintiffs who allege that over 200 defendants, including Centennial, generated, transported, and/or disposed of hazardous and toxic waste at two sites in Bayou Sorrell, Louisiana, an underground injection well and a landfill. The plaintiffs allege personal injuries, allergies, birth defects, cancer and death. The underground injection well has been in operation since May 1976. Based upon current information, Centennial appears to be a de minimis contributor, having used the disposal site during the two month time period of December 2001 to January 2002. Marathon has been handling this matter for Centennial under its operating agreement with Centennial. We have a 50% ownership interest in Centennial. Based upon Centennial’s limited involvement with the disposal site, we do not believe that the outcome of this matter will have a material adverse effect on our financial position, results of operations or cash flows

          On December 16, 2003, Centennial, the Company, the Parent Partnership and other Parent Partnership entities were named as defendants in a lawsuit in the 128th District Court of Orange County, Texas, styled Elwood Karr et al. v. Centennial Pipeline, LLC et al. In this case, the plaintiffs contend that our pipeline leaked toxic substances on their property, causing them property damage. We have filed an answer to the plaintiffs’ petition, denying the allegations, and we are defending ourselves vigorously against this lawsuit. This case is covered by insurance. We do not believe that the outcome of this lawsuit will have a material adverse effect on our financial position, results of operations or cash flows.

          In addition to the litigation discussed above, we have been, in the ordinary course of business, a defendant in various lawsuits and a party to various other legal proceedings, some of which are covered in whole or in part by insurance. We believe that the outcome of these lawsuits and other proceedings will not individually or in the aggregate have a future material adverse effect on our consolidated financial position, results of operations or cash flows.

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

          None.

PART II

Item 5. Market for Registrant’s Common Equity and Related Partnership Interest Matters

          TEPPCO Partners, L.P. owns a 99.999% interest as the sole limited partner interest and TEPPCO GP, Inc. owns a 0.001% general partner interest in us. There is no established public trading market for our ownership interests.

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          We make periodic distributions of our available cash to our partners. Available cash consists generally of all cash receipts less cash disbursements and cash reserves necessary for working capital, anticipated capital expenditures and contingencies we deem appropriate and necessary.

          We are a limited partnership, and we are not subject to federal income tax. Instead, the partners are required to report their allocable share of our income, gain, loss, deduction and credit, regardless of whether we make distributions.

Item 6. Selected Financial Data

          The following tables set forth, for the periods and at the dates indicated, our selected consolidated financial and operating data. The financial data was derived from our consolidated financial statements and should be read in conjunction with our audited consolidated financial statements included in the Index to Financial Statements on page F-1 of this Report. See also Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following information is provided to facilitate increased understanding of our 2003, 2002 and 2001 consolidated financial statements and our accompanying notes listed in the Index to Financial Statements on page F-1 of this Report. Accounting policies that are among the most critical to the portrayal of our financial condition and results of operations are discussed under “-Critical Accounting Policies.” Material period-to-period variances in the consolidated statements of income are discussed under “-Results of Operations.” The “-Financial Condition and Liquidity” section analyzes cash flows and financial condition. Discussion included in “-Other Considerations” addresses trends, future plans and contingencies that are reasonably likely to materially affect future liquidity or earnings.

Overview

          TE Products Pipeline Company, Limited Partnership, a Delaware limited partnership, was formed in March 1990. TEPPCO Partners, L.P. owns a 99.999% interest in us as the sole limited partner. TEPPCO GP, a subsidiary of the Parent Partnership, holds a 0.001% General Partner interest in us. Texas Eastern Products Pipeline Company, LLC, a Delaware limited liability company, serves as the general partner of our Parent Partnership. The Company is a wholly owned subsidiary of Duke Energy Field Services, LLC, a joint venture between Duke Energy and ConocoPhillips. Duke Energy holds an interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining 30%. TEPPCO GP, as general partner, performs all of our management and operating functions required according to the Agreement of Limited Partnership of TE Products Pipeline Company, Limited Partnership. We reimburse our General Partner and the Company for all reasonable direct and indirect expenses that they incur in managing us.

          We are one of three operating subsidiaries of our Parent Partnership. Our Parent Partnership is managed by its general partner, the Company, which has approximately 1,000 employees dedicated to the operations and management of the operating subsidiaries. Our Parent Partnership allocates operating, general and administrative expenses to us for legal, insurance, financial, communication and other administrative services based upon the estimated level of effort devoted to our various operations. We believe that the method for allocating corporate operating, general and administrative expenses to us is reasonable.

          We operate and report in one business segment: transportation and storage of refined products, LPGs and petrochemicals. We own, operate or have investments in properties located in 14 states, and our revenues are earned from transportation and storage of refined products and LPGs, intrastate transportation of petrochemicals, sale of product inventory and other ancillary services. Our two largest operating expense items are labor and electric power. We generally realize higher revenues during the first and fourth quarters of each year since our operations are somewhat seasonal. Refined products volumes are generally higher during the second and third quarters because of greater demand for gasolines during the spring and summer driving seasons. LPGs volumes are generally higher from November through March due to higher demand in the Northeast for propane, a major fuel for residential heating. Our results also include our equity investments in Centennial and MB Storage (see Note 6. Equity Investments).

          We are subject to economic and other factors that affect our industry. The demand for petroleum products is dependent on the price of the products produced and the demand for petrochemicals, which is dependent on prices for products produced from petrochemicals. We are also subject to regulatory factors which have an effect on the amounts we are allowed to charge our customers for the services we provide on our regulated pipeline systems.

          We are focused on opportunities, challenges and risks that are inherent in our business segment as discussed in this Report. These include the safe, reliable and efficient operation of the pipelines and facilities that we own or operate while meeting increased regulations that govern the operation of our assets and the costs associated with such regulations. We are also focused on our continued growth through expansion of the assets that we own and through acquisition of assets that compliment the business in which we operate.

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          In 2003, our results reflect record refined product and propane deliveries, as a result of a 10% increase in volumes delivered during the period. Revenues from the transportation of refined products and LPGs increased $32.7 million during 2003, primarily as a result of the additional capacity provided by the lease agreement with Centennial that we entered into in February 2003. The lease agreement has allowed us to utilize Centennial’s pipeline capacity in a manner that has provided additional delivery capability for our customers.

          Our costs were higher than expected, largely as a result of pipeline integrity expenses. The goal of our on-going pipeline integrity program has always been to maintain the long-term reliability and safety of our pipeline systems, while minimizing the impact to our customers. During the year, we spent $46.4 million on revenue generating capital projects, which includes $20.0 million to acquire an additional interest in Centennial, which we believe will provide earnings, cash flow and growth opportunities. We funded these projects by cash generated from operations and from our Parent Partnership’s credit facilities and debt and equity offerings.

          We continued building a base for long-term growth by enhancing existing systems and pursuing new business opportunities. We increased throughput on our pipeline systems, constructed new pipelines and expanded and upgraded our existing infrastructure. Among the highlights of 2003:

	•		We acquired an additional interest in Centennial for $20.0 million, bringing our ownership interest to 50%. Additionally, Centennial has provided additional capacity through our lease agreement that has enabled us to transport record refined product volumes in 2003.
	•		During the fourth quarter of 2003, we completed a $12.0 million expansion project that was part of a system-wide effort to increase our deliverability of LPGs to the Northeast markets.
	•		We spent an additional $14.4 million on other revenue generating projects, including the expansion of our terminal storage and delivery capacity.

                We remain confident that our current strategy and focus will provide continued growth in earnings and cash distributions. With respect to 2004, these opportunities include:

	•		Construction of a new truck loading facility in Bossier City, Louisiana.
	•		Continued development of refined products and propane market opportunities.

Critical Accounting Policies

          The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Changes in these estimates could materially affect our financial position, results of operations or cash flows. Although we believe that these estimates are reasonable, actual results could differ from these estimates. Key estimates used by our management include estimates used to record revenue and expense accruals, environmental costs, depreciation and amortization and asset impairment. Significant accounting policies that we employ are presented in the notes to the consolidated financial statements (see Note 2. Summary of Significant Accounting Policies).

          Critical accounting policies are those that are most important to the portrayal of our financial position and results of operations. These policies require management’s most difficult, subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies pertain to revenue and expense accruals, environmental costs and property, plant and equipment.

     Revenue and Expense Accruals

          We routinely make accruals for both revenues and expenses due to the timing of compiling billing information, receiving certain third party information and reconciling our records with those of third parties. The delayed information from third parties includes, among other things, actual volumes of products transported,

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adjustments to inventory and invoices for operating expenses. We make accruals to reflect estimates for these items based on our internal records and information received from third parties. Most of the estimated accruals are reversed in the following month when actual information is received from third parties and our internal records have been reconciled.

          The most difficult accruals to estimate are power costs and property taxes. Power cost accruals generally involve a two to three month estimate, and the amount varies primarily for actual power usage. Power costs are dependent upon the actual volumes transported through our pipeline systems and the various power rates charged by numerous power companies along the pipeline system. Peak demand rates, which are difficult to predict, drive the variability of the power costs. Property tax accruals involve significant tax rate estimates among numerous jurisdictions. Actual property taxes are often not known until the tax bill is settled in subsequent periods, and the tax amount can vary for tax rate changes and changes in tax methods or elections. Each of these accruals requires management’s subjective judgments, requiring estimates regarding the effects of items that are inherently uncertain.

     Environmental Costs

          At December 31, 2003, we have accrued a liability for our estimate of the future payments we expect to pay for environmental costs to remediate existing conditions attributable to past operations. Environmental costs include initial site surveys and environmental studies of potentially contaminated sites, costs for remediation and restoration of sites determined to be contaminated and ongoing monitoring costs, as well as damages and other costs, when estimable. We monitor the balance of accrued undiscounted environmental liabilities on a regular basis. We record liabilities for environmental costs at a specific site when our liability for such costs is probable and a reasonable estimate of the associated costs can be made. Adjustments to initial estimates are recorded, from time to time, to reflect changing circumstances and estimates based upon additional information developed in subsequent periods. Estimates of our ultimate liabilities associated with environmental costs are particularly difficult to make with certainty due to the number of variables involved, including the early stage of investigation at certain sites, the lengthy time frames required to complete remediation alternatives available and the evolving nature of environmental laws and regulations. For information concerning environmental regulation and environmental costs and contingencies, see Items 1 and 2. Business and Properties – Environmental Matters.

     Property, Plant and Equipment

          We record property, plant and equipment at its acquisition cost. Additions to property, plant and equipment, including major replacements or betterments, are recorded at cost. We charge replacements and renewals of minor items of property that do not materially increase values or extend useful lives to maintenance expense. The cost of property, plant and equipment, less estimated salvage value, is generally depreciated on a straight-line basis using rates based upon expected useful lives of various classes of assets (ranging from 2% to 20% per year). Useful lives are based on historical experience and are adjusted when changes in planned use, technological advances or other factors show that a different life would be more appropriate. Changes in useful lives that do not result in the impairment of an asset are recognized prospectively.

          We review long-lived assets for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the carrying amount of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. Estimates of future net cash flows include anticipated future revenues, expected future operating costs and other estimates. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

          During the second quarter of 2001, Pennzoil-Quaker State Company (“Pennzoil”) sold its Shreveport, Louisiana, refinery. Under its transportation agreement with us, Pennzoil had a throughput commitment of 25,000 barrels per day. We negotiated a settlement of $18.9 million with Pennzoil to terminate the long-term transportation agreement from the Shreveport origin point on the Pipeline System. The termination payment was recorded as refined products transportation revenue in 2001. In connection with the termination of the transportation agreement,

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we evaluated its impact on the pipeline segment from Shreveport to El Dorado, Arkansas, in accordance with SFAS 144. The evaluation did not result in an impairment of the carrying value of the related transportation assets, which was $28.1 million at December 31, 2003. We are pursuing a plan to make system changes to allow for bi-directional product flow and deliveries into the Shreveport market area. We have completed feasibility studies, and we are in discussions with potential customers regarding the transportation of volumes through this pipeline. We have approved a project for construction of a new truck loading terminal in Bossier City, Louisiana, and the reversal of the pipeline. Engineering design work and property acquisition for the terminal site are currently under way, and the project is scheduled to be completed by the end of 2004. If the successful completion of the plan is not realized on this pipeline segment, an impairment may be recorded for the excess of the carrying value over discounted future net cash flows.

Results of Operations

          The following table presents volumes delivered in barrels and average tariff per barrel for the years ended December 31, 2003, 2002 and 2001:

     Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

          We reported net income of $49.5 million for the year ended December 31, 2003, compared with net income of $55.3 million for the year ended December 31, 2002. Net income decreased $5.8 million primarily due to an increase of $21.0 million in costs and expenses, an increase of $3.6 million in interest expense, a decrease of $0.9 million in interest capitalized, a decrease of $0.6 million in other income – net and a decrease of $0.9 million in income from discontinued operations, partially offset by an increase of $18.5 million in operating revenues and increased income of $2.7 million from equity investments. We discuss factors influencing our operating performance below.

          Revenues from refined products transportation increased $15.5 million for the year ended December 31, 2003, compared with the year ended December 31, 2002, due to an overall increase of 12% in the refined products volumes delivered. This increase was primarily due to deliveries of products received into our pipeline from Centennial at Creal Springs, Illinois. Centennial, which began operations in April 2002, has provided our system with additional pipeline capacity for products originating in the U.S. Gulf Coast area. In February 2003, we entered into a lease agreement with Centennial that increased our capacity to deliver refined products to our market areas. Prior to the lease agreement with Centennial, deliveries on our pipeline system were based upon a proration policy, which limited customer transportation. During 2003, with the expanded capacity through our lease agreement with Centennial, our pipeline system was not prorated during portions of 2003 and was better able to serve markets which increased transportation on our system. In addition, in December 2002, we raised the operating pressure of our Chicago lateral pipeline which resulted in an increase in capacity for deliveries into the Indianapolis and Chicago

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markets. With this incremental pipeline capacity, our previously constrained system has expanded deliveries in markets both south and north of Creal Springs. Volume increases were due to increased demand and market share for products supplied from the U.S. Gulf Coast into Midwest markets. The refined products average rate per barrel increased 1% from the prior year period primarily due higher market-based tariff rates which went into effect in July 2003, partially offset by the impact of the Midwest origin point for barrels received from Centennial, which resulted in an increase in short-haul barrels transported on our system.

          Revenues from LPGs transportation increased $17.2 million for the year ended December 31, 2003, compared with the year ended December 31, 2002, primarily due to increased deliveries of propane in the upper Midwest and Northeast market areas attributable to colder than normal weather during the first quarter of 2003 and due to low inventories at competing supply locations during the second and third quarters of 2003. The U.S. Gulf Coast had higher propane inventory during 2003 as compared to the previous year because of higher than normal foreign propane imports at Mont Belvieu, which resulted in a lower propane price in this market area. This lower price contributed to increased transportation deliveries to the mid-continent market areas. Additional pipeline capacity for expanded propane movements was available due to a shift of refined product volumes to Centennial. Butane deliveries also increased due to the increased demand by refineries for normal butane for use in gasoline blending and increased isobutane deliveries to Chicago area refineries. The LPGs average rate per barrel increased 17% from the prior year period as a result of an increased percentage of long-haul deliveries during the year ended December 31, 2003, and an increase in LPG tariff rates, which went into effect in July 2003.

          Effective January 1, 2003, our 50% ownership interest in MB Storage is accounted for as an equity investment. Revenues generated from Mont Belvieu operations totaled $15.2 million for the year ended December 31, 2002. As a result of the formation of MB Storage, revenues and expenses related to Mont Belvieu operations are now recorded within equity earnings. See discussion regarding changes in equity earnings/losses below.

          Other operating revenues increased $1.0 million for the year ended December 31, 2003, compared with the year ended December 31, 2002, primarily due to higher propane deliveries at our Providence, Rhode Island import facility and higher refined product loading fees, offset by lower revenues from product location exchanges which are used to position product in the Midwest market area and lower volume of product inventory sales.

          Costs and expenses increased $21.0 million for the year ended December 31, 2003, compared with the year ended December 31, 2002. The increase was made up of a $22.6 million increase in operating, general and administrative expenses and a $1.0 million increase in depreciation and amortization expense, partially offset by a $2.4 million decrease in taxes – other than income taxes and a $0.2 million decrease in operating fuel and power. Operating, general and administrative expenses increased primarily due to higher pipeline maintenance expenses, due in part to pipeline rehabilitation expenses associated with our integrity management program, increased consulting and contract services, increased labor costs primarily due to an increase in the number of employees between years, increased insurance expense, expense from the Centennial pipeline capacity lease agreement that we entered into in 2003 and the write-off of receivables of $0.8 million related to customer bankruptcies or other customer non-payments. Depreciation and amortization expense increased from the prior year period because of assets placed in service during the year, which resulted in increased depreciation expense. In addition, we wrote off assets taken out of service during the period to depreciation expense, which also increased depreciation expense. These increases in depreciation expense were partially offset by lower depreciation expense from assets retired during the year, which reduced the asset base, and due to the transfer of assets to MB Storage. Taxes – other than income taxes decreased as a result of actual property taxes being lower than previously estimated and due to the transfer of assets to MB Storage. Operating fuel and power expense decreased as a result of lower power costs due to a slight decrease in the price of natural gas, partially offset by increased mainline throughput.

          Interest expense increased $3.6 million for the year ended December 31, 2003, compared with the year ended December 31, 2002, as a result of higher outstanding debt balances under the note payable with our Parent Partnership, and an increased percentage of fixed-rate debt in 2003 by the Parent Partnership. Interest capitalized decreased $0.9 million for the year ended December 31, 2003, compared with the year ended December 31, 2002, as a result of decreased construction work-in-progress balances.

          Net losses from equity investments decreased $2.7 million for the year ended December 31, 2003, compared with the year ended December 31, 2002. On February 10, 2003, we acquired an additional 16.7% interest

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in Centennial, bringing our ownership interest to 50%. Centennial, which commenced operations in April 2002, accounted for $11.4 million of the equity losses for the year ended December 31, 2003, resulting in an increase of $4.7 million in equity losses as compared with the year ended December 31, 2002. During the year ended December 31, 2003, we recognized increased equity losses from our investment in Centennial due to the acquisition of the additional 16.7% ownership interest in February 2003. In April 2003, we entered into a pipeline capacity lease with Centennial for a period of five years in order to expand our capacity to deliver refined products to our market areas. The losses from Centennial are partially offset by equity earnings of $7.4 million from our equity ownership interest in MB Storage, which was formed effective January 1, 2003. Amounts in the prior year period related to Mont Belvieu operations which were recorded to revenues and costs and expenses are now being recorded within equity earnings based upon our equity ownership interest in MB Storage, effective with its formation on January 1, 2003. If the 2002 revenues and costs and expenses from the Mont Belvieu operations had been accounted for under the same method as in 2003, equity earnings from MB Storage would have increased $0.2 million in 2003, compared with the prior year, due to increased shuttle deliveries and increased storage revenue, partially offset by increases in depreciation expense and rehabilitation expenses on MB Storage assets.

          Other income – net decreased $0.6 million for the year ended December 31, 2003, compared with the year ended December 31, 2002, primarily due to lower interest income earned on cash investments.

          We are dependent in large part on the demand for refined petroleum products in the markets that we serve. Reductions in that demand adversely affect our pipeline business. Market demand varies based upon the different end uses of the refined products that we ship. Demand for gasoline, which in recent years has accounted for approximately one-half of our refined products transportation revenues, depends upon price, prevailing economic conditions and demographic changes in the markets that we serve. Demand for distillates is affected by truck and railroad freight, the price of natural gas used by utilities, which use distillates as a substitute for natural gas when the price of natural gas is high, and usage for agricultural operations, which is affected by weather conditions, government policy and crop prices. Demand for jet fuel, which in recent years has accounted for approximately one-quarter of our refined products revenues, depends on prevailing economic conditions and military usage. Propane deliveries are generally sensitive to the weather and meaningful year-to-year variances have occurred in the past and will likely continue to occur in the future.

     Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

          We reported net income of $55.3 million for the year ended December 31, 2002, compared with net income of $92.7 million for the year ended December 31, 2001. Net income decreased $37.4 million primarily due to a decrease of $20.7 million in operating revenues, an increase of $13.9 million in costs and expenses, additional losses of $5.7 million from equity investments, a decrease of $0.6 million in other income – net, a decrease of $0.3 million in interest capitalized and a decrease of $0.8 million in income from discontinued operations. The decreases to net income were partially offset by a decrease of $4.6 million in interest expense. We discuss factors influencing our operating performance below.

          Revenues from refined products transportation decreased $15.8 million for the year ended December 31, 2002, compared with the year ended December 31, 2001, primarily due to $18.9 million of revenue recognized in 2001 from a cash settlement received from a canceled transportation agreement with Pennzoil and the recognition of $1.7 million of previously deferred revenue related to the approval of market-based rates during the second quarter of 2001. See further discussion regarding these factors included in “Other Considerations.” These decreases were partially offset by a 12% increase in refined products volumes delivered during the year ended December 31, 2002, primarily due to barrels received into our pipeline from Centennial at Creal Springs, Illinois. Centennial commenced refined products deliveries to us beginning in April 2002. The overall increase in refined products deliveries was partially offset by a 1.3 million barrel decrease in methyl tertiary butyl ether (“MTBE”) deliveries as a result of the expiration of contract deliveries to our marine terminal near Beaumont effective April 2001. As a result of the contract expiration, we no longer transport MTBE through our Pipeline System. The refined products average rate per barrel decreased 9% from the prior year due to the impact of the Midwest origin point for volumes received from Centennial, which was partially offset by decreased short-haul MTBE volumes delivered, and higher market-based tariff rates, which went into effect in July 2001.

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          Revenues from LPGs transportation decreased $3.2 million for the year ended December 31, 2002, compared with the year ended December 31, 2001, primarily due to decreased deliveries of propane in the upper Midwest and Northeast market areas attributable to warmer than normal weather in the first quarter of 2002. The decrease was also due to lower prices from competing Canadian and mid-continent propane supply as compared to propane originating from the Gulf Coast. Total LPGs volumes delivered increased 1% as a result of increased short-haul deliveries to a petrochemical facility on the upper Texas Gulf Coast. The LPGs average rate per barrel decreased 6% from the prior year as a result of a decreased percentage of long-haul deliveries during the year ended December 31, 2002.

          Revenues generated from Mont Belvieu operations increased $1.1 million for the year ended December 31, 2002, compared with the year ended December 31, 2001, as a result of increased storage revenue and receipt revenue. Mont Belvieu shuttle volumes delivered increased 25% during the year ended December 31, 2002, compared with the year ended December 31, 2001, due to increased petrochemical demand. The Mont Belvieu average rate per barrel decreased 17% during the year ended December 31, 2002, as a result of increased contract shuttle deliveries, which generally carry lower rates.

          Other operating revenues decreased $2.8 million for the year ended December 31, 2002, compared with the year ended December 31, 2001, primarily due to lower propane deliveries at our Providence import facility, lower refined products storage revenue, lower margins on product inventory sales and lower revenues from product location exchanges which are used to position product in the Midwest market area. These decreases were partially offset by increased refined products and LPGs loading fees.

          Costs and expenses increased $13.9 million for the year ended December 31, 2002, compared with the year ended December 31, 2001. The increase was comprised of an $11.8 million increase in operating, general and administrative expenses, a $3.4 million increase in depreciation and amortization expense and a $3.1 million increase in taxes – other than income taxes. These increases were partially offset by a $4.4 million decrease in operating fuel and power expense. Operating, general and administrative expenses increased primarily due to higher pipeline rehabilitation expenses associated with our integrity management program, increased consulting and contract services, increased labor costs and increased general and administrative supplies expense. Depreciation expense increased from the prior year because of assets placed in service during 2002. Taxes – other than income taxes increased as a result of a higher property base in 2002. Operating fuel and power expense decreased as a result of decreased long-haul volumes delivered related to Midwest volumes received from Centennial and lower power costs.

          Interest expense decreased $4.6 million for the year ended December 31, 2002, compared with the year ended December 31, 2001, due to lower interest rates on the note payable with the Parent Partnership. Interest capitalized decreased $0.3 million for the year ended December 31, 2002, compared with the year ended December 31, 2001, due to decreased balances during 2002 on construction work-in-progress partially offset by interest capitalized on our investment in Centennial during the first quarter of 2002.

          Net losses from equity investments increased $5.7 million for the year ended December 31, 2002 compared with the year ended December 31, 2001. The increase is primarily due to pre-operating expenses and start-up costs of Centennial, which commenced operations in early April 2002.

          Other income – net decreased $0.8 million for the year ended December 31, 2002, compared with the year ended December 31, 2001. The decrease was primarily due to lower interest income earned on cash investments.

     Discontinued Operations

          Effective January 1, 2002, our Parent Partnership realigned its business segments to reflect its entry into the natural gas gathering business and the expanded scope of its NGLs operations. As part of this realignment, on May 31, 2002, we entered into an Assignment and Assumption Agreement with TEPPCO Midstream to transfer our investment in TEPPCO Colorado, which fractionates NGLs, to TEPPCO Midstream at the book value of TEPPCO Colorado’s net assets (see Note 19. Discontinued Operations). SFAS 144 requires that long-lived assets to be disposed of should be recorded at the lower of their carrying amount or fair value less costs to sell. As a result, in

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the quarter ended June 30, 2002, we compared the fair value of TEPPCO Colorado to its carrying value and noted no indication of impairment.

          As a result of the transfer, our financial position and results of operations have been reclassified to reflect revenue, expenses, assets and liabilities of TEPPCO Colorado as discontinued operations. Condensed statements of income are shown below for TEPPCO Colorado for the years ended December 31, 2002 and 2001 (in thousands):

          The following table presents volumes fractionated and average rate per barrel for TEPPCO Colorado for the years ended December 31, 2002 and 2001:

Financial Condition and Liquidity

          Cash flows for the years ended December 31, 2003, 2002 and 2001, were as follows (in millions):

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     Operating Activities

          Net cash from operating activities for the years ended December 31, 2003, 2002 and 2001, were comprised of the following (in millions):

          For a discussion of changes in net income, depreciation and amortization and equity earnings, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Cash provided by operating activities decreased for the year ended December 31, 2003, compared with the years ended December 31, 2002 and 2001, primarily due to changes in working capital components resulting from the timing of cash receipts and cash disbursements.

          We believe that we will continue to have adequate liquidity to fund future recurring operating and investing activities. Our primary cash requirements consist of normal operating expenses, capital expenditures to sustain existing operations and revenue generating expenditures, interest payments on our Senior Notes and on borrowings under our Parent Partnership’s credit facilities and distributions to our Parent Partnership. Short-term cash requirements, such as operating expenses, capital expenditures to sustain existing operations and quarterly distributions to our Parent Partnership, are expected to be funded through operating cash flows. Long-term cash requirements for expansion projects are expected to be funded by several sources, including cash flows from operating activities, borrowings under our Parent Partnership’s credit facilities and the issuance by our Parent Partnership of additional equity and debt securities. The timing of any debt or offerings by our Parent Partnership will depend on various factors, including prevailing market conditions, interest rates and our Parent Partnership’s financial condition and credit rating at the time.

         At December 31, 2003 and 2002, we had working capital deficits of $12.3 million and $1.4 million, respectively. Cash generated from operations and from our Parent Partnership’s credit facilities and debt and equity offerings are our primary sources of liquidity. We are a wholly owned subsidiary of the Parent Partnership. We expect that our Parent Partnership will make capital contributions, loans or otherwise provide liquidity to us as needed, but the Parent Partnership has no contractual obligation to do so. We anticipate that the Parent Partnership will provide the necessary liquidity to protect its investment in us. At December 31, 2003, our Parent Partnership had $340.0 million in available borrowing capacity under its revolving credit facility to cover any working capital shortfalls, and expects that cash flows from operating activities, the sale of additional debt or equity offerings will provide necessary liquidity. For further discussion regarding our Parent Partnership’s sources of liquidity, please see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition and Liquidity in our Parent Partnership’s Annual Report on Form 10-K for the Year Ended December 31, 2003.

          Net cash from operating activities for the years ended December 31, 2003, 2002 and 2001, included interest payments, net of amounts capitalized, of $30.3 million, $25.0 million and $31.0 million, respectively. Excluding the effects of hedging activities and interest capitalized, during the year ended December 31, 2004, we expect interest payments on our Senior Notes to be approximately $27.4 million. We expect to pay our interest payments with cash flows from operating activities.

     Investing Activities

          Cash flows used in investing activities totaled $84.2 million for the year ended December 31, 2003, and were comprised of $58.4 million of capital expenditures, $20.0 million for our acquisition of an additional 16.7% interest in Centennial, $4.0 million of cash contributions to Centennial and $2.5 million of cash contributions to MB Storage. These uses of cash were partially offset by $0.7 million received on matured cash investments. Cash flows used in investing activities totaled $64.3 million for the year ended December 31, 2002, and were comprised of $60.9 million of capital expenditures and $10.9 million of cash contributions to Centennial, partially offset by $3.4 million of cash proceeds from the sale of assets and $4.1 million of cash proceeds from the sale of TEPPCO Colorado. Cash flows used in investing activities totaled $142.1 million for the year ended December 31, 2001, and were comprised of $81.4 million of capital expenditures and $64.9 million of cash contributions to Centennial, partially offset by $4.2 million of net proceeds received from cash investments.

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     Financing Activities

          Cash flows used in financing activities totaled $12.2 million for the year ended December 31, 2003, and were comprised of $106.5 million of distributions paid to our Parent Partnership and $53.6 million of repayments on our term loan, partially offset by $110.9 million of proceeds from our term loan and $37.0 million of equity contributions received from our Parent Partnership. Cash flows used in financing activities totaled $46.5 million for the year ended December 31, 2002, and were comprised of $94.9 million of distributions paid to our Parent Partnership and $150.0 million of repayments on our term loan, partially offset by $186.1 million of proceeds from our term loan and $12.3 million of equity contributions received from our Parent Partnership. Cash flows provided by financing activities totaled $13.5 million for the year ended December 31, 2001, and were comprised of $166.1 million of proceeds from our term loan, $1.2 million of advances from our Parent Partnership and $24.0 million of equity contributions from our Parent Partnership, partially offset by $96.9 million of repayments on our term loan and $80.9 million of distributions paid to our Parent Partnership.

          Centennial entered into credit facilities totaling $150.0 million, and as of December 31, 2003, $150.0 million was outstanding under those credit facilities. The proceeds were used to fund construction and conversion costs of its pipeline system. We and Marathon have each guaranteed one-half of Centennial’s debt, up to a maximum of $75.0 million each.

     Parent Partnership Credit Facilities

          We currently utilize debt financing available from our Parent Partnership through intercompany notes. The terms of the intercompany notes generally match the principal and interest payment dates under the Parent Partnership’s credit agreements. The interest rates charged by the Parent Partnership include the stated interest rate of the Parent Partnership, plus a premium to cover debt issuance costs. The interest rate is also decreased or increased to cover gains and losses, respectively, on any interest rate swaps that the Parent Partnership may have in place on its respective credit agreements. These credit facilities of the Parent Partnership are described below.

          On April 6, 2001, our Parent Partnership entered into a $500.0 million revolving credit facility including the issuance of letters of credit of up to $20.0 million (“Three Year Facility”). The interest rate was based, at our Parent Partnership’s option, on either the lender’s base rate plus a spread, or LIBOR plus a spread in effect at the time of the borrowings. The credit agreement for the Three Year Facility contained certain restrictive financial covenant ratios. During 2002, our Parent Partnership’s borrowings under the Three Year Facility were used to finance the acquisitions of the Chaparral NGL system on March 1, 2002, and the Val Verde Gas Gathering System (“Val Verde”) on June 30, 2002, and for general Parent Partnership purposes. During 2002, our Parent Partnership made repayments on the Three Year Facility with proceeds from the issuance of its 7.625% Senior Notes, proceeds from the issuance of additional Limited Partner Units and proceeds from the termination of interest rate swaps. During the first quarter of 2003, our Parent Partnership repaid $182.0 million of the outstanding balance of the Three Year Facility with proceeds from the issuance of its 6.125% Senior Notes on January 30, 2003. On June 27, 2003, our Parent Partnership repaid the outstanding balance under the Three Year Facility with borrowings under a new credit facility and canceled the Three Year Facility.

          On June 27, 2003, our Parent Partnership entered into a $550.0 million revolving credit facility with a three year term, including the issuance of letters of credit of up to $20.0 million (“Revolving Credit Facility”). The interest rate is based, at our Parent Partnership’s option, on either the lender’s base rate plus a spread, or LIBOR plus a spread in effect at the time of the borrowings. The credit agreement for the Revolving Credit Facility contains certain restrictive financial covenant ratios. Our Parent Partnership borrowed $263.0 million under the Revolving Credit Facility and repaid the outstanding balance of the Three Year Facility. At December 31, 2003, $210.0 million was outstanding under the Revolving Credit Facility.

          On April 6, 2001, our Parent Partnership entered into a 364-day, $200.0 million revolving credit agreement (“Short-term Revolver”). The interest rate was based, at our Parent Partnership’s option, on either the lender’s base rate plus a spread, or LIBOR plus a spread in effect at the time of the borrowings. The credit agreement contained certain restrictive financial covenant ratios. On March 28, 2002, the Short-term Revolver was extended for an additional period of 364 days, ending in March 2003. During 2002, the Parent Partnership’s borrowings under the Short-term Revolver were used to finance the acquisition of the Val Verde assets and for other purposes. During

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2002, the Parent Partnership repaid the existing amounts outstanding under the Short-term Revolver with proceeds it received from the issuance of Limited Partner Units in 2002. The Short-term Revolver expired on March 27, 2003.

          On February 20, 2002, our Parent Partnership issued $500.0 million principal amount of 7.625% Senior Notes due 2012. The 7.625% Senior Notes were issued at a discount of $2.2 million and are being accreted to their face value over the term of the notes. The Parent Partnership used the proceeds from the offering to reduce a portion of the outstanding balances of its credit facilities. The Senior Notes may be redeemed at any time at our Parent Partnership’s option with the payment of accrued interest and a make-whole premium determined by discounting remaining interest and principal payments using a discount rate equal to the rate of the United States Treasury securities of comparable remaining maturity plus 35 basis points. The indenture governing these 7.625% Senior Notes contains covenants, including, but not limited to, covenants limiting the creation of liens securing indebtedness and sale and leaseback transactions. However, the indenture does not limit our Parent Partnership’s ability to incur additional indebtedness.

          On January 30, 2003, our Parent Partnership issued $200.0 million principal amount of 6.125% Senior Notes due 2013. The 6.125% Senior Notes were issued at a discount of $1.4 million and are being accreted to their face value over the term of the notes. The Parent Partnership used $182.0 million of the proceeds from the offering to reduce the outstanding principal on the Three Year Facility to $250.0 million. The balance of the net proceeds received was used for general Parent Partnership purposes. The Senior Notes may be redeemed at any time at our Parent Partnership’s option with the payment of accrued interest and a make-whole premium determined by discounting remaining interest and principal payments using a discount rate equal to the rate of the United States Treasury securities of comparable remaining maturity plus 35 basis points. The indenture governing the 6.125% Senior Notes contains covenants, including, but not limited to, covenants limiting the creation of liens securing indebtedness and sale and leaseback transactions. However, the indenture does not limit the Parent Partnership’s ability to incur additional indebtedness.

          At December 31, 2003 and 2002, we had intercompany notes payable to our Parent Partnership of $211.3 million and $154.1 million, respectively, which represented borrowings under the Parent Partnership’s Revolving Credit Facility, 7.625% Senior Notes and 6.125% Senior Notes. The weighted average interest rate on the note payable to the Parent Partnership at December 31, 2003, was 5.8%. At December 31, 2003, accrued interest includes $3.3 million due to our Parent Partnership. For the year ended December 31, 2003, interest costs incurred on the note payable to our Parent Partnership totaled $11.1 million.

     Senior Notes

          On January 27, 1998, we completed the issuance of $180.0 million principal amount of 6.45% Senior Notes due 2008, and $210.0 million principal amount of 7.51% Senior Notes due 2028 (collectively the “Senior Notes”). The 6.45% Senior Notes were issued at a discount of $0.3 million and are being accreted to their face value over the term of the notes. The 6.45% Senior Notes due 2008 are not subject to redemption prior to January 15, 2008. The 7.51% Senior Notes due 2028, issued at par, may be redeemed at any time after January 15, 2008, at our option, in whole or in part, at a premium.

          The Senior Notes do not have sinking fund requirements. Interest on the Senior Notes is payable semiannually in arrears on January 15 and July 15 of each year. The Senior Notes are unsecured obligations and rank on a parity with all of our other unsecured and unsubordinated indebtedness. The indenture governing the Senior Notes contains covenants, including, but not limited to, covenants limiting the creation of liens securing indebtedness and sale and leaseback transactions. However, the indenture does not limit our ability to incur additional indebtedness. As of December 31, 2003, we were in compliance with the covenants of the Senior Notes.

          We have entered into an interest rate swap agreement to hedge our exposure to changes in the fair value on a portion of the Senior Notes, as more fully described in Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

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     Cash Distributions

          For the years ended December 31, 2003, 2002 and 2001, cash distributions paid to our Parent Partnership totaled $106.5 million, $94.9 million and $80.9 million, respectively. The distribution increases reflect our success in improving cash flow levels. On February 6, 2004, we paid a cash distribution of $28.9 million to our Parent Partnership for the quarter ended December 31, 2003.

     Future Capital Needs and Commitments

          We estimate that capital expenditures, excluding acquisitions, for 2004 will be approximately $66.3 million (which includes $2.0 million of capitalized interest). We expect to spend approximately $48.2 million for revenue generating projects and facility improvements which will include the expansion of our pipelines extending from Seymour to Indianapolis, Indiana, further expansions of our Northeast pipeline system and construction of a new truck loading terminal in Bossier City, Louisiana. We expect to spend approximately $16.1 million to sustain existing operations, including life-cycle replacements for equipment at various facilities and pipeline and tank replacements. We continually review and evaluate potential capital improvements and expansions that would be complementary to our present system. These expenditures can vary greatly depending on the magnitude of our transactions. We may finance capital expenditures through internally generated funds, debt or capital contributions from our Parent Partnership or any combination thereof.

          Our debt repayment obligations consist of payments for principal and interest on (i) our $180.0 million 6.45% Senior Notes due January 15, 2008, (ii) our $210.0 million 7.51% Senior Notes due January 15, 2028, and (iii) $211.3 million principal amount due to the Parent Partnership related to our share of the Parent Partnership’s Revolving Credit Facility due in June 2006, 7.625% Senior Notes due in February 2012 and 6.125% Senior Notes due in February 2013.

          We are also contingently liable as guarantor for the lesser of one-half or $75.0 million principal amount (plus interest) of the borrowings of Centennial. In January 2003, we entered into a pipeline capacity lease agreement with Centennial for a period of five years that contains a minimum throughput requirement. During the year ended December 31, 2003, we exceeded the minimum throughput requirements on the lease agreements. On February 10, 2003, we acquired an additional 16.7% interest in Centennial, bringing our ownership percentage to 50%. We are also contingently liable as guarantor for $500.0 million principal amount of 7.625% Senior Notes due 2012 issued in February 2002 and for $200.0 million principal amount of 6.125% Senior Notes due 2013 issued in January 2003 by our Parent Partnership.

          During the years ended December 31, 2003, 2002 and 2001, we contributed $4.0 million, $10.9 million and $65.0 million, respectively, to Centennial to cover operating shortfalls and capital expenditures. During the year ended December 31, 2003, we contributed $2.5 million to MB Storage for capital expenditures. During 2004, we may be required to contribute cash to both Centennial and MB Storage to cover capital expenditures or other operating shortfalls.

          We do not rely on off-balance sheet borrowings to fund our acquisitions. We have no off-balance sheet commitments for indebtedness other than the limited guaranty of the Centennial debt, the Parent Partnership debt and leases covering assets utilized in several areas of our operations.

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          The following table summarizes our debt repayment obligations and material contractual commitments as of December 31, 2003 (in millions):

          We expect to repay the long-term, senior unsecured obligations and note payable to our Parent Partnership through the issuance of additional long-term senior unsecured debt at the time the 2008 and 2028 debts mature, with proceeds from the dispositions of assets, cash flows from operations, contributions from our Parent Partnership or any combination of the above items.

     Sources of Future Capital

          We expect that our cash flow from operating activities will be adequate to fund cash distributions and capital additions necessary to sustain existing operations. However, expansionary capital projects and acquisitions may require additional capital contributions from our Parent Partnership. The Parent Partnership has funded its capital commitments from operating cash flow, borrowings under bank credit facilities, the issuance of long term debt in capital markets and the public offering of Limited Partner Units. We expect future capital needs would be similarly funded.

          Our Parent Partnership’s senior unsecured debt is rated BBB by Standard and Poors (“S&P”) and Baa3 by Moody’s Investors Service (“Moody’s”). Our senior unsecured debt is also rated BBB by S&P and Baa3 by Moody’s. Both ratings are stable. A rating reflects only the view of a rating agency and is not a recommendation to buy, sell or hold any indebtedness. Any rating can be revised upward or downward or withdrawn at any time by a rating agency if it determines that the circumstances warrant such a change.

Other Considerations

     Credit Risks

          Risks of non-payment and nonperformance by customers are a major consideration in our business. Our credit procedures and policies do not fully eliminate customer credit risk. During the years ended December 31, 2003, 2002 and 2001, a few small to medium-sized customers filed for bankruptcy protection. During the years ended December 31, 2003 and 2002, we expensed approximately $0.8 million and $0.7 million, respectively, of uncollectible receivables due to customer bankruptcies and other customer non-payments.

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     Terrorist Threats

          On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scale. Since the September 11 attacks, the United States government has issued warnings that energy assets, specifically the nation’s pipeline infrastructure, could be a future target of terrorist organizations. These developments have subjected our operations to increased risks. Any terrorist attack on our facilities, customers’ facilities and, in some cases, those of other pipelines, could have a material adverse effect on our business. We have increased security initiatives and are working with various governmental agencies to minimize risks associated with additional terrorist attacks.

     Environmental

          Our operations are subject to federal, state and local laws and regulations governing the discharge of materials into the environment. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of injunctions delaying or prohibiting certain activities and the need to perform investigatory and remedial activities. Although we believe our operations are in material compliance with applicable environmental laws and regulations, risks of significant costs and liabilities are inherent in pipeline operations, and we cannot assure you that significant costs and liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly strict environmental laws and regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from our operations, could result in substantial costs and liabilities to us. We believe that changes in environmental laws and regulations will not have a material adverse effect on our financial position, results of operations or cash flows in the near term.

          In 1994, the LDEQ issued a compliance order for environmental contamination at our Arcadia, Louisiana, facility. This contamination may be attributable to our operations, as well as to adjacent petroleum terminals operated by other companies. In 1999, our Arcadia facility and adjacent terminals were directed by the Remediation Services Division of the LDEQ to pursue remediation of this contamination. At December 31, 2003, we have an accrued liability of $0.3 million for remediation costs at our Arcadia facility. We do not expect that the completion of the remediation program proposed to the LDEQ will have a future material adverse effect on our financial position, results of operations or cash flows.

          On March 17, 2003, we experienced a release of 511 barrels of jet fuel from a storage tank at our Blue Island terminal located in Cook County, Illinois. As a result of the release, we have entered into an Agreed Order with the State of Illinois. The Agreed Order requires us, in part, to complete a site investigation plan to delineate the scope of any potential contamination resulting from the release and to remediate any contamination present above regulatory standards. This site investigation plan has been completed and submitted to the State of Illinois. The Agreed Order does not contain any provision for any fines or penalties; however, it does not preclude the State of Illinois from assessing these at a later date. We do not expect that the completion of the remediation program will have a future material adverse effect on our financial position, results of operations or cash flows.

     Market-Based Rates

          On May 11, 1999, we filed an application with the FERC requesting permission to charge Market-Based Rates for substantially all refined products transportation tariffs. On July 31, 2000, the FERC issued an order granting us Market-Based Rates in certain markets and set for hearing our application for Market-Based Rates in certain destination markets and origin markets. After the matter was set for hearing, we and the protesting shippers entered into a settlement agreement resolving their respective differences. On April 25, 2001, the FERC issued an order approving the offer of settlement. As a result of the settlement, we recognized approximately $1.7 million of previously deferred transportation revenue in the second quarter of 2001. As a part of the settlement, we withdrew the application for Market-Based Rates to the Little Rock, Arkansas, and Arcadia and Shreveport-Arcadia, Louisiana, destination markets, which are currently subject to the PPI Index. As a result, we made refunds of approximately $1.0 million in the third quarter of 2001 for those destination markets.

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     Recent Accounting Pronouncements

          See discussion of new accounting pronouncements in Note 2. Summary of Significant Accounting Policies — New Accounting Pronouncements in the accompanying consolidated financial statements.

     Disclosures About Effects of Transactions with Related Parties

          We have no employees and are managed by TEPPCO GP, a wholly owned subsidiary of our Parent Partnership. The Parent Partnership is managed by the Company, which is a wholly owned subsidiary of DEFS. Duke Energy holds an interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining 30%. See Item 10. Directors and Executive Officers of the Registrant and Item 13. Certain Relationships and Related Transactions for discussion regarding transactions between us, our Parent Partnership, DEFS, Duke Energy and ConocoPhillips.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

          We may be exposed to market risk through changes in commodity prices and interest rates. We do not have foreign exchange risks. Our Risk Management Committee has established policies to monitor and control these market risks. The Risk Management Committee is comprised, in part, of senior executives of the Company.

          We have utilized and expect to continue to utilize interest rate swap agreements to hedge a portion of our fair value risks. Interest rate swap agreements are used to manage the fixed interest rate mix of our debt portfolio and overall cost of borrowing. The interest rate swap related to our fair value risk is intended to reduce our exposure to changes in the fair value of our fixed rate Senior Notes. The interest rate swap agreement involves the periodic exchange of payments without the exchange of the notional amount upon which the payments are based. The related amount payable to or receivable from counterparties is included as an adjustment to accrued interest.

          At December 31, 2003, we had outstanding $180.0 million principal amount of 6.45% Senior Notes due 2008 and $210.0 million principal amount of 7.51% Senior Notes due 2028. At December 31, 2003, the estimated fair values of the 6.45% Senior Notes and 7.51% Senior Notes were approximately $204.8 million and $228.0 million, respectively.

          As of December 31, 2003, we had an interest rate swap agreement in place to hedge our exposure to changes in the fair value of our fixed rate 7.51% Senior Notes due 2028. We designated this swap agreement as a fair value hedge. The swap agreement has a notional amount of $210.0 million and matures in January 2028 to match the principal and maturity of the Senior Notes. Under the swap agreement, we pay a floating rate of interest based on a three-month U.S. Dollar LIBOR rate, plus a spread, and receive a fixed rate of interest of 7.51%. During the years ended December 31, 2003 and 2002, we recognized reductions in interest expense of $10.0 million and $8.6 million, respectively, related to the difference between the fixed rate and the floating rate of interest on the interest rate swap. During the year ended December 31, 2003, we measured the hedge effectiveness of this interest rate swap and noted that no gain or loss from ineffectiveness was required to be recognized. The fair value of this interest rate swap agreement was a gain of approximately $2.3 million and $13.6 million at December 31, 2003 and 2002, respectively. Utilizing the balance of the 7.51% Senior Notes outstanding at December 31, 2003, and including the effects of hedging activities, assuming market interest rates increase 100 basis points, the potential annual increase in interest expense is $2.1 million.

          As of December 31, 2003 and 2002, we had intercompany notes payable to our Parent Partnership of $211.3 million and $154.1 million, respectively. Our intercompany notes payable at December 31, 2003 and 2002, represent borrowings by us under the Parent Partnership’s Revolving Credit Facility and Senior Notes. The weighted average interest rate on the note payable to our Parent Partnership at December 31, 2003, was 5.8%. At December 31, 2003, accrued interest includes $3.3 million due to the Parent Partnership. For the year ended December 31, 2003, interest costs incurred on the note payable to our Parent Partnership totaled $11.1 million.

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Item 8. Financial Statements and Supplementary Data

          Our consolidated financial statements, together with the independent auditors’ report of KPMG LLP, begin on page F-1 of this Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          None.

Item 9A. Controls and Procedures

          The principal executive officer and principal financial officer of the Company, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2003, have concluded that, as of such date, our disclosure controls and procedures are adequate and effective to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

          During the fourth quarter of 2003, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, those internal controls subsequent to the date of the evaluation. As a result, no corrective actions were required or undertaken.

PART III

Item 10. Directors and Executive Officers of the Registrant

          We do not have employees, officers or directors, as is commonly the case with publicly traded partnerships. Our operations and activities are managed by the General Partner, a wholly owned subsidiary of our Parent Partnership. All officers and directors of the General Partner are appointed annually by the Parent Partnership by action of the board of directors of the Company. The directors of the General Partner, TEPPCO GP, are Barry R. Pearl, James C. Ruth and Charles H. Leonard. The Executive Officers of the General Partner are also Executive Officers of the Company. Information concerning the Executive Officers of the General Partner and the Company is contained in Item 10 of the Parent Partnership’s Annual Report on Form 10-K for the Year Ended December 31, 2003 (the “Parent Partnership Form 10-K”), and is incorporated by reference in this Report.

Item 11. Executive Compensation

          We do not have any employees, officers or directors, and the General Partner manages and operates our business. The Executive Officers of the General Partner are employees of the Company. Certain employees of the Company may devote all or a portion of their time to us, and we reimburse the Company for the services of these persons. The information contained in Item 11 of the Parent Partnership Form 10-K is incorporated by reference in this Report.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

          The Parent Partnership owns a 99.999% interest as the sole limited partner interest and the General Partner owns a 0.001% general partner interest in us. Information identifying security ownership of the Parent Partnership is contained in Item 12 of the Parent Partnership Form 10-K and is incorporated by reference in this Report.

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Item 13. Certain Relationships and Related Transactions

Our Management

          We have no employees, and we are managed by TEPPCO GP, a wholly owned subsidiary of our Parent Partnership. The Parent Partnership is managed by the Company, which is a wholly owned subsidiary of DEFS. Duke Energy holds an interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining 30%. According to the Partnership Agreement, the General Partner and the Company are entitled to reimbursement of all direct and indirect expenses related to our business activities.

          For the years ended December 31, 2003, 2002 and 2001, we incurred direct expenses of $45.5 million, $46.6 million and $41.3 million, respectively, which were charged to us by DEFS. Substantially all of these costs were related to payroll and payroll related expenses. For the years ended December 31, 2003, 2002 and 2001, expenses for administrative services and overhead allocated to us by the Company (including Duke Energy and its affiliates) were $1.0 million, $0.8 million and $0.5 million, respectively.

          Our Parent Partnership allocates operating, general and administrative expenses to us for legal, insurance, financial, communication and other administrative services based upon the estimated level of effort devoted to our various operations. In addition, we make cash payments on behalf of the Parent Partnership for various expenses. At December 31, 2003, we had a net payable of $8.9 million to the Parent Partnership, and at December 31, 2002, we had a net receivable of $1.8 million from the Parent Partnership related to these affiliated activities.

Transactions with DEFS

          Effective with the purchase of the fractionation facilities on March 31, 1998, TEPPCO Colorado and DEFS entered into a 20-year Fractionation Agreement, under which TEPPCO Colorado received a variable fee for all fractionated volumes delivered to DEFS. Revenues recognized from the fractionation facilities totaled $3.1 million and $7.4 million for the years ended December 31, 2002 and 2001, respectively. TEPPCO Colorado and DEFS also entered into an Operation and Maintenance Agreement, whereby DEFS operated and maintained the fractionation facilities. For these services, TEPPCO Colorado paid DEFS a set volumetric rate for all fractionated volumes delivered to DEFS. Expenses related to the Operation and Maintenance Agreement totaled $0.4 million and $0.9 million for the years ended December 31, 2002 and 2001, respectively. On May 31, 2002, TEPPCO Colorado was transferred to TEPPCO Midstream.

          Effective May 2001, we entered into an agreement with an affiliate of DEFS to commit sole utilization of our Providence terminal to an affiliate of DEFS. We operate the terminal and provide propane loading services to an affiliate of DEFS. The agreement terminates in May 2004, and we are currently renegotiating the agreement. During the years ended December 31, 2003, 2002 and 2001, revenues of $3.2 million, $2.3 million and $1.5 million from an affiliate of DEFS, respectively, were recognized pursuant to this agreement.

          At December 31, 2003 and 2002, we had a receivable from DEFS of $0.2 million and $0.1 million, respectively, related to payroll related expenses owed by DEFS. At December 31, 2003 and 2002, we had a payable to DEFS of $0.8 million and $5.7 million, respectively, related to payroll and administrative services provided by DEFS.

          The Parent Partnership contracts with Bison Insurance Company Limited (“Bison”), a wholly owned subsidiary of Duke Energy, for a majority of its insurance coverage, including property, liability, auto and directors and officers insurance coverage. The Parent Partnership allocates insurance expense to us, and we believe that the total insurance expense allocated to us is representative of the insurance costs we would have incurred as a separate entity. For the years ended December 31, 2003 and 2002, the Parent Partnership paid insurance premiums to Bison and allocated $3.3 million and $2.1 million, respectively, of insurance expense to us. At December 31, 2003 and 2002, we had insurance reimbursement receivables due from Bison of $1.9 million and $1.1 million, respectively.

          At December 31, 2003, we had a loan of propane outstanding to DEFS with a total value of $1.4 million. We will earn a nominal rental fee of $0.1 million on this transaction. This propane will be returned to us in February 2004. We regularly loan inventory for a fee to third parties and affiliates as part of our inventory management practice.

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Interests of Duke Energy in the Parent Partnership

          In connection with the formation of our Parent Partnership, the Company received 2,500,000 Deferred Participation Interests (“DPIs”). Effective April 1, 1994, the DPIs began participating in distributions of cash and allocations of profit and loss in a manner identical to the Parent Partnership’s Limited Partner Units and are treated as Limited Partner Units. These Limited Partner Units were assigned to Duke Energy when ownership of the Company was transferred from Duke Energy to DEFS in 2000. Pursuant to our Parent Partnership’s Partnership Agreement, the Parent Partnership has registered the resale by Duke Energy of these Limited Partner Units with the Securities and Exchange Commission. As of December 31, 2003, none of the Limited Partner Units had been sold by Duke Energy.

Item 14. Principal Accounting Fees and Services

          Our Parent Partnership’s audit engagement with KPMG includes the fees for the professional audit services rendered to us by KPMG as we do not have a separate audit engagement with KPMG. We are allocated a portion of the audit services expense (see Note 2. Summary of Significant Accounting Policies).

          The following table describes fees for professional audit services rendered by KPMG, our Parent Partnership’s principal accountant, for the audit of the financial statements of all of the Parent Partnership’s entities for the years ended December 31, 2003 and 2002, and for fees billed for other services rendered by KPMG during those periods.

Procedures For Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor

          Pursuant to its charter, the Audit Committee of the Parent Partnership’s Board of Directors is responsible for reviewing and approving, in advance, any audit and any permissible non-audit engagement or relationship between the Parent Partnership and its independent auditors. KPMG’s engagement to conduct our audit was approved by the Parent Partnership’s Audit Committee on April 28, 2003. Additionally, all permissible non-audit engagements with KPMG and the Parent Partnership have been reviewed and approved by the Parent Partnership’s Audit Committee, pursuant to pre-approval policies and procedures established by the Parent Partnership’s Audit Committee.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

The following documents are filed as a part of this Report:

	(1)		Financial Statements: See Index to Financial on page F-1 of this Report for financial statements filed as part of this Report.
	(2)		Financial Statement Schedules: None.
	(3)		Exhibits.

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