As filed with the Securities and Exchange Commission on July 6, 2010

Registration No. 333-167417

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

Amendment No. 2

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Williams Partners L.P.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

One Williams Center

Tulsa, Oklahoma 74172-0172

(918) 573-2000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

James J. Bender, Esq.

General Counsel

Williams Partners GP LLC

One Williams Center, Suite 4900

Tulsa, Oklahoma 74172-0172

(918) 573-2000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copies to:

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective and upon consummation of the merger described in the enclosed joint proxy statement/prospectus.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

** If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o

 

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED JULY 6, 2010.

 

 

Dear Unitholders:

 

Pursuant to an Agreement and Plan of Merger dated as of May 24, 2010 (the “Merger Agreement”), the general partner of Williams Partners L.P. (“Williams Partners”), which is Williams Partners GP LLC (the “Williams Partners General Partner”), and the general partner of Williams Pipeline Partners L.P. (“WMZ”), which is Williams Pipeline GP LLC (the “WMZ General Partner”), have agreed to combine the businesses of Williams Partners and WMZ. Pursuant to the Merger Agreement, WPZ Operating Company Merger Sub LLC (“Merger Sub”), a direct wholly owned subsidiary of Williams Partners Operating LLC (the “Operating Company”), which is a direct wholly owned subsidiary of Williams Partners, will be merged with and into WMZ, with WMZ being the sole surviving entity and becoming an indirect wholly owned subsidiary of Williams Partners (the “Merger”).

 

As a result of the Merger, each holder of outstanding common units of WMZ (“WMZ Common Units”), other than the WMZ General Partner, will receive 0.7584 of one common unit of Williams Partners in consideration for each WMZ Common Unit that such holder owns at the effective time of the Merger.

 

The approval and adoption of the Merger Agreement and the Merger by WMZ requires approval by holders of at least a majority of the outstanding WMZ Common Units that are not held by the WMZ General Partner or its affiliates (“Non-affiliated WMZ Common Units”) and by holders of at least a majority of the outstanding subordinated units of WMZ (“WMZ Subordinated Units”), with each group of holders of WMZ Common Units and WMZ Subordinated Units voting as a separate class. As of the record date, there were           Non-affiliated WMZ Common Units outstanding. All of the currently outstanding WMZ Subordinated Units are held by the WMZ General Partner, and the WMZ General Partner has agreed in the Merger Agreement to vote all of the WMZ Subordinated Units in favor of the Merger Agreement and the Merger. WMZ has scheduled a special meeting for the limited partners of WMZ to vote on these matters on          , 2010. Regardless of the number of units that you own or whether you plan to attend the special meeting, it is important that your units be represented and voted at the special meeting. Voting instructions are set forth inside this joint proxy statement/prospectus.

 

The conflicts committee of the board of directors of the WMZ General Partner (the “WMZ Conflicts Committee”) has unanimously approved the Merger Agreement and the Merger and determined that they are in the best interests of WMZ and the holders of Non-affiliated WMZ Common Units. Based upon such approval, the WMZ General Partner, acting through its board of directors (the “WMZ Board”), has unanimously approved and adopted the Merger Agreement and the Merger. Accordingly, the WMZ Conflicts Committee and the WMZ Board (on behalf of the WMZ General Partner) recommend that holders of Non-affiliated WMZ Common Units vote to approve and adopt the Merger Agreement and the Merger. The Williams Partners General Partner (on behalf of Williams Partners, the Operating Company and Merger Sub) has approved and adopted the Merger Agreement and the Merger.

 

This joint proxy statement/prospectus provides you with detailed information about the proposed Merger and related matters. Williams Partners and WMZ both encourage you to read the entire document carefully. In particular, please read “Risk Factors” beginning on page 21 of this joint proxy statement/prospectus for a discussion of risks relevant to the Merger and the combined company.

 

The common units of Williams Partners are listed on the New York Stock Exchange under the symbol “WPZ,” and WMZ Common Units are listed on the New York Stock Exchange under the symbol “WMZ.”

 

 

Steven J. Malcolm

Chairman of the Board and Chief Executive Officer,

Williams Partners GP LLC and Williams Pipeline GP LLC

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMON UNITS TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The date of this joint proxy statement/ prospectus is          , 2010 and it was first mailed to unitholders on or about          , 2010.

 

This joint proxy statement/prospectus incorporates by reference important business and financial information about Williams Partners and WMZ and their respective subsidiaries from documents filed with the Securities and Exchange Commission (“SEC”) that have not been included in or delivered with this joint proxy statement/prospectus. This information is available without charge at the SEC’s website at www.sec.gov, as well as from other sources. See “Where You Can Find More Information.”

 

Holders of outstanding common units of WMZ (the “WMZ Common Units”) may also request copies of these publicly-filed documents from Williams Partners, without charge, upon written request to Investor Relations, Williams Partners L.P., One Williams Center, Suite 5000, Tulsa, Oklahoma 74172-0172 or by calling Williams Partners at (918) 573-2078. In order to receive timely delivery of the documents in advance of the special meeting of limited partners of WMZ, holders of WMZ Common Units must make such request no later than          , 2010.

 

Except as otherwise specifically noted, or the context otherwise requires, as used in this joint proxy statement/prospectus:

 

 

In “Questions and Answers” and in the “Summary” below, selected information from this joint proxy statement/prospectus is highlighted, but not all of the information that may be important to you is included. To better understand the Agreement and Plan of Merger, dated as of May 24, 2010, by and among Williams Partners, the Williams Partners General Partner, the Operating Company, Merger Sub, WMZ, and the WMZ General Partner, as it may be amended from time to time (the “Merger Agreement”), and the merger of Merger Sub with and into WMZ contemplated thereby (the “Merger”), and for a more complete description of its legal terms, you should carefully read this entire joint proxy statement/prospectus, including the section entitled “Risk Factors” on page 21, as well as the documents that are incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information.”

 

You should rely only on the information contained or incorporated by reference in this joint proxy statement/prospectus. Neither Williams Partners, WMZ nor any of their affiliates has authorized anyone to provide you with information different from that contained or incorporated by reference in this joint proxy statement/prospectus. Therefore, if anyone gives you information of this sort, you should not rely on it. The information contained in this joint proxy statement/prospectus and the documents incorporated by reference are accurate only as of their respective dates, regardless of the time of delivery of this joint proxy statement/prospectus. Williams Partners’ and WMZ’s business, financial condition, results of operations and prospects may have changed since those dates.

 

 

Tulsa, Oklahoma

          , 2010

 

Notice of Special Meeting of Limited Partners of Williams Pipeline Partners L.P.

 

To the Limited Partners of Williams Pipeline Partners L.P.:

 

A special meeting of limited partners (the “Special Meeting”) of Williams Pipeline Partners L.P. (“WMZ”) will be held on          , 2010 at   a.m., local time, at the Williams Resource Center Theater at One Williams Center, Tulsa, Oklahoma, 74172-0172, for the following purposes:

 

 

 

Approval of the proposal described above requires the affirmative vote of holders of at least a majority of the outstanding common units of WMZ (the “WMZ Common Units”) that are not held by the WMZ General Partner or its affiliates (each such WMZ Common Unit, a “Non-affiliated WMZ Common Unit”) and of holders of at least a majority of the outstanding subordinated units of WMZ (“WMZ Subordinated Units”), with each group of holders of WMZ Common Units and WMZ Subordinated Units voting as a separate class. All of the currently outstanding WMZ Subordinated Units are owned by the WMZ General Partner, and the WMZ General Partner has agreed in the Merger Agreement to vote all of these units at the Special Meeting in favor of the Merger Agreement and the Merger.

 

The conflicts committee of the board of directors of the WMZ General Partner (the “WMZ Conflicts Committee”) has unanimously approved the Merger Agreement and the Merger and determined that they are in the best interests of WMZ and the holders of Non-affiliated WMZ Common Units. Based upon such approval, the WMZ General Partner, acting through its board of directors (the “WMZ Board”), has unanimously approved and adopted the Merger Agreement and the Merger. Accordingly, the WMZ Conflicts Committee and the WMZ Board (acting on behalf of the WMZ General Partner) recommend that holders of Non-affiliated WMZ Common Units vote to approve and adopt the Merger Agreement and the Merger.

 

Only record holders of WMZ Common Units and WMZ Subordinated Units as of the close of business on          , 2010 are entitled to notice of and to vote at the Special Meeting and any adjournments of the Special Meeting. WMZ will keep at its offices in Tulsa, Oklahoma, a list of record holders of WMZ Common Units and WMZ Subordinated Units entitled to vote at the Special Meeting available for inspection for any purpose relevant to the Special Meeting during normal business hours for the 10 days before the Special Meeting and at the Special Meeting. Failures to vote, abstentions and broker non-votes will have the same effect as a vote against the proposal.

 

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE VOTE IN ONE OF THE FOLLOWING WAYS:

 

 

By order of the Board of Directors of Williams Pipeline GP LLC, as the general partner of Williams Pipeline Partners L.P.

 

 

Secretary,

Williams Pipeline GP LLC

 

TABLE OF CONTENTS

 

 

 

 

The following oil and gas measurements and industry terms are used in this joint proxy statement/prospectus:

 

Barrel:  One barrel of petroleum products equals 42 U.S. gallons.

 

bpd:  Barrels per day.

 

British Thermal Units (Btu):  When used in terms of volumes, Btu is used to refer to the amount of natural gas required to raise the temperature of one pound of water by one degree Fahrenheit at one atmospheric pressure.

 

BBtu/d:  One billion Btus per day.

 

Dth:  One dekatherm, which is the approximate energy content of 1,000 cubic feet of natural gas.

 

MMBtu:  One million Btus.

 

MMdt:  One million dekatherms or approximately one trillion Btus.

 

TBtu:  One trillion Btus.

 

Other terms used in this joint proxy statement/prospectus include:

 

FERC:  Federal Energy Regulatory Commission.

 

Fractionation:  The process by which a mixed stream of natural gas liquids is separated into its constituent products, such as ethane, propane and butane.

 

LNG:  Liquefied natural gas.

 

NGLs:  Natural gas liquids. Natural gas liquids result from natural gas processing and crude oil refining and are used as petrochemical feedstocks, heating fuels and gasoline additives, among other applications.

 

NGL margins:  NGL revenues less Btu replacement cost, plant fuel, transportation and fractionation.

 

Partially Owned Entities:  Entities in which Williams Partners does not own a 100% ownership interest, including principally Discovery Producer Services LLC, Gulfstream Natural Gas System, L.L.C., Northwest Pipeline GP, and Laurel Mountain Midstream LLC.

 

Pipeline Entities:  Williams Partners’ regulated pipeline entities, including principally Northwest Pipeline GP, Transcontinental Gas Pipe Line Company, LLC, Gulfstream Natural Gas System, L.L.C., Discovery Producer Services LLC, and Black Marlin Pipeline LLC.

 

Throughput:  The volume of product transported or passing through a pipeline, plant, terminal or other facility.

 

The following section provides brief answers to certain questions that you may have regarding the proposed Merger and the special meeting for the limited partners of WMZ to vote on the Merger Agreement and the Merger (the “Special Meeting”). Please note that this section does not address all issues that may be important to you in deciding whether to vote to approve the Merger Agreement and the Merger. Accordingly, you should carefully read this entire joint proxy statement/prospectus, including each of the annexes, and the documents that have been incorporated by reference into this joint proxy statement/prospectus.

 

 

 

 

 

 

 

 

 

 

 

 

SUMMARY

 

The Merger (page 57)

 

The Merger Parties (page 94)

	•	Gas Pipeline — this segment includes Williams Partners’ interstate natural gas pipelines, including its 100% interest in Transcontinental Gas Pipe Line Company, LLC (“Transco”) and its 65% interest in Northwest Pipeline (the remaining 35% of which is WMZ’s only significant asset). Transco and Northwest Pipeline own and operate a combined total of approximately 13,900 miles of pipelines with a total annual throughput of approximately 2,700 TBtu of natural gas and peak-day delivery capacity of approximately 12 MMdt of natural gas. Gas Pipeline also holds interests in joint venture interstate and intrastate natural gas pipeline systems including a 24.5% interest in Gulfstream Natural Gas System, L.L.C. (“Gulfstream”), which owns an approximate 745-mile pipeline with the capacity to transport approximately 1.26 million Dth per day of natural gas. Gas Pipeline also includes Williams Partners’ indirect 45.7% limited partner interest and 2% general partner interest in WMZ, which holds the remaining 35% interest in Northwest Pipeline.
	•	Midstream Gas & Liquids — this segment includes Williams Partners’ natural gas gathering, treating and processing businesses and has primary service areas concentrated in major producing basins in Colorado, New Mexico, Wyoming, the Gulf of Mexico and Pennsylvania. Midstream Gas & Liquids’ primary businesses — natural gas gathering, treating, and processing; NGL fractionation, storage and transportation; and oil transportation — fall within the middle of the process of taking raw natural gas and crude oil from the producing fields to the consumer.

	•	$3.5 billion in cash, less certain expenses incurred by Williams Partners relating to the Dropdown. This cash consideration was financed through the private sale of $3.5 billion of Williams Partners’ senior unsecured notes;
	•	203 million of Williams Partners Class C limited partnership units, which were identical to Williams Partners Common Units except with respect to distributions for the first quarter of 2010, for which they received a prorated quarterly distribution as they were not outstanding during the full quarterly period. The Class C units automatically converted into Williams Partners Common Units on May 10, 2010, the first business day following the record date for the distribution with respect to the first quarter of 2010; and
	•	an increase in the capital account of the Williams Partners General Partner to allow it to maintain its 2% general partner interest.

 

The Special Meeting (page 55)

 

Williams Partners’ Ownership Interest in and Control of WMZ (page 57)

 

Williams Partners’ Reasons for the Merger (page 65)

 

Recommendation to Holders of Non-affiliated WMZ Common Units (page 65)

 

The WMZ Conflicts Committee’s Reasons for its Recommendation (page 67)

	•	Simmons & Company, independent financial advisor to the WMZ Conflicts Committee, rendered to the WMZ Conflicts Committee on April 21, 2010 and on May 21, 2010 its opinion that the Exchange Ratio set forth in the Merger Agreement is fair, from a financial point of view, to the holders of Non-affiliated WMZ Common Units.
	•	The financial analyses of Simmons & Company were favorable, and they were reviewed and discussed by Simmons & Company with the WMZ Conflicts Committee on April 21, 2010 and May 21, 2010.
	•	The current quarterly cash distribution on the Williams Partners Common Units is significantly higher than the current quarterly cash distribution on the WMZ Common Units. The first quarter 2010 cash distribution on each Williams Partners Common Unit represented a 49% premium over the distribution paid by WMZ for the first quarter of 2010 on the number of WMZ Common Units that would be exchanged into one Williams Partners Common Unit in the Merger.
	•	Because the proposed exchange ratio was announced at the same time as the Dropdown, holders of Publicly Owned WMZ Common Units would be able to benefit from any increase in the market price of the Williams Partners Common Units as a result of the Dropdown. The closing market price of the Williams Partners Common Units increased 18% from January 15, 2010, the last trading day prior to the announcement of the Dropdown and the proposed exchange ratio, through May 21, 2010.
	•	The WMZ Conflicts Committee believed, based, among other things, on statements of Williams Partners’ management, that the Exchange Ratio represented the highest per unit consideration that Williams Partners would pay for Publicly Owned WMZ Common Units.
	•	From January 19, 2010, the date that the Dropdown and Williams Partners’ intention to offer to acquire the Publicly Owned WMZ Common Units were announced, to the time of the WMZ Conflicts Committee’s determination and recommendations, no third parties indicated any interest in pursuing a combination transaction with WMZ or the WMZ General Partner.
	•	Given that WMZ’s only significant asset is a 35% interest in a single pipeline system controlled by Williams Partners and that Williams Partners already controls approximately 48% of WMZ’s partnership interests, including all of WMZ’s general partner interests, it appeared unrealistic for the WMZ Conflicts Committee to believe that a more attractive alternative proposal would be forthcoming from an unrelated third party.
	•	Williams Partners is a much larger and more diversified energy master limited partnership with an investment grade credit rating that, among other things, is expected to have increased access to capital and increased scale, scope and diversification of revenue sources and, based on historic trading volumes for its units, is expected to offer greater trading liquidity.
	•	Williams recently transferred a substantial majority of its natural gas transportation assets in the Dropdown to Williams Partners and incurred substantial expenses in connection with the Dropdown. As a result, the possibility that any of such assets would be further dropped down to WMZ by Williams as an avenue for WMZ’s future growth has been substantially diminished. While WMZ still may be able

		to grow organically or through third party acquisitions, the pace of such growth will likely be slower than if WMZ could obtain contributions of assets to WMZ by Williams.

	•	The Merger will provide holders of WMZ Common Units with the benefits of the combination while eliminating the potential of conflicts of interests between Williams Partners and WMZ, both operationally and with respect to asset sales and joint ventures, that can arise because they share common management teams and operate in the same industry.
	•	The Merger is expected to result in cost savings, principally from general and administrative costs.
	•	Generally, except with respect to cash received in lieu of fractional WMZ Common Units, no gain or loss is expected to be recognized for U.S. federal income tax purposes by the holders of Publicly Owned WMZ Common Units as a result of the Merger.
	•	The terms of the Merger Agreement included, among other things:

	•	the requirement that the Merger Agreement and the Merger be approved by the holders of a majority of the Non-affiliated WMZ Common Units;
	•	provisions allowing the WMZ Board or the WMZ Conflicts Committee to withdraw or change its recommendation of the Merger Agreement and the Merger in certain circumstances if it makes a good faith determination that the failure to change its recommendation would be reasonably likely to constitute a breach of its fiduciary duties under applicable law;
	•	provisions allowing for WMZ to participate, in certain circumstances, in negotiations with a third party in response to an unsolicited alternative proposal that is reasonably likely to result in a superior proposal;
	•	the lack of a break-up fee for termination of the Merger Agreement in accordance with its terms;
	•	limited conditions and exceptions to the material adverse effect closing condition and other closing conditions; and
	•	the lack of a need by Williams Partners to finance any component of the purchase price because the consideration is composed of Williams Partners Common Units.

	•	It is possible that the price for Williams Partners Common Units could diminish prior to closing, reducing the value of the Williams Partners Common Units to be received by virtue of the Exchange Ratio from their value at the time of the signing of the Merger Agreement.
	•	The Merger might not be completed in a timely manner, or at all, which could result in significant costs and a decline in the trading price of WMZ Common Units.
	•	One of WMZ’s primary business objectives is to generate stable cash flows through the ownership and operation of natural gas transportation and storage assets. Williams Partners was formed to own, operate and acquire a diversified portfolio of complementary energy assets, which may not generate cash flows as stable as natural gas transportation and storage assets.
	•	The Merger Agreement limits WMZ’s ability to solicit third party offers, although it does allow the WMZ Board and WMZ Conflicts Committee in certain circumstances to withdraw, modify or qualify their recommendations of the Merger or recommend, adopt or approve a takeover proposal.

	•	The WMZ Board of Directors unanimously delegated to the WMZ Conflicts Committee the authority to review, evaluate and negotiate the Merger and the Merger Agreement.

	•	The WMZ Conflicts Committee consists solely of directors each of whom (a) is not a security holder, officer or employee of the WMZ General Partner, (b) is not an officer, director or employee of any affiliate of the WMZ General Partner, (c) is not a holder of any ownership interest in WMZ and its subsidiaries other than WMZ Common Units and awards under the WMZ Long Term Incentive Plan (as defined in the WMZ partnership agreement) and (d) meets the independence standards required of a director who serves on an audit committee established under the Exchange Act and the NYSE.
	•	The members of the WMZ Conflicts Committee were adequately compensated for their services and their compensation was in no way contingent on their approving the Merger Agreement or the Merger.
	•	The members of the WMZ Conflicts Committee will not personally benefit from the completion of the Merger in a manner different from the holders of Non-affiliated WMZ Common Units.
	•	The WMZ Conflicts Committee was given authority to select and compensate legal, financial and other independent advisors as it deemed appropriate.
	•	The WMZ Conflicts Committee retained and was advised by independent legal counsel, Fulbright, and an independent financial advisor, Simmons & Company, who was also engaged to render an opinion as to the fairness, from a financial point of view, to the holders of Non-affiliated WMZ Common Units of the consideration proposed to be paid in the Merger.
	•	The WMZ Conflicts Committee and its legal counsel and financial advisor conducted due diligence regarding Williams Partners and WMZ.
	•	The WMZ Conflicts Committee had the ultimate authority to decide whether or not to proceed with the proposed merger.
	•	The WMZ Conflicts Committee, with the assistance of its legal and financial advisors, negotiated the terms of the Merger Agreement on an arm’s-length basis with Williams Partners and its legal and financial advisors.

	•	The structure of the acquisition was changed from an exchange offer by Williams Partners to the negotiated Merger, thereby (i) requiring approval by holders of a majority of Non-affiliated WMZ Common Units, an additional form of approval of a conflict of interest transaction under the WMZ partnership agreement, and, (ii) if so approved, assuring that all holders of Publicly Owned WMZ Common Units would receive the same consideration in a Williams Partners’ acquisition of 100% of Publicly Owned WMZ Common Units.

	•	The structure of the acquisition was changed at the request of the WMZ Conflicts Committee to a merger in which WMZ would survive, thereby decreasing the risk of adverse tax consequences to WMZ and the holders of Non-affiliated WMZ Common Units as a result of the Merger.
	•	The WMZ Conflicts Committee was aware that it had no obligation to recommend any transaction, including the merger proposal put forth by Williams Partners.

 

Opinion of Financial Advisor (page 72)

 

Other Information

	•	WMZ’s only significant asset is a 35% interest in Northwest Pipeline. Williams Partners owns a diversified group of midstream and pipeline assets (including the controlling 65% interest in Northwest Pipeline) with a book value of approximately 27 times the book value of WMZ’s assets as of March 31, 2010, and has an investment grade rating from the three major credit rating agencies. As a result, Williams Partners believes that it will have greater access to capital and growth opportunities and offer greater potential for acquisitions and increased unitholder value than WMZ would have as a stand-alone owner of a minority interest in a single pipeline system.
	•	The timing of the Merger provides holders of WMZ Common Units the opportunity to participate in any value created from Williams Partners’ February 2010 acquisition from Williams of approximately $12 billion of assets in the Dropdown.

	•	The initial public offering price of WMZ Common Units in January 2008 was $20.00. The highest closing price of the WMZ Common Units on any trading day from the date of the WMZ IPO to January 15, 2010, the last NYSE trading day prior to the announcement of Williams Partners’ intention to offer to acquire the Publicly Owned WMZ Common Units, was $24.50. The closing price of the WMZ Common Units on January 15, 2010 was $23.35. Based on the closing price of the Williams Partners Common Units on July 2, 2010, the Exchange Ratio represents an approximate 30% premium to the highest closing price for WMZ Common Units on any trading day from the date of the WMZ IPO and prior to the announcement of Williams Partners’ intention to offer to acquire the Publicly Owned WMZ Common Units, and an approximate 36% premium to the closing price of the WMZ Common Units on the last trading day prior to the announcement of Williams Partners’ intention to offer to acquire the Publicly Owned WMZ Common Units.

 

Market Prices of Williams Partners and WMZ Common Units

										Implied Value of a
		Williams Partners				WMZ				WMZ Common Unit
January 15, 2010		$	30.79			$	23.35			$	23.35
July 2, 2010		$	41.86			$	31.64			$	31.75

 

Directors and Management of Williams Partners Following the Merger (page 57)

 

The Merger Agreement (page 85)

	•	Each outstanding Publicly Owned WMZ Common Unit will be converted into the right to receive 0.7584 of one Williams Partners Common Unit and each such Publicly Owned WMZ Common Unit will be canceled and retired and will cease to exist.
	•	The outstanding WMZ Common Units and WMZ Subordinated Units owned by the WMZ General Partner will be canceled and retired and will cease to exist without consideration.
	•	Each outstanding limited liability company interest in Merger Sub issued and outstanding immediately prior to the effective time of the Merger will cease to be outstanding and will be canceled. Operating Company will be admitted to WMZ as a limited partner of WMZ with a limited partner interest that constitutes 98% of the aggregate partnership interest of all partners in WMZ immediately upon the effective time of the Merger. Immediately after the effective time of the Merger, Operating Company will be the sole limited partner of WMZ and the WMZ General Partner will be the sole general partner of WMZ.

	•	The approval of the Merger and the Merger Agreement by holders of at least a majority of the outstanding Non-affiliated WMZ Common Units.
	•	The receipt of all other governmental consents and approvals, the absence of which would, individually or in the aggregate, have a material adverse effect on Williams Partners or WMZ.
	•	The continued effectiveness of the registration statement of which this joint proxy statement/prospectus forms a part.

	•	The approval for listing on the NYSE of the Williams Partners Common Units to be issued in the Merger, subject to official notice of issuance.
	•	The absence of any decree, order, injunction or law that prohibits the Merger or makes the Merger unlawful.

	•	The representations and warranties of each other party set forth in the Merger Agreement being true and correct as of the closing, other than certain failures to be true and correct that would not in the aggregate result in a material adverse effect on the party making the representation or warranty, and each party having performed or complied with all agreements and covenants required to be performed by it under the Merger Agreement in all material respects.
	•	In the case of Williams Partners’ condition, the receipt of certain opinions of Andrews Kurth LLP or another nationally-recognized tax counsel with regard to the U.S. federal income tax consequences of the Merger, and in the case of WMZ’s condition, the receipt of certain opinions of Fulbright or another nationally-recognized tax counsel with regard to the U.S. federal income tax consequences of the Merger.

	•	The WMZ Conflicts Committee determines in good faith after consultation with its financial advisor and legal counsel that the takeover proposal constitutes or is reasonably likely to result in a superior proposal (as defined in the Merger Agreement), and after consultation with outside legal counsel, that the failure to do so would be reasonably likely to constitute a violation of its fiduciary duties owed to the holders of WMZ units under applicable law; and
	•	WMZ and the WMZ General Partner comply with the non-solicitation provisions in the Merger Agreement.

	•	the Merger has not been consummated on or before November 1, 2010 (so long as the party seeking to terminate did not prevent the Merger from occurring by failing to perform or observe its obligations under the Merger Agreement), but if the Merger has not been consummated solely because the parties have not received regulatory approvals, then the outside date will be automatically extended to December 31, 2010;
	•	a governmental entity shall have issued a final and non-appealable order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger, so long as the party seeking termination has complied with its obligations under the Merger Agreement to attempt to remove the prohibition;
	•	the approval by holders of at least a majority of outstanding Non-affiliated WMZ Common Units has not been obtained; or
	•	the other party breaches of any of its representations, warranties or agreements in the Merger Agreement or if any of the other party’s representations or warranties becomes untrue (subject to materiality, in certain cases), resulting in a condition to the Merger not being satisfied, provided that the terminating party is not likewise in breach of the Merger Agreement.

 

Material U.S. Federal Income Tax Consequences (page 131)

 

Other Information Related to the Merger

 

Pending Litigation (page 84)

 

Risk Factors

	•	The number of Williams Partners Common Units that you will receive in the Merger is based upon a fixed Exchange Ratio. As a result, the market value of the Williams Partners Common Units that you receive for your Publicly Owned WMZ Common Units in the Merger could be less than it was at the time you vote on the Merger.
	•	The market price of Williams Partners Common Units is affected by factors different from those affecting the market price of the WMZ Common Units. The price of Williams Partners Common Units could decline following the Merger.
	•	The Merger is subject to closing conditions that, if not satisfied or waived, will result in the Merger not being consummated even if unitholder approval for the Merger is obtained, which may cause the market price of the WMZ Common Units to decline.
	•	The combined company may not fully realize the anticipated benefits of the Merger, or may not do so within the anticipated time frame.
	•	Financial projections regarding Williams Partners and WMZ may not be achieved.
	•	While the Merger Agreement is in effect, WMZ and Williams Partners may lose opportunities to enter into other transactions with other parties on more favorable terms.
	•	Failure to complete the Merger may have negative consequences to WMZ and to the price of WMZ Common Units.
	•	WMZ’s partnership agreement limits the fiduciary duties of the WMZ General Partner to unitholders and restricts the remedies available to unitholders for actions taken by the WMZ General Partner that might otherwise constitute breaches of fiduciary duty.
	•	Certain directors and executive officers of the WMZ General Partner may have interests that differ in certain respects from the holders of Non-affiliated WMZ Common Units.
	•	No ruling has been requested from the Internal Revenue Service with respect to the U.S. federal income tax consequences of the Merger.
	•	Holders of Publicly Owned WMZ Common Units may recognize income or gain for U.S. federal income tax purposes as a result of the Merger.
	•	The Merger may further limit the ability of a Holder of Publicly Owned WMZ Common Units to utilize suspended passive activity losses.
	•	The intended U.S. federal income tax consequences of the Merger are dependent upon Williams Partners being treated as a partnership for U.S. federal income tax purposes.

 

SELECTED FINANCIAL INFORMATION OF WILLIAMS PARTNERS AND WMZ

		Years Ended December 31,																				Three Months Ended March 31,
		2005				2006				2007				2008				2009				2009				2010
		(Millions of dollars, except per-unit amounts)
Statement of Income Data:
Revenues		$	3,994			$	4,711			$	5,616			$	5,762			$	4,512			$	957			$	1,458
Income before cumulative effect of change in accounting principle			553				822				1,449				2,102				1,031				183				313
Net income			552				822				1,449	(1)			2,102	(1)			1,031				183				313
Net income attributable to controlling interests			552				822				1,449				2,077				1,004				176				307
Income before cumulative effect of change in accounting principle per limited partner unit:
Common unit		$	0.49	(2)		$	1.73			$	1.99			$	3.08			$	2.88			$	0.36			$	0.61
Subordinated unit		$	0.49	(2)		$	1.73			$	1.99				N/A				N/A				N/A				N/A
Net income per limited partner unit:
Common unit		$	0.44	(2)		$	1.73			$	1.99			$	3.08			$	2.88			$	0.36			$	0.61
Subordinated unit		$	0.44	(2)		$	1.73			$	1.99				N/A				N/A				N/A				N/A
Cash distributions declared per unit		$	0.1484			$	1.605			$	2.045			$	2.435			$	2.540			$	0.6350			$	0.6575

		As of December 31,																				As of March 31,
		2005				2006				2007				2008				2009				2009				2010
		(Millions of dollars)
Balance Sheet Data:
Total assets		$	9,473			$	10,297			$	11,064			$	11,676			$	11,984			$	11,730			$	12,136
Short-term notes payable and long-term debt due within one year			8				253				75				—				15				—				9
Long-term debt			1,513	(3)			2,386	(3)			2,821	(3)			2,971	(3)			2,981	(3)			2,971	(3)			6,330
Total equity			5,991				5,472				5,867				7,389				7,627				7,514				4,349

(1)		Transco and Northwest Pipeline converted to single member limited liability companies on December 31, 2008 and October 1, 2007, respectively. Each made an election to be treated as a disregarded entity; therefore, they were no longer subject to federal or state income tax as of their respective conversion date. The provision (benefit) for income taxes included in net income for 2007 includes Northwest Pipeline’s benefit through September 30, 2007 and the 2008 provision (benefit) for income taxes included in net income includes Transco’s benefit through December 31, 2008. Subsequent to the conversion, all deferred taxes were eliminated through income and Transco and Northwest Pipeline no longer provide for federal or state income taxes.
(2)		Commencing on August 23, 2005, the date of Williams Partners’ initial public offering.
(3)		Does not reflect borrowings of $3.5 billion entered into in February 2010 related to the Dropdown.

		Years Ended December 31,																				Three Months Ended March 31,
		2005				2006				2007				2008				2009				2009				2010
		(Predecessor)				(Predecessor)				(Predecessor)				(Restated)(1)
		(Restated)(1)				(Restated)(1)				(Restated)(1)
		(Thousands of dollars, except per-unit amounts)
Income Statement Data:
Equity earnings from investment in Northwest Pipeline		$	24,141			$	19,062			$	153,904	(2)		$	54,380			$	53,778			$	14,318			$	13,259
Net income			24,141				19,062				153,904	(2)			51,880				50,821				13,655				11,927
Basic and diluted net income per limited partner unit:
Common units														$	1.45			$	1.53			$	0.41			$	0.35
Subordinated units														$	1.45			$	1.53			$	0.41			$	0.35
Cash distributions declared per unit														$	0.8492			$	1.31			$	0.3250			$	0.3350

		As of December 31,																				As of March 31,
		2005				2006				2007				2008				2009				2009				2010
		(Predecessor)				(Predecessor)				(Predecessor)				(Restated)(1)
		(Restated)(1)				(Restated)(1)				(Restated)(1)
		(Thousands of dollars)
Balance Sheet Data:
Investment in Northwest Pipeline		$	264,721			$	306,660			$	422,199			$	435,103			$	441,608			$	417,525			$	428,515
Total partners’ capital			264,721				306,660				422,199				441,952				449,372				424,333				450,045

		Years Ended December 31,																				Three Months Ended March 31,
		2005				2006				2007				2008				2009				2009				2010
		(Restated)(1)				(Restated)(1)				(Restated)(1)				(Restated)(1)
		(Thousands of dollars)
Income Statement Data:
Operating revenues		$	321,457			$	324,250			$	421,851			$	434,854			$	434,379			$	111,548			$	106,110
Net income			68,974				54,462				439,726	(2)			155,371				153,651				40,908				37,883
Cash distributions			50,000				—				109,770				419,342				135,000				32,000				75,280

		As of December 31,																				As of March 31,
		2005				2006				2007				2008				2009				2009				2010
		(Restated)(1)				(Restated)(1)				(Restated)(1)				(Restated)(1)
		(Thousands of dollars)
Balance Sheet Data:
Total assets		$	1,661,324			$	2,034,748			$	2,033,596			$	2,078,812			$	2,081,277			$	2,089,564			$	2,114,520
Long-term debt, including current maturities			520,080				687,075				693,736				693,240				693,437				693,290				701,486
Total owners’ equity			728,505				846,809				1,177,098				1,210,547				1,207,150				1,194,588				1,240,498

(1)		WMZ’s and Northwest Pipeline’s financial statements have been restated as described in the WMZ 2009 10-K in Item 8. Financial Statements and Supplementary Data — Williams Pipeline Partners L.P. Notes to Consolidated Financial Statements: Note 2. Restatement and Northwest Pipeline GP Notes to Consolidated Financial Statements: Note 2. Restatement. Accordingly, Northwest’s 2005, 2006, 2007, and 2008 selected financial data has been restated to reflect the change in accounting treatment. See “Documents Incorporated by Reference.”
(2)		Through September 30, 2007, Northwest Pipeline used the liability method of accounting for income taxes which required, among other things, provisions for all temporary differences between the financial basis and the tax basis in Northwest Pipeline’s assets and liabilities and adjustments to the existing deferred tax balances for changes in tax rates. Following Northwest Pipeline’s conversion to a general partnership on October 1, 2007, Northwest Pipeline is no longer subject to income tax. On October 1, 2007, Northwest Pipeline reversed deferred income tax liabilities of approximately $311.8 million to income and $0.2 million of deferred income tax assets to other comprehensive income.

 

COMPARATIVE AND PRO FORMA PER UNIT DATA

	•	the results of operations or financial position which would have been achieved if the Dropdown and the Merger had been effected at the beginning of the period or as of the date indicated; or
	•	the results of operations or financial position that may be achieved in the future.

		Year Ended				Three Months
		December 31,				Ended March 31,
		2009				2010
Williams Partners Historical Data:
Net income per common unit
Basic and diluted		$	2.88			$	0.61
Cash distributions declared per unit		$	2.54			$	0.635
Book value per common unit as of period end		$	30.90			$	31.23
WMZ Historical Data
Net income per common and subordinated unit
Basic and diluted		$	1.53			$	0.35
Cash distributions declared per unit		$	1.31			$	0.335
Book value per common and subordinated unit as of period end		$	13.12			$	13.14
Unaudited pro forma combined(1)
Net income per limited partner unit
Basic and diluted		$	2.93			$	0.90
Cash distributions declared per unit			N/A				N/A
Book value per limited partner unit as of period end		$	21.09			$	21.08
Equivalent basis unaudited pro forma combined(2)
Net income per limited partner unit
Basic and diluted		$	2.22			$	0.68
Cash distributions declared per unit			N/A				N/A
Book value per limited partner unit as of period end		$	16.00			$	15.99

(1)		The unaudited pro forma combined calculations reflect both the Merger and the Dropdown, both as previously described in this joint proxy statement/prospectus. The primary pro forma effect of the Merger is the elimination of noncontrolling interests in consolidated subsidiaries of Williams Partners and the recognition of the additional equity holders in Williams Partners Common Units. The primary pro forma effects of the Dropdown are as follows:

	•	The addition of the entities that were contributed to Williams Partners in the Dropdown (the “Contributed Entities”) at Williams’ historical cost as the Dropdown is considered a transaction between entities under common control;
	•	The receipt of $3.5 billion of proceeds from the issuance of Williams Partners’ senior unsecured notes, net of estimated purchasers’ discounts and issuance costs and the related increase in interest expense;
	•	Payment of estimated fees to establish a new unsecured revolving credit facility for Williams Partners;
	•	Payment of $3.5 billion of cash consideration to Williams, less estimated costs and expenses of the Dropdown; and
	•	Issuance, and conversion to Williams Partners Common Units, of Williams Partners’ Class C Units to affiliates of Williams and an increase in the capital account of Williams Partners’ general partner sufficient to maintain its 2% ownership interest in Williams Partners.

(2)		Equivalent basis unaudited pro forma combined amounts have been calculated by multiplying the unaudited pro forma combined per unit amounts by the 0.7584 Exchange Ratio.

 

MARKET PRICE AND CASH DISTRIBUTION INFORMATION

		Williams Partners												WMZ
										Cash												Cash
										Distribution												Distribution
		High				Low				per Unit(1)				High				Low				per Unit(2)
2008
First Quarter(3)		$	39.31			$	31.24			$	0.6000			$	20.42			$	15.89			$	0.2242
Second Quarter		$	37.66			$	31.33			$	0.6250			$	18.86			$	17.26			$	0.3100
Third Quarter		$	32.84			$	22.77			$	0.6350			$	17.54			$	13.59			$	0.3150
Fourth Quarter		$	26.25			$	9.96			$	0.6350			$	16.00			$	11.57			$	0.3200
2009
First Quarter		$	17.88			$	8.54			$	0.6350			$	17.11			$	14.20			$	0.3250
Second Quarter		$	19.70			$	10.89			$	0.6350			$	20.40			$	15.93			$	0.3300
Third Quarter		$	23.80			$	17.10			$	0.6350			$	19.30			$	17.27			$	0.3350
Fourth Quarter		$	32.23			$	22.20			$	0.6350			$	23.80			$	18.64			$	0.3350
2010
First Quarter		$	42.35			$	30.01			$	0.6575			$	31.84			$	23.35			$	0.3350
Second Quarter		$	44.15			$	34.62			$	(4	)		$	33.28			$	25.66			$	(4	)
Third Quarter (through July 2, 2010)		$	43.63			$	41.59			$	(4	)		$	32.26			$	31.05			$	(4	)

(1)		Represents cash distributions attributable to the quarter and declared and paid within 45 days after quarter end. Williams Partners paid cash distributions to the Williams Partners General Partner with respect to its 2% general partner interest and incentive distribution rights that totaled $2.7 million and $30.0 million for the 2009 and 2008 periods, respectively.
(2)		Represents cash distributions attributable to the quarter and declared and paid or to be paid within 45 days after quarter end. WMZ paid cash distributions to the WMZ General Partner with respect to its 2% general partner interest and incentive distribution rights that totaled $0.8 million in 2008 and $1.0 million in 2009. Subordinated units participated in all of the cash distributions for the periods indicated above.
(3)		For WMZ, represents the period from January 24, 2008, the date the WMZ IPO was completed. The first quarter distribution was prorated to cover the period of time from January 24, when the partnership’s initial public offering closed, through March 31. The prorated distribution of $0.2242 equates to a full quarter distribution of $0.30 per unit.

(4)		Cash distributions in respect of the second and third quarters have not yet been declared or paid.

 

You should carefully consider the following risk factors, together with all of the other information in this joint proxy statement/prospectus, the documents incorporated herein by reference and the documents to which you are referred before deciding how to vote. Each of these factors could adversely affect the consummation of the Merger, Williams Partners’ business, operating results and financial condition, the value of an investment in Williams Partners Common Units and WMZ’s business. This joint proxy statement/prospectus also contains forward-looking statements that involve risks and uncertainties. Please read “Information Regarding Forward-Looking Statements.”

 

The number of Williams Partners Common Units that you will receive in the Merger is based upon a fixed Exchange Ratio. As a result, the market value of the Williams Partners Common Units that you receive for your Publicly Owned WMZ Common Units in the Merger could be less than it was at the time you vote on the Merger.

 

The Exchange Ratio is 0.7584 and it is fixed, meaning that it does not change and is not dependent upon the relative values of Williams Partners Common Units and WMZ Common Units. This means that there is no “price protection” mechanism contained in the Merger Agreement that would adjust the number of Williams Partners Common Units that holders of WMZ Common Units will receive based on any decreases in the trading price of Williams Partners Common Units. If the price of Williams Partners Common Units decreases because of changes in Williams Partners’ business, operations or prospects, market reactions to the Merger, general market and economic conditions or other factors, such as the existing or any subsequent litigation challenging the Merger or an announcement by Williams Partners that it will pursue another merger or acquisition or a debt offering, the market value of the consideration received by holders of WMZ Common Units will also decrease. For example, if the market price of Williams Partners Common Units declines in value following the announcement of the Merger, you will receive less value for your WMZ Common Units than the value calculated pursuant to the Exchange Ratio on the date the Merger was announced. In addition, there are no covenants in the Merger Agreement restricting Williams Partners from engaging in other mergers and acquisitions, sales of assets, or debt financings between signing and closing. If Williams Partners engages in any such transactions and the market price of Williams Partners Common Units declines in value as a result, you will receive less value for your WMZ Common Units than the value calculated pursuant to the Exchange Ratio on the date the Merger was announced. For historical and current market prices of Williams Partners Common Units and WMZ Common Units, please read the “Market Prices and Distribution Information” section of this joint proxy statement/prospectus.

 

The market price of Williams Partners Common Units is affected by factors different from those affecting the market price of the WMZ Common Units. The price of Williams Partners Common Units could decline following the Merger.

 

If the Merger is successfully consummated, holders of Publicly Owned WMZ Common Units will become holders of Williams Partners Common Units. Although, as of the date of this joint proxy statement/prospectus, Williams Partners owns an approximate 45.7% limited partner interest and a 2% general partner interest in WMZ (by virtue of owning 100% of the WMZ General Partner), Williams Partners also operates very substantial other businesses, which have different risks associated with them than those associated with WMZ. Accordingly, the performance of Williams Partners Common Units is likely to be different from the performance of the WMZ Common Units in the absence of the Merger. Williams Partners Common Units are subject to investment risks and they may decline in value due to Williams Partners’ business performance or extrinsic factors affecting the industry or financial markets generally. See “— Risks Inherent in Williams Partners’ Business.”

The Merger is subject to closing conditions that, if not satisfied or waived, will result in the Merger not being consummated even if unitholder approval for the Merger is obtained, which may cause the market price of the WMZ Common Units to decline.

 

The obligation of the parties to the Merger Agreement to complete the Merger is subject to the satisfaction or waiver of certain conditions, including, among others:

 

 

The parties’ obligations are also separately subject to the satisfaction or waiver of the following conditions:

 

 

If these conditions are not satisfied or waived, the Merger would not occur, even though the holders of Non-affiliated WMZ Common Units may have voted in favor of the Merger, which may cause the market price of the WMZ Common Units to decline.

 

The combined company may not fully realize the anticipated benefits of the Merger, or may not do so within the anticipated time frame.

 

The Merger may result in unforeseen expenses, and the integration of WMZ’s business and operations with those of Williams Partners may not proceed smoothly, successfully or on a timely basis. In addition, expected growth opportunities for the combined company may not materialize.

 

Financial projections regarding Williams Partners and WMZ may not prove accurate.

 

In performing its financial analyses and rendering its opinion regarding the fairness, from a financial point of view, of the Exchange Ratio, the financial advisor to the WMZ Conflicts Committee reviewed and relied on, among other things, internal financial analyses and forecasts for WMZ and Williams Partners prepared by employees of Williams who normally render services to WMZ and Williams Partners. These financial projections include assumptions regarding future operating cash flows, expenditures and income of Williams Partners and WMZ. These financial projections were not prepared with a view to public disclosure, are subject to a significant economic, competitive, industry and other uncertainties and may not be achieved in full, at all or within projected timeframes. The failure of Williams Partners’ or WMZ’s businesses to achieve projected results, including projected cash flows, could have a material adverse effect on the price of Williams

Partners Common Units, its financial position and its ability to maintain or increase its distributions following the Merger.

 

While the Merger Agreement is in effect, WMZ and Williams Partners may lose opportunities to enter into other transactions with other parties on more favorable terms.

 

While the Merger Agreement is in effect, WMZ is prohibited from entering into or soliciting, initiating or encouraging any inquiries or proposals that may lead to a proposal to acquire WMZ, or offer to enter into certain transactions such as a merger, sale of assets or other business combination, with any other person, subject to exceptions in certain circumstances involving fiduciary duties under applicable law. As a result of these provisions in the Merger Agreement, WMZ may lose opportunities to enter into more favorable transactions. These non-solicitation provisions (described in more detail in “The Merger Agreement”) could be in effect for an extended period of time if completion of the Merger is delayed.

 

In addition to the economic costs associated with pursuing a Merger, substantial management time and other human resources are being devoted to the proposed transaction and related matters, which could limit Williams Partners’ and WMZ’s ability to pursue other attractive business opportunities, including potential joint ventures, stand-alone projects and other transactions. If either Williams Partners or WMZ is unable to pursue such other attractive business opportunities, then its growth prospects and the long-term strategic position of its business and the combined business could be adversely affected.

 

Failure to complete the Merger may have negative consequences to WMZ and to the price of WMZ Common Units.

 

Since the announcement of the Dropdown and, in connection therewith, of the Exchange Ratio to be offered by Williams Partners for Publicly Owned WMZ Common Units, WMZ Common Units have traded on the NYSE at a range of prices that reflect the market price of Williams Partners Common Units and the announced Exchange Ratio. If the Merger is not completed, the market price of WMZ Common Units could decline to the price level at which WMZ Common Units traded prior to the announcement of the proposed acquisition by Williams Partners of WMZ Common Units. In addition, if the Merger is not completed, the market price of WMZ Common Units could decline below pre-announcement levels as the completion of the Dropdown has significantly diminished the likelihood that WMZ will be able to grow through the dropdown of additional assets from Williams into WMZ.

 

WMZ’s partnership agreement limits the fiduciary duties of the WMZ General Partner to unitholders and restricts the remedies available to unitholders for actions taken by the WMZ General Partner that might otherwise constitute breaches of fiduciary duty.

 

In light of potential conflicts of interest between Williams, Williams Partners and the WMZ General Partner, on the one hand, and WMZ and the holders of Non-affiliated WMZ Common Units, on the other hand, the WMZ Board submitted the Merger and related matters to the WMZ Conflicts Committee for review and possible approval of a majority of its members acting in good faith, which is referred to as “Special Approval” in WMZ’s partnership agreement. Under the WMZ partnership agreement:

 

 

The WMZ Conflicts Committee reviewed, negotiated and evaluated the Merger Agreement and the Merger and related matters on behalf of the holders of Non-affiliated WMZ Common Units and WMZ. Among other things, the WMZ Conflicts Committee determined that the Merger Agreement and the Merger

are in the best interests of WMZ and the holders of Non-affiliated WMZ Common Units, approved the Merger Agreement and the Merger (thereby giving “Special Approval” under WMZ’s partnership agreement), and recommended that the Merger Agreement and the Merger be approved by the WMZ Board and the holders of Non-affiliated WMZ Common Units. The fiduciary duties of the WMZ General Partner, the WMZ Board and the WMZ Conflicts Committee to you in connection with the Merger are substantially limited by the WMZ partnership agreement, and any proceeding by a unitholder to challenge the transaction is made meaningfully more difficult by the presumption that the WMZ Conflicts Committee acted in good faith in granting Special Approval.

 

Certain directors and executive officers of the WMZ General Partner may have interests that differ in certain respects from the holders of Non-affiliated WMZ Common Units.

 

In considering the recommendations of the WMZ Conflicts Committee and the WMZ Board to approve the Merger Agreement and the Merger, you should consider that some of the directors and executive officers of the WMZ General Partner who are not members of the WMZ Conflicts Committee may have interests that differ from, or are in addition to, their interests as holders of WMZ Common Units. You should consider these interests in voting on the Merger, which are described more fully under the caption “The Merger — Interests of Certain Persons in the Merger.”

 

You are urged to read “Material U.S. Federal Income Tax Consequences” beginning on page 131 for a more complete discussion of the expected material U.S. federal income tax consequences of the Merger.

 

No ruling has been requested from the Internal Revenue Service with respect to the U.S. federal income tax consequences of the Merger.

 

Although no income or gain is expected to be recognized by a holder of Publicly Owned WMZ Common Units as a result of the Merger (except with respect to (i) cash received in lieu of fractional Williams Partners Common Units and (ii) a net decrease in a such holder’s share of nonrecourse liabilities as discussed below), no ruling has been or will be requested from the Internal Revenue Service, or IRS, with respect to the U.S. federal income tax consequences of the Merger. Instead, Williams Partners and WMZ are relying on the opinions of their respective counsel as to the U.S. federal income tax consequences of the Merger, and counsel’s conclusions may not be sustained if challenged by the IRS.

 

Holders of Publicly Owned WMZ Common Units may recognize income or gain for U.S. federal income tax purposes as a result of the Merger.

 

Under Section 752 the Code, each holder’s tax basis in its Publicly Owned WMZ Common Units includes such holder’s share of the nonrecourse liabilities of WMZ. For U.S. federal income tax purposes, nonrecourse liabilities are generally liabilities for which no partner has liability. As a result of the Merger, each holder’s share of nonrecourse liabilities will be recalculated, and each holder will be treated as receiving a deemed cash distribution equal to the excess, if any, of such holder’s share of nonrecourse liabilities of WMZ immediately before the Merger over such holder’s share of nonrecourse liabilities of Williams Partners immediately following the Merger. If the amount of the deemed cash distribution received by such holder exceeds the holder’s basis in its Williams Partners Common Units immediately after the Merger, such holder will recognize income or gain in an amount equal to such excess. Williams Partners and WMZ do not expect any holders of Publicly Owned WMZ Common Units to recognize income or gain in this manner. For additional information, please read “Material U.S. Federal Income Tax Consequences.”

 

The Merger may further limit the ability of a Holder of Publicly Owned WMZ Common Units to utilize suspended passive activity losses.

 

Passive loss limitations generally provide that specific taxpayers may only deduct losses from passive activities to the extent of the taxpayer’s income from passive activities. The passive loss limitations are applied

separately with respect to each publicly traded partnership. There is no guidance as to whether suspended passive losses of holders of Publicly Owned WMZ Common Units that are attributable to WMZ will be available to offset future passive income from Williams Partners following the Merger. Accordingly, the ability of such a holder to utilize such suspended passive losses to offset its share of Williams Partners’ passive income following the Merger may be limited.

 

The intended U.S. federal income tax consequences of the Merger are dependent upon Williams Partners being treated as a partnership for U.S. federal income tax purposes.

 

The U.S. federal income tax treatment of the exchange of Publicly Owned WMZ Common Units for Williams Partners Common Units in the Merger is dependent upon Williams Partners being treated as a partnership for U.S. federal income tax purposes. If Williams Partners were treated as a corporation for U.S. federal income tax purposes, it is likely that the Merger would be a fully taxable transaction for a holder of Publicly Owned WMZ Common Units.

 

Williams Partners may not realize the anticipated benefits from the Dropdown.

 

Williams Partners may not realize the benefits that it anticipates from the Dropdown for a number of reasons, including, but not limited to, if any of the matters identified as risks in the Risk Factors section in this joint proxy statement/prospectus or the Williams Partners’ Annual Report on Form 10-K for the year ended December 31, 2009 (the “Williams Partners 2009 10-K”) were to occur. If Williams Partners does not realize the anticipated benefits from the Dropdown for any reason, its business may be materially adversely affected.

 

Williams controls the Williams Partners General Partner, which has sole responsibility for conducting Williams Partners’ business and managing its operations. The Williams Partners General Partner has limited fiduciary duties to, and it and its affiliates may have conflicts of interest with, Williams Partners and Williams Partners’ unitholders, and the Williams Partners General Partner and its affiliates may favor their interests to the detriment of Williams Partners’ unitholders.

 

Williams owns and controls the Williams Partners General Partner and appoints all of the directors of the Williams Partners General Partner. All of the executive officers and certain directors of the Williams Partners General Partner are officers and/or directors of Williams and certain of its affiliates. Although the Williams Partners General Partner has a fiduciary duty to manage Williams Partners in a manner beneficial to Williams Partners, the directors and officers of the Williams Partners General Partner also have a fiduciary duty to manage the Williams Partners General Partner in a manner beneficial to Williams. Therefore, conflicts of interest may arise between Williams and its affiliates, including the Williams Partners General Partner, on the one hand, and Williams Partners and its unitholders, on the other hand. In resolving these conflicts, the Williams Partners General Partner may favor its own interests and the interests of its affiliates over the interests of Williams Partners’ unitholders. These conflicts include, among others, the following factors:

 

 

 

Williams Partners’ partnership agreement limits the Williams Partners General Partner’s fiduciary duties to the unitholders of Williams Partners and restricts the remedies available to such unitholders for actions taken by the Williams Partners General Partner that might otherwise constitute breaches of fiduciary duty.

 

Williams Partners’ partnership agreement contains provisions that reduce the standards to which the Williams Partners General Partner would otherwise be held by state fiduciary duty law. The limitation and definition of these duties is permitted by the Delaware law governing limited partnerships. In addition,

Williams Partners’ partnership agreement restricts the remedies available to holders of Williams Partners’ limited partner units for actions taken by the Williams Partners General Partner that might otherwise constitute breaches of fiduciary duty. For example, Williams Partners’ partnership agreement:

 

 

Holders of Williams Partners Common Units are bound by the provisions in the Williams Partners’ partnership agreement, including the provisions discussed above.

 

Affiliates of the Williams Partners General Partner, including Williams, may not be limited in their ability to compete with Williams Partners. Williams is also not obligated to offer Williams Partners the opportunity to acquire additional assets or businesses from it, which could limit Williams Partners’ commercial activities or its ability to grow. In addition, all of the executive officers and certain of the directors of the Williams Partners General Partner are also officers and/or directors of Williams, and these persons will also owe fiduciary duties to Williams.

 

While Williams Partners’ relationship with Williams and its affiliates is a significant attribute, it is also a source of potential conflicts. For example, Williams is in the natural gas business and is not restricted from competing with Williams Partners. Williams and its affiliates may compete with Williams Partners. Williams and its affiliates may acquire, construct or dispose of natural gas industry assets in the future, some or all of which may compete with Williams Partners’ assets, without any obligation to offer Williams Partners the opportunity to purchase or construct such assets. In addition, all of the executive officers and certain of the directors of the Williams Partners General Partner are also officers and/or directors of Williams and certain of

its affiliates and will owe fiduciary duties to those entities as well as to Williams Partners’ unitholders and Williams Partners.

 

Holders of Williams Partners Common Units have limited voting rights and are not entitled to elect the Williams Partners General Partner or its directors, which could reduce the price at which Williams Partners Common Units will trade.

 

Unlike the holders of common stock in a corporation, Williams Partners’ unitholders have only limited voting rights on matters affecting Williams Partners’ business and, therefore, limited ability to influence management’s decisions regarding Williams Partners’ business. Williams Partners’ unitholders will have no right to elect the Williams Partners General Partner or its board of directors on an annual or other continuing basis. The board of directors of the Williams Partners General Partner, including the independent directors, will be chosen entirely by Williams and not by Williams Partners’ unitholders. Unlike publicly traded corporations, Williams Partners will not conduct annual meetings of its unitholders to elect directors or conduct other matters routinely conducted at annual meetings of stockholders. Furthermore, if the Williams Partners’ unitholders become dissatisfied with the performance of the Williams Partners General Partner, they will have little ability to remove it. As a result of these limitations, the price at which Williams Partners Common Units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

 

Cost reimbursements due to the Williams Partners General Partner and its affiliates will reduce cash available to pay distributions to unitholders.

 

Williams Partners will reimburse the Williams Partners General Partner and its affiliates, including Williams, for various general and administrative services they provide for Williams Partners’ benefit, including costs for rendering administrative staff and support services to Williams Partners, and overhead allocated to Williams Partners. The Williams Partners General Partner determines the amount of these reimbursements in its sole discretion. Payments for these services will be substantial and will reduce the amount of cash available for distributions to Williams Partners’ unitholders. In addition, under Delaware partnership law, the Williams Partners General Partner has unlimited liability for Williams Partners’ obligations, such as Williams Partners’ debts and environmental liabilities, except for Williams Partners’ contractual obligations that are expressly made without recourse to the Williams Partners General Partner. To the extent the Williams Partners General Partner incurs obligations on Williams Partners’ behalf, Williams Partners is obligated to reimburse or indemnify the Williams Partners General Partner. If Williams Partners is unable or unwilling to reimburse or indemnify the Williams Partners General Partner, the Williams Partners General Partner may take actions to cause Williams Partners to make payments of these obligations and liabilities. Any such payments could reduce the amount of cash otherwise available for distribution to Williams Partners’ unitholders.

 

Even if Williams Partners’ unitholders are dissatisfied, they have little ability to remove the Williams Partners General Partner without its consent.

 

Unlike the holders of common stock in a corporation, Williams Partners’ unitholders have only limited voting rights on matters affecting Williams Partners’ business and, therefore, limited ability to influence management’s decisions regarding Williams Partners’ business. Williams Partners’ unitholders will have no right to elect the Williams Partners General Partner or its board of directors on an annual or other continuing basis. The board of directors of the Williams Partners General Partner is chosen by Williams. As a result of these limitations, the price at which Williams Partners Common Units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

 

Furthermore, if Williams Partners’ unitholders are dissatisfied with the performance of the Williams Partners General Partner, they will have little ability to remove it. The vote of the holders of at least 662/3% of all outstanding Williams Partners Common Units is required to remove the Williams Partners General Partner. The Williams Partners General Partner and its affiliates currently own approximately 82% of the outstanding Williams Partners Common Units and, as a result, Williams Partners’ public unitholders cannot remove the Williams Partners General Partner without its consent. If the Merger is consummated, the Williams Partners

General Partner and its affiliates will own approximately 80% of the outstanding Williams Partners Common Units and Williams Partners’ public unitholders will continue to be unable to remove the Williams Partners General Partner without its consent.

 

Williams Partners has a holding company structure in which Williams Partners’ subsidiaries conduct its operations and own its operating assets, which may affect Williams Partners’ ability to make payments on its debt obligations and distributions on Williams Partners Common Units.

 

Williams Partners has a holding company structure, and its subsidiaries conduct all of its operations and own all of its operating assets. Williams Partners has no significant assets other than the ownership interests in these subsidiaries. As a result, Williams Partners’ ability to make required payments on its debt obligations and distributions on Williams Partners Common Units depends on the performance of its subsidiaries and their ability to distribute funds to Williams Partners. The ability of Williams Partners’ subsidiaries to make distributions to Williams Partners may be restricted by, among other things, applicable state partnership and limited liability company laws and other laws and regulations. If Williams Partners is unable to obtain the funds necessary to pay the principal amount at maturity of its debt obligations, to repurchase its debt obligations upon the occurrence of a change of control or make distributions on Williams Partners Common Units, it may be required to adopt one or more alternatives, such as a refinancing of its debt obligations or borrowing funds to make distributions on Williams Partners Common Units. Williams Partners cannot assure you that it would be able to borrow funds to make distributions on Williams Partners Common Units.

 

Williams Partners’ allocation from Williams for costs for its defined benefit pension plans and other postretirement benefit plans are affected by factors beyond Williams Partners’ and Williams’ control.

 

As Williams Partners has no employees, employees of Williams and its affiliates provide services to Williams Partners. As a result, Williams Partners is allocated a portion of Williams’ costs in defined benefit pension plans covering substantially all of Williams’ or its affiliates’ employees providing services to Williams Partners, as well as a portion of the costs of other postretirement benefit plans covering certain eligible participants providing services to Williams Partners. The timing and amount of Williams Partners’ allocations under the defined benefit pension plans depend upon a number of factors Williams controls, including changes to pension plan benefits, as well as factors outside of Williams’ control, such as asset returns, interest rates and changes in pension laws. Changes to these and other factors that can significantly increase Williams Partners’ allocations could have a significant adverse effect on its financial condition and results of operations.

 

The control of the Williams Partners General Partner may be transferred to a third party without the consent of Williams Partners’ unitholders.

 

The Williams Partners General Partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of Williams Partners’ unitholders. Furthermore, Williams Partners’ partnership agreement effectively permits a change of control without the consent of Williams Partners’ unitholders.

 

Williams Partners may issue additional Williams Partners Common Units without the approval of Williams Partners’ unitholders, which would dilute Williams Partners’ unitholders’ ownership interests.

 

Williams Partners’ partnership agreement does not limit the number of additional limited partner interests that Williams Partners may issue at any time without the approval of Williams Partners’ unitholders. The issuance by Williams Partners of additional Williams Partners Common Units or other equity securities of equal or senior rank will have the following effects:

 

 

 

Williams Partners Common Units held by Williams eligible for future sale may adversely affect the price of Williams Partners Common Units.

 

As of March 31, 2010, Williams held 214,613,527 Williams Partners Common Units, representing an 82% limited partnership interest in Williams Partners. Williams may, from time to time, sell all or a portion of its Williams Partners Common Units. Sales of substantial amounts of its Williams Partners Common Units, or the anticipation of such sales, could lower the market price of Williams Partners Common Units and may make it more difficult for Williams Partners to sell its equity securities in the future at a time and at a price that Williams Partners deems appropriate.

 

The Williams Partners General Partner has a limited call right that may require unitholders to sell their Williams Partners Common Units at an undesirable time or price.

 

If at any time the Williams Partners General Partner and its affiliates own more than 80% of the Williams Partners Common Units, the Williams Partners General Partner will have the right, but not the obligation, to acquire all, but not less than all, of the Williams Partners Common Units held by unaffiliated persons at a price not less than their then-current market price. In connection with the closing of the Dropdown, Williams Partners entered into a limited call right forbearance agreement with the Williams Partners General Partner, pursuant to which the Williams Partners General Partner agreed not to exercise this right unless it and its affiliates hold more than 85% of the Williams Partners Common Units. The forbearance agreement will terminate when the ownership by the Williams Partners General Partner and its affiliates of the Williams Partners Common Units decreases below 75%. The Williams Partners General Partner may assign this right to any of its affiliates or to Williams Partners. As a result, non-affiliated unitholders of Williams Partners may be required to sell their Williams Partners Common Units at an undesirable time or price and may not receive any return on their investment. Such unitholders may also incur a tax liability upon a sale of their Williams Partners Common Units. The Williams Partners General Partner is not obligated to obtain a fairness opinion regarding the value of the Williams Partners Common Units to be repurchased by it upon exercise of the limited call right. There is no restriction in Williams Partners’ partnership agreement that prevents the Williams Partners General Partner from exercising its call right. If the Williams Partners General Partner exercised its limited call right, the effect would be to take Williams Partners private and, if the Williams Partners Common Units were subsequently deregistered under the Exchange Act, Williams Partners would no longer be subject to the reporting requirements of that Act.

 

Williams Partners’ partnership agreement restricts the voting rights of unitholders owning 20% or more of the Williams Partners Common Units.

 

Williams Partners’ partnership agreement restricts Williams Partners’ unitholders’ voting rights by providing that any units of Williams Partners held by a person that owns 20% or more of any class of units of Williams Partners then outstanding, other than the Williams Partners General Partner and its affiliates, their transferees, transferees of their transferees (provided that the Williams Partners General Partner has notified such secondary transferees that the voting limitation shall not apply to them) and persons who acquired such units with the prior approval of the board of directors of the Williams Partners General Partner, cannot be voted on any matter. Williams Partners’ partnership agreement also contains provisions limiting the ability of Williams Partners’ unitholders to call meetings, to acquire information about Williams Partners’ operations and to influence the manner or direction of Williams Partners’ management.

The liability of holders of Williams Partners Common Units may not be limited if a court finds that action of Williams Partners’ unitholders constitutes control of Williams Partners’ business.

 

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Williams Partners’ limited partnership is organized under Delaware law and Williams Partners conducts business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which Williams Partners does business. A holder of Williams Partners Common Units could be liable for any and all of Williams Partners’ obligations as if such holder were a general partner if a court or government agency were to determine that:

 

 

Williams Partners’ unitholders may have liability to repay distributions that were wrongfully distributed to them.

 

Under certain circumstances, Williams Partners’ unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, Williams Partners may not make a distribution to a holder of Williams Partners Common Units if the distribution would cause its liabilities to exceed the fair value of its assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the substituted limited partner at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

 

Williams did not seek a vote of its shareholders in connection with the Dropdown. If there is a determination that such a vote were required, the resulting consequences could impact Williams Partners.

 

Section 271 of the Delaware General Corporation Law generally requires a corporation to obtain authorization from the holders of a majority of its outstanding shares if the corporation intends to sell all or substantially all of its assets. Williams does not believe the Dropdown constituted a sale of “all or substantially all” of its assets because of, among other things, the portion of Williams’ assets involved, the significance of its assets and businesses that were not transferred and the fact that Williams retains control of all of the assets involved and over an 80% interest in the cash flows therefrom. As such, Williams did not seek a vote of its shareholders in connection with the Dropdown. There is a limited body of Delaware case law interpreting the phrase “all or substantially all,” and there is no precise established definition. Williams Partners cannot assure you that the Dropdown did not constitute a sale of “all or substantially all” of Williams’ assets and, therefore, that a shareholder vote was not required. If such a shareholder vote were determined to be required, the resulting consequences could impact Williams Partners and could include (among other consequences) shareholders of Williams asserting claims against Williams Partners, some or all of which could ultimately be successful.

 

Williams Partners may not have sufficient cash from operations to enable it to maintain current levels of cash distributions or to pay the minimum quarterly distribution following establishment of cash reserves and payment of fees and expenses, including payments to the Williams Partners General Partner.

 

Williams Partners may not have sufficient available cash from operating surplus each quarter to maintain current levels of cash distributions or to pay the minimum quarterly distribution. The amount of cash Williams Partners can distribute on Williams Partners Common Units principally depends upon the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things:

 

 

In addition, the actual amount of cash Williams Partners will have available for distribution will depend on other factors, some of which are beyond its control, such as:

 

 

Unitholders of Williams Partners should be aware that the amount of cash Williams Partners has available for distribution depends primarily on its cash flow, including cash reserves and working capital or other borrowings, and not solely on its profitability, which will be affected by non-cash items. As a result, Williams Partners may make cash distributions during periods when it records losses, and it may not make cash distributions during periods when it records net income.

 

Williams Partners may not be able to grow or effectively manage its growth.

 

A principal focus of Williams Partners’ strategy is to continue to grow by expanding its business. Williams Partners’ future growth will depend upon its ability to successfully identify, finance, acquire, integrate and operate projects and businesses. Failure to achieve any of these factors would adversely affect Williams Partners’ ability to achieve anticipated growth in the level of cash flows or realize anticipated benefits.

 

Williams Partners may acquire new facilities or expand its existing facilities to capture anticipated future growth in natural gas production that does not ultimately materialize. As a result, Williams Partners’ new or expanded facilities may not achieve profitability. In addition, the process of integrating newly acquired or constructed assets into Williams Partners’ operations may result in unforeseen operating difficulties, may absorb significant management attention and may require financial resources that would otherwise be available for the ongoing development and expansion of Williams Partners’ existing operations. Future acquisitions or

construction projects may require substantial new capital and could result in the incurrence of indebtedness, additional liabilities and excessive costs that could have a material adverse effect on Williams Partners’ business, results of operations, financial condition and its ability to make cash distributions to its unitholders. If Williams Partners issues additional Williams Partners Common Units in connection with future acquisitions, unitholders’ interest in Williams Partners will be diluted and distributions to unitholders may be reduced. Further, any limitations on Williams Partners’ access to capital, including limitations caused by illiquidity in the capital markets, may impair its ability to complete future acquisitions and construction projects on favorable terms, if at all.

 

Prices for NGLs, natural gas and other commodities are volatile, and this volatility could adversely affect Williams Partners’ financial results, cash flows, access to capital and ability to maintain existing businesses.

 

Williams Partners’ revenues, operating results, future rate of growth and the value of certain segments of its businesses depend primarily upon the prices of NGLs, natural gas, or other commodities, and the differences between prices of these commodities. Price volatility can impact both the amount Williams Partners receives for its products and services and the volume of products and services it sells. Prices affect the amount of cash flow available for capital expenditures and Williams Partners’ ability to borrow money or raise additional capital. Any of the foregoing can also have an adverse effect on Williams Partners’ business, results of operations and financial condition and its ability to make cash distributions to its unitholders.

 

The markets for NGLs, natural gas and other commodities are likely to continue to be volatile. Wide fluctuations in prices might result from relatively minor changes in the supply of and demand for these commodities, market uncertainty and other factors that are beyond Williams Partners’ control, including:

 

 

Williams Partners might not be able to successfully manage the risks associated with selling and marketing products in the wholesale energy markets.

 

Williams Partners’ portfolio of derivative and other energy contracts may consist of wholesale contracts to buy and sell commodities, including contracts for natural gas, NGLs and other commodities that are settled by the delivery of the commodity or cash throughout the United States. If the values of these contracts change

in a direction or manner that Williams Partners does not anticipate or cannot manage, it could negatively affect Williams Partners’ results of operations. In the past, certain marketing and trading companies have experienced severe financial problems due to price volatility in the energy commodity markets. In certain instances this volatility has caused companies to be unable to deliver energy commodities that they had guaranteed under contract. If such a delivery failure were to occur in one of Williams Partners’ contracts, Williams Partners might incur additional losses to the extent of amounts, if any, already paid to, or received from, counterparties. In addition, in Williams Partners’ businesses, Williams Partners often extends credit to its counterparties. Despite performing credit analysis prior to extending credit, Williams Partners is exposed to the risk that it might not be able to collect amounts owed to it. If the counterparty to such a transaction fails to perform and any collateral that secures the counterparty’s obligation is inadequate, Williams Partners will suffer a loss. Downturns in the economy or disruptions in the global credit markets could cause more of Williams Partners’ counterparties to fail to perform than it expects.

 

Any decrease in NGL prices or a change in NGL prices relative to the price of natural gas could affect Williams Partners’ processing, fractionation and storage businesses.

 

The relationship between natural gas prices and NGL prices affects Williams Partners’ profitability. When natural gas prices are low relative to NGL prices, it is more profitable for Williams Partners and its customers to process natural gas. When natural gas prices are high relative to NGL prices, it is less profitable to process natural gas both because of the higher value of natural gas and because of the increased cost of separating the mixed NGLs from the natural gas. Higher natural gas prices relative to NGL prices may also make it uneconomical to recover ethane, which may further negatively impact sales volumes and margins. Finally, higher natural gas prices relative to NGL prices could also reduce volumes of gas processed generally, reducing the volumes of mixed NGLs available for fractionation.

 

The long-term financial condition of Williams Partners’ natural gas transportation and midstream businesses is dependent on the continued availability of natural gas supplies in the supply basins that Williams Partners accesses, demand for those supplies in Williams Partners’ traditional markets, and the prices of and market demand for natural gas.

 

The development of the additional natural gas reserves that are essential for Williams Partners’ gas transportation and midstream businesses to thrive requires significant capital expenditures by others for exploration and development drilling and the installation of production, gathering, storage, transportation and other facilities that permit natural gas to be produced and delivered to its pipeline systems. Low prices for natural gas, regulatory limitations, including environmental regulations, or the lack of available capital for these projects could adversely affect the development and production of additional reserves, as well as gathering, storage, pipeline transportation and import and export of natural gas supplies, adversely impacting Williams Partners’ ability to fill the capacities of its gathering, transportation and processing facilities.

 

Production from existing wells and natural gas supply basins with access to Williams Partners’ pipeline systems will also naturally decline over time. The amount of natural gas reserves underlying these wells may also be less than anticipated, and the rate at which production from these reserves declines may be greater than anticipated. Additionally, the competition for natural gas supplies to serve other markets could reduce the amount of natural gas supply for Williams Partners’ customers. Accordingly, to maintain or increase the contracted capacity or the volume of natural gas transported on Williams Partners’ pipeline systems and cash flows associated with the transportation of natural gas, Williams Partners’ customers must compete with others to obtain adequate supplies of natural gas. In addition, if natural gas prices in the supply basins connected to Williams Partners’ pipeline systems are higher than prices in other natural gas producing regions, Williams Partners’ ability to compete with other transporters may be negatively impacted on a short-term basis, as well as with respect to its long-term recontracting activities. If new supplies of natural gas are not obtained to replace the natural decline in volumes from existing supply areas, if natural gas supplies are diverted to serve other markets, or if environmental regulators restrict new natural gas drilling, the overall volume of natural gas transported and stored on Williams Partners’ system would decline, which could have a material adverse effect on Williams Partners’ business, financial condition and results of operations, and its ability to make cash

distributions to its unitholders. In addition, new LNG import facilities built near Williams Partners’ markets could result in less demand for its gathering and transportation facilities.

 

Williams Partners’ risk measurement and hedging activities might not be effective and could increase the volatility of its results.

 

Although Williams Partners has systems in place that use various methodologies to quantify commodity price risk associated with its businesses, these systems might not always be followed or might not always be effective. Further, such systems do not in themselves manage risk, particularly risks outside of Williams Partners’ control, and adverse changes in energy commodity market prices, volatility, adverse correlation of commodity prices, the liquidity of markets, changes in interest rates and other risks discussed in this joint proxy statement/prospectus might still adversely affect Williams Partners’ earnings, cash flows and balance sheet under applicable accounting rules, even if risks have been identified.

 

In an effort to manage Williams Partners’ financial exposure related to commodity price and market fluctuations, Williams Partners has entered and may in the future enter into contracts to hedge certain risks associated with its assets and operations. In these hedging activities, Williams Partners has used and may in the future use fixed-price, forward, physical purchase and sales contracts, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges. Nevertheless, no single hedging arrangement can adequately address all risks present in a given contract. For example, a forward contract that would be effective in hedging commodity price volatility risks would not hedge the contract’s counterparty credit or performance risk. Therefore, unhedged risks will always continue to exist. While Williams Partners attempts to manage counterparty credit risk within guidelines established by its credit policy, it may not be able to successfully manage all credit risk and as such, future cash flows and results of operations could be impacted by counterparty default.

 

Williams Partners’ use of hedging arrangements through which it attempts to reduce the economic risk of its participation in commodity markets could result in increased volatility of its reported results. Changes in the fair values (gains and losses) of derivatives that qualify as hedges under generally accepted accounting principles (“GAAP”), to the extent that such hedges are not fully effective in offsetting changes to the value of the hedged commodity, as well as changes in the fair value of derivatives that do not qualify or have not been designated as hedges under GAAP, must be recorded in Williams Partners’ income. This creates the risk of volatility in earnings even if no economic impact to Williams Partners has occurred during the applicable period.

 

The impact of changes in market prices for NGLs and natural gas on the average prices paid or received by Williams Partners may be reduced based on the level of its hedging activities. These hedging arrangements may limit or enhance Williams Partners’ margins if the market prices for NGLs or natural gas were to change substantially from the price established by the hedges. In addition, Williams Partners’ hedging arrangements expose it to the risk of financial loss in certain circumstances, including instances in which:

 

 

Williams Partners’ industry is highly competitive, and increased competitive pressure could adversely affect Williams Partners’ business and operating results.

 

Williams Partners has numerous competitors in all aspects of its businesses, and additional competitors may enter its markets. Some of Williams Partners’ competitors are large oil, natural gas and petrochemical companies that have greater access to supplies of natural gas and NGLs than Williams Partners does. In addition, current or potential competitors may make strategic acquisitions or have greater financial resources than Williams Partners does, which could affect Williams Partners’ ability to make investments or acquisitions. Other companies with which Williams Partners competes may be able to respond more quickly to new laws or

regulations or emerging technologies or to devote greater resources to the construction, expansion or refurbishment of their facilities than Williams Partners can. In addition, current or potential competitors may make strategic acquisitions or have greater financial resources than Williams Partners does, which could affect Williams Partners’ ability to make investments or acquisitions. There can be no assurance that Williams Partners will be able to compete successfully against current and future competitors and any failure to do so could have a material adverse effect on Williams Partners’ business, results of operations, and financial condition and its ability to make cash distributions to its unitholders.

 

Williams Partners is exposed to the credit risk of its customers, and its credit risk management may not be adequate to protect against such risk.

 

Williams Partners is subject to the risk of loss resulting from nonpayment and/or nonperformance by its customers in the ordinary course of its business. Generally, Williams Partners’ customers are rated investment grade, are otherwise considered creditworthy or are required to make prepayments or provide security to satisfy credit concerns. However, Williams Partners’ credit procedures and policies may not be adequate to fully eliminate customer credit risk. Williams Partners cannot predict to what extent its business would be impacted by deteriorating conditions in the economy, including declines in its customers’ creditworthiness. If Williams Partners fails to adequately assess the creditworthiness of existing or future customers, unanticipated deterioration in their creditworthiness and any resulting increase in nonpayment and/or nonperformance by them could cause Williams Partners to write down or write off doubtful accounts. Such write-downs or write-offs could negatively affect Williams Partners’ operating results in the periods in which they occur, and, if significant, could have a material adverse effect on Williams Partners’ business, results of operations, cash flows, and financial condition and its ability to make cash distributions to its unitholders.

 

The failure of counterparties to perform their contractual obligations could adversely affect Williams Partners’ operating results, financial condition and cash available to make distributions.

 

Despite performing credit analysis prior to extending credit, Williams Partners is exposed to the credit risk of its contractual counterparties in the ordinary course of business even though it monitors these situations and attempts to take appropriate measures to protect itself. In addition to credit risk, counterparties to Williams Partners’ commercial agreements, such as product sales, gathering, treating, storage, transportation, processing and fractionation agreements, may fail to perform their other contractual obligations. A failure of counterparties to perform their contractual obligations, including Williams, could cause Williams Partners to write down or write off doubtful accounts, which could materially adversely affect its operating results, and financial condition and its ability to make cash distributions to its unitholders.

 

If third-party pipelines and other facilities interconnected to Williams Partners’ pipelines and facilities become unavailable to transport natural gas and NGLs or to treat natural gas, Williams Partners’ revenues and cash available to pay distributions could be adversely affected.

 

Williams Partners depends upon third-party pipelines and other facilities that provide delivery options to and from its pipelines and facilities for the benefit of its customers. Because Williams Partners does not own these third-party pipelines or facilities, their continuing operation is not within its control. If these pipelines or facilities were to become temporarily or permanently unavailable for any reason, or if throughput were reduced because of testing, line repair, damage to pipelines or facilities, reduced operating pressures, lack of capacity, increased credit requirements or rates charged by such pipelines or facilities or other causes, Williams Partners and its customers would have reduced capacity to transport, store or deliver natural gas or NGL products to end use markets or to receive deliveries of mixed NGLs, thereby reducing its revenues. Further, although there are laws and regulations designed to encourage competition in wholesale market transactions, some companies may fail to provide fair and equal access to their transportation systems or may not provide sufficient transportation capacity for other market participants.

 

Any temporary or permanent interruption at any key pipeline interconnect or in operations on third-party pipelines or facilities that would cause a material reduction in volumes transported on Williams Partners’ pipelines or its gathering systems or processed, fractionated, treated or stored at its facilities could have a

material adverse effect on its business, results of operations, and financial condition and its ability to make cash distributions to its unitholders.

 

Future disruptions in the global credit markets may make equity and debt markets less accessible, create a shortage in the availability of credit and lead to credit market volatility, which could disrupt Williams Partners’ financing plans and limit its ability to grow.

 

In 2008, public equity markets experienced significant declines, and global credit markets experienced a shortage in overall liquidity and a resulting disruption in the availability of credit. Future disruptions in the global financial marketplace, including the bankruptcy or restructuring of financial institutions, could make equity and debt markets inaccessible and adversely affect the availability of credit already arranged and the availability and cost of credit in the future. Williams Partners has availability under its Credit Facility, but its ability to borrow under that facility could be impaired if one or more of Williams Partners’ lenders fails to honor its contractual obligation to lend to Williams Partners.

 

As a publicly traded partnership, these developments could significantly impair Williams Partners’ ability to make acquisitions or finance growth projects. Williams Partners distributes all of its available cash to its unitholders on a quarterly basis. Williams Partners typically relies upon external financing sources, including the issuance of debt and equity securities and bank borrowings, to fund acquisitions or expansion capital expenditures. Any limitations on Williams Partners’ access to external capital, including limitations caused by illiquidity or volatility in the capital markets, may impair its ability to complete future acquisitions and construction projects on favorable terms, if at all. As a result, Williams Partners may be at a competitive disadvantage as compared to businesses that reinvest all of their available cash to expand ongoing operations, particularly under adverse economic conditions.

 

Adverse economic conditions could negatively affect Williams Partners’ results of operations.

 

A slowdown in the economy has the potential to negatively impact Williams Partners’ businesses in many ways. Included among these potential negative impacts are reduced demand and lower prices for Williams Partners’ products and services, increased difficulty in collecting amounts owed to it by its customers and a reduction in its credit ratings (either due to tighter rating standards or the negative impacts described above), which could result in reducing its access to credit markets, raising the cost of such access or requiring it to provide additional collateral to it counterparties.

 

Restrictions in Williams Partners’ debt agreements and its leverage may affect its future financial and operating flexibility.

 

Williams Partners’ total outstanding long-term debt as of March 31, 2010, was $6.3 billion, which includes Williams Partners’ outstanding senior unsecured notes and Williams Partners’ initial borrowings under the Credit Facility.

 

Williams Partners’ debt service obligations and restrictive covenants in its Credit Facility and the indentures governing its senior unsecured notes could have important consequences. For example, they could:

 

 

 

Williams Partners’ ability to repay, extend or refinance its existing debt obligations and to obtain future credit will depend primarily on its operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond its control. Williams Partners’ ability to refinance existing debt obligations or obtain future credit will also depend upon the current conditions in the credit markets and the availability of credit generally. If Williams Partners is unable to meet its debt service obligations, it could be forced to restructure or refinance its indebtedness, seek additional equity capital or sell assets. Williams Partners may be unable to obtain financing or sell assets on satisfactory terms, or at all.

 

Williams Partners is not prohibited under its indentures from incurring additional indebtedness. Williams Partners’ incurrence of significant additional indebtedness would exacerbate the negative consequences mentioned above, and could adversely affect its ability to repay its senior notes.

 

Williams Partners’ debt agreements and Williams’ public indentures contain financial and operating restrictions that may limit Williams Partners’ access to credit and affect its ability to operate its business. In addition, Williams Partners’ ability to obtain credit in the future will be affected by Williams’ credit ratings.

 

Williams Partners’ public indentures contain various covenants that, among other things, limit its ability to grant certain liens to support indebtedness, merge, or sell substantially all of its assets. In addition, Williams Partners’ Credit Facility contains certain financial covenants and restrictions on its ability and its subsidiaries’ ability to incur indebtedness, to consolidate or allow any material change in the nature of its business, enter into certain affiliate transactions and make certain distributions during an event of default. These covenants could adversely affect Williams Partners’ ability to finance its future operations or capital needs or engage in, expand or pursue its business activities and prevent it from engaging in certain transactions that might otherwise be considered beneficial to it. Williams Partners’ ability to comply with these covenants may be affected by events beyond its control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, Williams Partners’ current assumptions about future economic conditions turn out to be incorrect or unexpected events occur, its ability to comply with these covenants may be significantly impaired.

 

Williams’ public indentures contain covenants that restrict Williams’ and Williams Partners’ ability to incur liens to support indebtedness. These covenants could adversely affect Williams Partners’ ability to finance its future operations or capital needs or engage in, expand or pursue its business activities and prevent it from engaging in certain transactions that might otherwise be considered beneficial to it. Williams’ ability to comply with the covenants contained in its debt instruments may be affected by events beyond Williams Partners’ and Williams’ control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, Williams’ ability to comply with these covenants may be negatively impacted.

 

Williams Partners’ failure to comply with the covenants in its debt agreements could result in events of default. Upon the occurrence of such an event of default, the lenders could elect to declare all amounts outstanding under a particular facility to be immediately due and payable and terminate all commitments, if any, to extend further credit. Certain payment defaults or an acceleration under Williams Partners’ public indentures or other material indebtedness could cause a cross-default or cross-acceleration of its Credit Facility. Such a cross-default or cross-acceleration could have a wider impact on Williams Partners’ liquidity

than might otherwise arise from a default or acceleration of a single debt instrument. If an event of default occurs, or if Williams Partners’ Credit Facility cross-defaults, and the lenders under the affected debt agreements accelerate the maturity of any loans or other debt outstanding to it, Williams Partners may not have sufficient liquidity to repay amounts outstanding under such debt agreements. For more information regarding Williams Partners’ debt agreements, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Management’s Discussion and Analysis of Financial Condition and Liquidity” in Exhibit 99.1 to Williams Partners’ April 20, 2010 8-K.

 

Substantially all of Williams’ operations are conducted through its subsidiaries. Williams’ cash flows are substantially derived from loans, dividends and distributions paid to it by its subsidiaries. Williams’ cash flows are typically utilized to service debt and pay dividends on the common stock of Williams, with the balance, if any, reinvested in its subsidiaries as loans or contributions to capital. Due to Williams Partners’ relationship with Williams, Williams Partners’ ability to obtain credit will be affected by Williams’ credit ratings. If Williams were to experience a deterioration in its credit standing or financial condition, Williams Partners’ access to credit and its ratings could be adversely affected. Any future downgrading of a Williams’ credit rating would likely also result in a downgrading of Williams Partners’ credit rating. A downgrading of a Williams’ credit rating could limit Williams Partners’ ability to obtain financing in the future upon favorable terms, if at all.

 

Williams Partners’ subsidiaries are not prohibited from incurring indebtedness by their organizational documents, which may affect Williams Partners’ ability to make distributions to unitholders.

 

Williams Partners’ subsidiaries are not prohibited by the terms of their respective organizational documents from incurring indebtedness. If they were to incur significant amounts of indebtedness, such occurrence may inhibit their ability to make distributions to Williams Partners. An inability by Williams Partners’ subsidiaries to make distributions to Williams Partners would materially and adversely affect its ability to make distributions to unitholders because Williams Partners expects distributions it receives from its subsidiaries to represent a significant portion of the cash available to make cash distributions to unitholders.

 

A downgrade of Williams Partners’ credit rating could impact its liquidity, access to capital and its costs of doing business, and maintaining credit ratings is under the control of independent third parties.

 

A downgrade of Williams Partners’ credit rating might increase its cost of borrowing and could require it to post collateral with third parties, negatively impacting its available liquidity. Williams Partners’ ability to access capital markets could also be limited by a downgrade of its credit rating and other disruptions. Such disruptions could include:

 

 

Credit rating agencies perform independent analysis when assigning credit ratings. The analysis includes a number of criteria including, but not limited to, business composition, market and operational risks, as well as various financial tests. Credit rating agencies continue to review the criteria for industry sectors and various debt ratings and may make changes to those criteria from time to time. Williams Partners’ current credit ratings after the Dropdown from Moody’s is Baa3, from S&P is BBB-, and from Fitch is BBB-. Credit ratings are not recommendations to buy, sell or hold investments in the rated entity. Ratings are subject to revision or withdrawal at any time by the ratings agencies and no assurance can be given that Williams Partners will maintain its current credit ratings.

Williams Partners is subject to risks associated with climate change.

 

There is a growing belief that emissions of greenhouse gases may be linked to climate change. Climate change and the costs that may be associated with its impacts and the regulation of greenhouse gases have the potential to affect Williams Partners’ business in many ways, including negatively impacting the costs it incurs in providing its products and services, the demand for and consumption of its products and services (due to change in both costs and weather patterns), and the economic health of the regions in which it operates, all of which can create financial risks. For further information regarding risks to Williams Partners’ business arising from climate change related legislation, please read the discussion below under “Williams Partners’ operations are subject to governmental laws and regulations relating to the protection of the environment, which may expose it to significant costs and liabilities and could exceed current expectations.”

 

Williams Partners’ assets and operations can be affected by weather and other natural phenomena.

 

Williams Partners’ assets and operations can be adversely affected by hurricanes, floods, earthquakes, tornadoes and other natural phenomena and weather conditions, including extreme temperatures, making it more difficult for Williams Partners to realize the historic rates of return associated with these assets and operations. Insurance may be inadequate, and in some instances, Williams Partners has been unable to obtain insurance on commercially reasonable terms or insurance has not been available at all. A significant disruption in operations or a significant liability for which Williams Partners was not fully insured could have a material adverse effect on its business, results of operations and financial condition and its ability to make cash distributions to its unitholders.

 

Williams Partners’ customers’ energy needs vary with weather conditions. To the extent weather conditions are affected by climate change or demand is impacted by regulations associated with climate change, customers’ energy use could increase or decrease depending on the duration and magnitude of the changes, leading either to increased investment or decreased revenues.

 

Williams Partners depends on certain key customers and producers for a significant portion of its revenues and supply of natural gas and NGLs. If Williams Partners lost any of these key customers or producers or contracted volumes, its revenues and cash available to pay distributions could decline.

 

Williams Partners relies on a limited number of customers for a significant portion of its revenues. Although some of these customers are subject to long-term contracts, Williams Partners may be unable to negotiate extensions or replacements of these contracts on favorable terms, if at all. The loss of all, or even a portion of, the revenues from natural gas, NGLs or contracted volumes, as applicable, supplied by these customers, as a result of competition, creditworthiness, inability to negotiate extensions or replacements of contracts or otherwise, could have a material adverse effect on Williams Partners’ business, results of operations, financial condition and its ability to make cash distributions to its unitholders, unless it is able to acquire comparable volumes from other sources.

 

Williams Partners does not own all of the interests in Partially Owned Entities, which could adversely affect its ability to operate and control these assets in a manner beneficial to it.

 

Because Williams Partners does not control the Partially Owned Entities except Northwest Pipeline, it may have limited flexibility to control the operation of or cash distributions received from these assets. Any future disagreements with the other co-owners of these assets could adversely affect Williams Partners’ ability to respond to changing economic or industry conditions, which could have a material adverse effect on its business, results of operations, financial condition and ability to make cash distributions to its unitholders.

 

The Partially Owned Entities may reduce their cash distributions to Williams Partners in some situations.

 

The Partially Owned Entities’ organizational documents require distribution of their available cash to their members on a quarterly basis. In each case, available cash is reduced, in part, by reserves appropriate for operating their respective businesses.

Significant prolonged changes in natural gas prices could affect supply and demand, cause a reduction in or termination of the long-term transportation and storage contracts or throughput on the Pipeline Entities’ systems, and adversely affect Williams Partners’ cash available to make distributions.

 

Higher natural gas prices over the long term could result in a decline in the demand for natural gas and, therefore, in the Pipeline Entities’ long-term transportation and storage contracts or throughput on their respective systems. Also, lower natural gas prices over the long term could result in a decline in the production of natural gas resulting in reduced contracts or throughput on their systems. As a result, significant prolonged changes in natural gas prices could have a material adverse effect on the Pipeline Entities’ business, financial condition, results of operations and cash flows, and on Williams Partners’ ability to make cash distributions to its unitholders.

 

The Pipeline Entities’ natural gas sales, transportation and storage operations are subject to regulation by FERC, which could have an adverse impact on their ability to establish transportation and storage rates that would allow them to recover the full cost of operating their respective pipelines, including a reasonable rate of return.

 

The Pipeline Entities’ natural gas sales, transmission and storage operations are subject to federal, state and local regulatory authorities. Specifically, their interstate pipeline transportation and storage service is subject to regulation by FERC. The federal regulation extends to such matters as:

 

 

Under the Natural Gas Act (“NGA”), FERC has authority to regulate providers of natural gas pipeline transportation and storage services in interstate commerce, and such providers may only charge rates that have been determined to be just and reasonable by FERC. In addition, FERC prohibits providers from unduly preferring or unreasonably discriminating against any person with respect to pipeline rates or terms and conditions of service.

 

Regulatory actions in these areas can affect Williams Partners’ business in many ways, including decreasing tariff rates and revenues, decreasing volumes in its pipelines, increasing its costs and otherwise altering the profitability of its pipeline business.

 

The FERC Standards of Conduct govern the relationship between natural gas transmission providers and their marketing function employees as defined by the rule. The standards of conduct are intended to prevent natural gas transmission providers from preferentially benefiting gas marketing functions by requiring the employees of a transmission provider that perform transmission functions to function independently from marketing function employees and by restricting the information that transmission providers may provide to gas marketing employees. The inefficiencies created by the restrictions on the sharing of employees and information may increase Williams Partners’ costs, and the restriction on the sharing of information may have an adverse impact on its senior management’s ability to effectively obtain important information about its business.

Unlike other pipelines that own facilities in the offshore Gulf of Mexico, Transco charges its transportation customers a separate fee to access its offshore facilities. The separate charge that it assesses, referred to as an “IT feeder” charge, is charged only when the facilities are used and typically is paid by producers or marketers. This means that Transco recovers the costs included in the IT feeder charge only if its facilities are used, and because it is typically paid by producers and marketers, it generally results in netback prices to producers that are slightly lower than the netbacks realized by producers transporting on other interstate pipelines. Longer term, this rate design disparity could result in producers bypassing Transco’s offshore facilities in favor of alternative transportation facilities. Transco has asked FERC to allow it to eliminate the IT feeder charge and charge for transportation on its offshore facilities in the same manner as other pipelines. Transco’s requests have been denied.

 

The rates, terms and conditions for the Pipeline Entities’ interstate pipeline services are set forth in their respective FERC-approved tariffs. Any successful complaint or protest against the Pipeline Entities’ rates could have an adverse impact on their revenues associated with providing transportation services. In addition, there is a risk that rates set by FERC in future rate cases filed by the Pipeline Entities will be inadequate to recover increases in operating costs or to sustain an adequate return on capital investments. There is also the risk that higher rates would cause their customers to look for alternative ways to transport natural gas.

 

The Pipeline Entities could be subject to penalties and fines if they fail to comply with FERC regulations.

 

The Pipeline Entities’ transportation and storage operations are regulated by FERC. Should the Pipeline Entities fail to comply with all applicable FERC administered statutes, rules, regulations and orders, they could be subject to substantial penalties and fines. Under the Energy Policy Act of 2005, FERC has civil penalty authority under the NGA to impose penalties for current violations of up to $1,000,000 per day for each violation. Any material penalties or fines imposed by FERC could have a material adverse impact on the Pipeline Entities’ business, financial condition, results of operations and cash flows, and on Williams Partners’ ability to make cash distributions to its unitholders.

 

The outcome of certain FERC proceedings involving FERC policy statements is uncertain and could affect the level of return on equity that the Pipeline Entities may be able to achieve in any future rate proceeding.

 

In an effort to provide some guidance and to obtain further public comment on FERC’s policies concerning return on equity determinations, on July 19, 2007, FERC issued its Proposed Proxy Policy Statement, “Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity.” In the Proposed Proxy Policy Statement, FERC proposes to permit inclusion of publicly traded partnerships in the proxy group analysis relating to return on equity determinations in rate proceedings, provided that the analysis be limited to actual publicly traded partnership distributions capped at the level of the pipeline’s earnings.

 

After receiving public comment on the proposed policy statement, on April 17, 2008, FERC issued a final policy statement rejecting the concept of capping distributions in favor of an adjustment to the long-term growth rate used to calculate the equity cost of capital for publicly traded partnerships which are included in the proxy group.

 

On January 19, 2009, FERC applied the policy statement to a pipeline rate case and determined that the pipeline’s return on equity should be 11.55%. It is difficult to know how instructive this case is for purposes of anticipating rates of return in future rate cases, because FERC determined the composition of the proxy group using data from 2004 when the case was filed.

 

The effect of the application of FERC’s policy to the Pipeline Entities’ future rate proceedings is not certain, and Williams Partners cannot ensure that such application would not adversely affect its ability to achieve a reasonable level of return on equity.

The outcome of future rate cases to set the rates the Pipeline Entities can charge customers on their respective pipelines might result in rates that lower their return on the capital invested in those pipelines.

 

There is a risk that rates set by FERC in the Pipeline Entities’ future rate cases will be inadequate to recover increases in operating costs or to sustain an adequate return on capital investments. There is also the risk that higher rates will cause their customers to look for alternative ways to transport their natural gas.

 

The outcome of future rate cases will determine the amount of income taxes the Pipeline Entities will be allowed to recover.

 

In May 2005, FERC issued a statement of general policy permitting a pipeline to include in its cost-of-service computations an income tax allowance provided that an entity or individual has an actual or potential income tax liability on income from the pipeline’s public utility assets. The extent to which owners of pipelines have such actual or potential income tax liability will be reviewed by FERC on a case-by-case basis in rate cases where the amounts of the allowances will be established.

 

Legal and regulatory proceedings and investigations relating to the energy industry and capital markets have adversely affected the Pipeline Entities’ businesses and may continue to do so.

 

Public and regulatory scrutiny of the energy industry and of the capital markets has resulted in increased regulation being either proposed or implemented. Such scrutiny has also resulted in various inquiries, investigations and court proceedings in which the Pipeline Entities’ or their affiliates are named as defendants. Both the shippers on the Pipeline Entities’ pipelines and regulators have rights to challenge the rates they charge under certain circumstances. Any successful challenge could materially affect the Pipeline Entities’ results of operations.

 

Certain inquiries, investigations and court proceedings are ongoing. Adverse effects may continue as a result of the uncertainty of these ongoing inquiries and proceedings, or additional inquiries and proceedings by federal or state regulatory agencies or private plaintiffs. In addition, Williams Partners cannot predict the outcome of any of these inquiries or whether these inquiries will lead to additional legal proceedings against the Pipeline Entities, civil or criminal fines or penalties, or other regulatory action, including legislation, which might be materially adverse to the operation of the Pipeline Entities’ businesses and Williams Partners’ revenues and net income or increase their operating costs in other ways. Current legal proceedings or other matters against Williams Partners including environmental matters, suits, regulatory appeals and similar matters might result in adverse decisions against the Pipeline Entities. The result of such adverse decisions, either individually or in the aggregate, could be material and may not be covered fully or at all by insurance.

 

Increased competition from alternative natural gas transportation and storage options and alternative fuel sources could have a significant financial impact on Williams Partners.

 

Williams Partners’ competes primarily with other interstate pipelines and storage facilities in the transportation and storage of natural gas. Some of Williams Partners’ competitors may have greater financial resources and access to greater supplies of natural gas than Williams Partners does. Some of these competitors may expand or construct transportation and storage systems that would create additional competition for natural gas supplies or the services Williams Partners provides to its customers. Moreover, Williams and its other affiliates may not be limited in their ability to compete with Williams Partners. Further, natural gas also competes with other forms of energy available to Williams Partners’ customers, including electricity, coal, fuel oils and other alternative energy sources.

 

The principal elements of competition among natural gas transportation and storage assets are rates, terms of service, access to natural gas supplies, flexibility and reliability. FERC’s policies promoting competition in natural gas markets are having the effect of increasing the natural gas transportation and storage options for Williams Partners’ traditional customer base. As a result, Williams Partners could experience some “turnback” of firm capacity as the primary terms of existing agreements expire. If Williams Partners is unable to remarket this capacity or can remarket it only at substantially discounted rates compared to previous contracts, Williams Partners or its remaining customers may have to bear the costs associated with the turned back capacity.

Increased competition could reduce the amount of transportation or storage capacity contracted on Williams Partners’ system or, in cases where Williams Partners does not have long-term fixed rate contracts, could force it to lower its transportation or storage rates. Competition could intensify the negative impact of factors that significantly decrease demand for natural gas or increase the price of natural gas in the markets served by Williams Partners’ pipeline system, such as competing or alternative forms of energy, a regional or national recession or other adverse economic conditions, weather, higher fuel costs and taxes or other governmental or regulatory actions that directly or indirectly increase the price of natural gas or limit the use of natural gas. Williams Partners’ ability to renew or replace existing contracts at rates sufficient to maintain current revenues and cash flows could be adversely affected by the activities of its competitors. All of these competitive pressures could have a material adverse effect on Williams Partners’ business, financial condition, results of operations and cash flows and its ability to make cash distributions to its unitholders.

 

Williams Partners may not be able to maintain or replace expiring natural gas transportation and storage contracts at favorable rates or on a long-term basis.

 

The Pipeline Entities’ primary exposure to market risk occurs at the time the terms of existing transportation and storage contracts expire and are subject to termination. Although none of Williams Partners’ material contracts are terminable in 2010, upon expiration of the terms Williams Partners may not be able to extend contracts with existing customers to obtain replacement contracts at favorable rates or on a long-term basis.

 

The extension or replacement of existing contracts depends on a number of factors beyond Williams Partners’ control, including:

 

 

Any failure to extend or replace a significant portion of Williams Partners’ existing contracts may have a material adverse effect on its business, financial condition, results of operations and cash flows and its ability to make cash distributions to its unitholders.

 

Competitive pressures could lead to decreases in the volume of natural gas contracted or transported through the Pipeline Entities’ pipeline systems.

 

Although most of the Pipeline Entities’ pipeline systems’ current capacity is fully contracted, FERC has taken certain actions to strengthen market forces in the natural gas pipeline industry that have led to increased competition throughout the industry. In a number of key markets, interstate pipelines are now facing competitive pressure from other major pipeline systems, enabling local distribution companies and end users to choose a transmission provider based on considerations other than location. Other entities could construct new pipelines or expand existing pipelines that could potentially serve the same markets as Williams Partners’ pipeline system. Any such new pipelines could offer transportation services that are more desirable to shippers because of locations, facilities, or other factors. These new pipelines could charge rates or provide service to locations that would result in greater net profit for shippers and producers and thereby force Williams Partners to lower the rates charged for service on its pipeline in order to extend its existing transportation service agreements or to attract new customers. Williams Partners is aware of proposals by competitors to expand pipeline capacity in certain markets it also serves which, if the proposed projects proceed, could increase the competitive pressure upon it. There can be no assurance that Williams Partners will be able to compete successfully against current and future competitors and any failure to do so could have a material adverse effect on its business, results of operations, and its ability to make cash distributions to its unitholders.

Decreases in demand for natural gas could adversely affect Williams Partners’ business.

 

Demand for Williams Partners’ transportation services depends on the ability and willingness of shippers with access to Williams Partners’ facilities to satisfy their demand by deliveries through its system. Any decrease in this demand could adversely affect Williams Partners’ business. Demand for natural gas is also affected by weather, future industrial and economic conditions, fuel conservation measures, alternative fuel requirements, governmental regulation, or technological advances in fuel economy and energy generation devices, all of which are matters beyond Williams Partners’ control. Additionally, in some cases, new LNG import facilities built near Williams Partners’ markets could result in less demand for its gathering and transmission facilities.

 

The failure of new sources of natural gas production or LNG import terminals to be successfully developed in North America could increase natural gas prices and reduce the demand for Williams Partners’ services.

 

New sources of natural gas production in the United States and Canada, particularly in areas of shale development, are expected to become an increasingly significant component of future U.S. natural gas supply in North America. Additionally, increases in LNG supplies are expected to be imported through new LNG import terminals, particularly in the Gulf Coast region. If these additional sources of supply are not developed, natural gas prices could increase and cause consumers of natural gas to turn to alternative energy sources, which could have a material adverse effect on Williams Partners’ business, financial condition, results of operations and cash flows and its ability to make cash distributions to its unitholders.

 

Certain of the Pipeline Entities’ services are subject to long-term, fixed-price contracts that are not subject to adjustment, even if Williams Partners cost to perform such services exceeds the revenues received from such contracts.

 

The Pipeline Entities provide some services pursuant to long-term, fixed price contracts. It is possible that costs to perform services under such contracts will exceed the revenues they collect for their services. Although most of the services are priced at cost-based rates that are subject to adjustment in rate cases, under FERC policy, a regulated service provider and a customer may mutually agree to sign a contract for service at a “negotiated rate” that may be above or below the FERC-regulated, cost-based rate for that service. These “negotiated rate” contracts are not generally subject to adjustment for increased costs that could be produced by inflation or other factors relating to the specific facilities being used to perform the services.

 

Williams Partners’ operations are subject to operational hazards and unforeseen interruptions for which they may not be adequately insured.

 

There are operational risks associated with the gathering, transporting, storage, processing and treating of natural gas and the fractionation and storage of NGLs, including:

 

 

 

Any of these risks could result in loss of human life, personal injuries, significant damage to property, environmental pollution, impairment of Williams Partners’ operations and substantial losses to it. In accordance with customary industry practice, Williams Partners maintains insurance against some, but not all, of these risks and losses, and only at levels it believes to be appropriate. The location of certain segments of Williams Partners’ facilities in or near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks. In spite of Williams Partners’ precautions, an event such as those described above could cause considerable harm to people or property, and could have a material adverse effect on Williams Partners’ financial condition and results of operations, particularly if the event is not fully covered by insurance. Accidents or other operating risks could further result in loss of service available to Williams Partners’ customers.

 

Some portions of Williams Partners’ current pipeline infrastructure and other assets have been in use for many decades, which may adversely affect its business.

 

Some portions of Williams Partners’ assets, including its pipeline infrastructure, have been in use for many decades. The current age and condition of Williams Partners’ assets could result in a material adverse impact on its business, financial condition and results of operations if the costs of maintaining its facilities exceed current expectations.

 

Williams Partners’ operations are subject to governmental laws and regulations relating to the protection of the environment, which may expose it to significant costs and liabilities and could exceed current expectations.

 

The risk of substantial environmental costs and liabilities is inherent in natural gas gathering, transportation, storage, processing and treating, and in the fractionation and storage of NGLs, and Williams Partners may incur substantial environmental costs and liabilities in the performance of these types of operations. Williams Partners’ operations are subject to extensive federal, state and local environmental laws and regulations governing environmental protection, the discharge of materials into the environment and the security of chemical and industrial facilities. These laws include: