UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549


________________


Form 10-Q


(Mark
One)





R
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the quarterly period ended June 30, 2008OR£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE
      SECURITIES EXCHANGE ACT OF 1934For the transition period
      from                                                                         to





Commission
File Number 1-2700


________________




El
Paso Natural Gas Company


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
            74-0608280(State
      or Other Jurisdiction
              of
      Incorporation or Organization)
            (I.R.S.
      Employer
              Identification
      No.)El
      Paso Building1001
      Louisiana Street
              Houston,
      Texas
            77002(Address
      of Principal Executive Offices)
            (Zip
      Code)





Telephone
Number: (713) 420-2600





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes R   No £





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.





Large
      accelerated filer o
              Accelerated
      filer o
              Non-accelerated
      filer þ
              Smaller
      reporting company o(Do
      not check if a smaller reporting company)


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes £ No R





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Common
stock, par value $1 per share. Shares outstanding on August 8, 2008:
1,000





EL PASO NATURAL GAS COMPANY MEETS THE CONDITIONS
OFGENERAL INSTRUCTION
H(1)(a) AND (b) TO FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A
REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH
INSTRUCTION.





EL
PASO NATURAL GAS COMPANY





TABLE
OF CONTENTS





Caption
            PagePART
      I — Financial InformationItem  1.
            Financial
      Statements
            1Item  2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            10Item  3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            *Item  4.
            Controls
      and Procedures
            13PART
      II — Other InformationItem  1.
            Legal
      Proceedings
            14Item  1A.
            Risk
      Factors
            14Item  2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            *Item  3.
            Defaults
      Upon Senior Securities
            *Item  4.
            Submission
      of Matters to a Vote of Security Holders
            *Item  5.
            Other
      Information
            14Item  6.
            Exhibits
            14Signatures
            15


____________





*
      We have not included a response to this item in this document since no
      response is required pursuant to the  reduced disclosure format
      permitted by General Instruction H to
  Form 10-Q.





Below is
a list of terms that are common to our industry and used throughout this
document:





/d
            = per
      day
            BBtu = billion
      British thermal units








When
      we refer to cubic feet measurements, all measurements are at a pressure of
      14.73 pounds per square inch.





When
      we refer to “us”, “we”, “our”, “ours” or “EPNG”, we are describing El Paso
      Natural Gas Company and/or our
subsidiaries.








i


PART
I — FINANCIAL INFORMATION





Item 1. Financial
Statements





EL
PASO NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(In millions)


(Unaudited)





Quarter Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      revenues
            
            $
            152
            
            
            $
            136
            
            
            $
            293
            
            
            $
            281Operating
      expensesOperation and
      maintenance
            
            
            51
            
            
            
            53
            
            
            
            104
            
            
            
            98Depreciation and
      amortization
            
            
            21
            
            
            
            20
            
            
            
            41
            
            
            
            42Taxes, other than income
      taxes
            
            
            6
            
            
            
            7
            
            
            
            14
            
            
            
            1578
            
            
            
            80
            
            
            
            159
            
            
            
            155Operating
      income
            
            
            74
            
            
            
            56
            
            
            
            134
            
            
            
            126Other
      income, net
            
            
            2
            
            
            
            2
            
            
            
            3
            
            
            
            3Interest
      and debt expense
            
            
            (22
            )
            
            
            (24
            )
            
            
            (45
            )
            
            
            (49
            )Affiliated
      interest income, net
            
            
            11
            
            
            
            16
            
            
            
            26
            
            
            
            32Income
      before income taxes
            
            
            65
            
            
            
            50
            
            
            
            118
            
            
            
            112Income
      taxes
            
            
            25
            
            
            
            19
            
            
            
            45
            
            
            
            42Net
      income
            
            $
            40
            
            
            $
            31
            
            
            $
            73
            
            
            $
            70





See
accompanying notes.





1


EL
PASO NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
millions, except for share amounts)


(Unaudited)





June
      30,
              2008
            
            
            December 31,
              2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            —
            
            
            $
            —Accounts
      and notes receivableCustomer,
      net of allowance of $3 in 2008 and $4 in 2007
            
            
            77
            
            
            
            73Affiliates
            
            
            8
            
            
            
            6Other
            
            
            8
            
            
            
            1Materials
      and supplies
            
            
            42
            
            
            
            41Deferred
      income taxes
            
            
            10
            
            
            
            7Regulatory
      assets
            
            
            9
            
            
            
            —Prepaids
      and other
            
            
            9
            
            
            
            7Total
      current assets
            
            
            163
            
            
            
            135Property,
      plant and equipment, at cost
            
            
            3,756
            
            
            
            3,710Less
      accumulated depreciation and amortization
            
            
            1,338
            
            
            
            1,298Total
      property, plant and equipment, net
            
            
            2,418
            
            
            
            2,412Other
      assetsNotes
      receivable from affiliate
            
            
            1,017
            
            
            
            1,113Other
            
            
            129
            
            
            
            1331,146
            
            
            
            1,246Total
      assets
            
            $
            3,727
            
            
            $
            3,793LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent
      liabilitiesAccounts
      payableTrade
            
            $
            62
            
            
            $
            101Affiliates
            
            
            32
            
            
            
            17Other
            
            
            15
            
            
            
            33Taxes
      payable
            
            
            91
            
            
            
            56Regulatory
      liabilities
            
            
            46
            
            
            
            19Accrued
      interest
            
            
            19
            
            
            
            20Accrued
      liabilities
            
            
            12
            
            
            
            20Other
            
            
            11
            
            
            
            13Total
      current liabilities
            
            
            288
            
            
            
            279Long-term
      debt
            
            
            1,166
            
            
            
            1,166Other
      liabilitiesDeferred
      income taxes
            
            
            385
            
            
            
            370Other
            
            
            102
            
            
            
            116487
            
            
            
            486Commitments
      and contingencies (Note 2)Stockholder’s
      equityCommon
      stock, par value $1 per share; 1,000 shares authorized, issued
      and outstanding
            
            
            —
            
            
            
            —Additional
      paid-in capital
            
            
            1,268
            
            
            
            1,268Retained
      earnings
            
            
            518
            
            
            
            594Total
      stockholder’s equity
            
            
            1,786
            
            
            
            1,862Total
      liabilities and stockholder’s equity
            
            $
            3,727
            
            
            $
            3,793





See
accompanying notes.





2


EL
PASO NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





Six
      Months EndedJune
      30,2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            73
            
            
            $
            70Adjustments
      to reconcile net income to net cash from operating
    activitiesDepreciation
      and amortization
            
            
            41
            
            
            
            42Deferred
      income taxes
            
            
            12
            
            
            
            38Other
      non-cash income items
            
            
            22
            
            
            
            6Asset
      and liability changes
            
            
            (6
            )
            
            
            (18
            )Net
      cash provided by operating activities
            
            
            142
            
            
            
            138Cash
      flows from investing activitiesAdditions
      to property, plant and equipment
            
            
            (88
            )
            
            
            (58
            )Net
      change in notes receivable from affiliate
            
            
            96
            
            
            
            (116
            )Other
            
            
            —
            
            
            
            1Net cash provided by
      (used) in investing activities
            
            
            8
            
            
            
            (173
            )Cash
      flows from financing activitiesDividend
      paid to parent
            
            
            (150
            )
            
            
            —Net
      proceeds from issuance of long-term debt
            
            
            —
            
            
            
            350Payment
      to retire long-term debt
            
            
            —
            
            
            
            (314
            )Net
      cash provided by (used in) financing activities
            
            
            (150
            )
            
            
            36Net
      change in cash and cash equivalents
            
            
            —
            
            
            
            1Cash
      and cash equivalentsBeginning
      of period
            
            
            —
            
            
            
            —End
      of period
            
            $
            —
            
            
            $
            1





See
accompanying notes.





3


EL
PASO NATURAL GAS COMPANY





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1. Basis
of Presentation and Significant Accounting Policies





Basis of
Presentation





We are an
indirect wholly owned subsidiary of El Paso Corporation (El Paso). We
prepared this Quarterly Report on Form 10-Q under the rules and regulations
of the United States Securities and Exchange Commission (SEC). Because
this is an interim period filing presented using a condensed format, it does not
include all of the disclosures required by U.S. generally accepted accounting
principles. You should read this Quarterly Report on Form 10-Q along with
our 2007 Annual Report on Form 10-K, which includes a summary of our
significant accounting policies and other disclosures. The financial statements
as of June 30, 2008, and for the quarters and six months ended June
30, 2008 and 2007, are unaudited. We derived the condensed consolidated
balance sheet as of December 31, 2007, from the audited balance sheet
filed in our 2007 Annual Report on Form 10-K. In our opinion, we have made
all adjustments, which are of a normal recurring nature, to fairly present our
interim period results. Due to the seasonal nature of our business, information
for interim periods may not be indicative of our operating results for the
entire year.





Significant Accounting
Policies





The
information below provides an update of our significant accounting policies and
accounting pronouncements issued but not yet adopted as discussed in our 2007
Annual Report on Form 10-K.





Fair Value Measurements.On
January 1, 2008, we adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 157, Fair
Value Measurements, for our financial assets and liabilities. The
adoption of the standard did not have an impact on our financial statements. We
elected to defer the adoption of SFAS No. 157 for our non-financial assets and
liabilities until January 1, 2009. We are currently evaluating the impact, if
any, that the deferred provisions of this standard will have on our financial
statements.





Measurement Date of Postretirement
Benefits. Effective January 1, 2008, we adopted the measurement date
provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106, and
132(R)and changed the measurement date of our postretirement benefit
plan from September 30 to December 31. We recorded an increase of $1 million,
net of income taxes of less than $1 million, to our January 1, 2008 retained
earnings balance upon the adoption of the measurement date provisions of this
standard.





2. Commitments
and Contingencies





Legal
Proceedings





Sierra Pacific Resources and Nevada
Power Company v. El Paso et al.In April 2003, Sierra Pacific Resources
and Nevada Power Company filed a suit in the U.S. District Court for the
District of Nevada against us, our affiliates and unrelated third parties,
alleging that the defendants conspired to manipulate prices and supplies of
natural gas in the California-Arizona border market from 1996 to 2001. The trial
court twice dismissed the lawsuit. The U.S. Court of Appeals for the Ninth
Circuit, however, reversed the dismissal and remanded the matter to the trial
court. The defendants filed motions with the trial court to dismiss on other
grounds. The court dismissed a Nevada unfair trade practices act claim and a
fraudulent concealment claim against El Paso, but the motions were otherwise
denied. Discovery is proceeding. Our costs and legal exposure related to this
lawsuit are not currently determinable.





4


Baldonado et al. v. EPNG.In
August 2000, a main transmission line owned and operated by us ruptured at the
crossing of the Pecos River near Carlsbad, New Mexico. Individuals at the site
were fatally injured. In June 2003, a lawsuit entitled Baldonado et al. v. EPNGwas
filed in state court in Eddy County, New Mexico, on behalf of 26 firemen
and emergency medical service personnel who responded to the fire and who
allegedly have suffered psychological trauma. This case was dismissed by the
trial court, but was appealed to the New Mexico Court of Appeals. In June 2006,
the New Mexico Court of Appeals affirmed the dismissal of the plaintiff’s claims
for negligent infliction of emotional distress, but reversed the dismissal of
the claims for intentional infliction of emotional distress. In December 2007,
the New Mexico Supreme Court issued an opinion which ruled that a trial on the
merits could proceed on either the grounds of intentional or reckless infliction
of emotional distress. Discovery has commenced. Our costs and legal exposure
related to this lawsuit are currently not determinable; however, we believe this
matter will be fully covered by insurance.





Gas Measurement Cases.We and
a number of our affiliates were named defendants in actions that generally
allege mismeasurement of natural gas volumes and/or heating content resulting in
the underpayment of royalties. The first set of cases was filed in 1997 by an
individual under the False Claims Act and have been consolidated for pretrial
purposes (In re: Natural
Gas Royalties Qui Tam
Litigation,U.S. District Court for the District of Wyoming). These
complaints allege an industry-wide conspiracy to underreport the heating value
as well as the volumes of the natural gas produced from federal and Native
American lands. In October 2006, the U.S. District Judge issued an order
dismissing all claims against all defendants. An appeal has been
filed.





Similar
allegations were filed in a second set of actions initiated in 1999 in Will Price, et al. v. Gas Pipelines
and Their Predecessors, et al.,in the District Court of Stevens County,
Kansas. The plaintiffs currently seek certification of a class of royalty owners
in wells on non-federal and non-Native American lands in Kansas, Wyoming and
Colorado. Motions for class certification have been briefed and argued in the
proceedings and the parties are awaiting the court’s ruling. The plaintiff seeks
an unspecified amount of monetary damages in the form of additional royalty
payments (along with interest, expenses and punitive damages) and injunctive
relief with regard to future gas measurement practices. Our costs and legal
exposure related to these lawsuits and claims are not currently
determinable.





Bank of America.We are a
named defendant, along with Burlington Resources, Inc. (Burlington), now a
subsidiary of ConocoPhillips, in a class action lawsuit styled Bank of America, et al. v. El Paso
Natural Gas and Burlington Resources Oil and Gas
Company, L.P.,filed in October 2003 in the District Court of Kiowa
County, Oklahoma asserting royalty underpayment claims related to specified
shallow wells in Oklahoma, Texas and New Mexico. The Plaintiffs assert that
royalties were underpaid starting in the 1980s when the purchase price of gas
was lowered below the Natural Gas Policy Act maximum lawful prices. The
Plaintiffs assert that royalties were further underpaid by Burlington as a
result of post-production cost deductions taken starting in the late 1990s. This
action was transferred to Washita County District Court in 2004. A tentative
settlement reached in November 2005 was disapproved by the court in June 2007. A
class certification hearing is scheduled for March 2009. A companion case styled
Bank of America v. El Paso
Natural Gasinvolving similar claims made as to certain wells in Oklahoma
was settled in 2006.





Oklahoma Tax Commission v. El Paso
Natural Gas Company.EPNG has
been named as a defendant in a lawsuit filed in Tulsa County, Oklahoma, which
alleges that EPNG and other defendants failed to file required reports of
production, failed to pay gross production, petroleum and excise taxes, and
failed to make payments on oil produced from unknown sources in the South Erick
Field, Washita County, Oklahoma.  EPNG denies that any amounts are due and
contends that the claims are covered by a contractual indemnification agreement
with a co-defendant.





5


In
addition to the above proceedings, we and our subsidiaries and affiliates are
named defendants in numerous lawsuits and governmental proceedings that arise in
the ordinary course of our business. For each of these matters, we evaluate the
merits of the case, our exposure to the matter, possible legal or settlement
strategies and the likelihood of an unfavorable outcome. If we determine that an
unfavorable outcome is probable and can be estimated, we establish the necessary
accruals. While the outcome of these matters, including those discussed above,
cannot be predicted with certainty, and there are still uncertainties related to
the costs we may incur, based upon our evaluation and experience to date, we
believe we have established appropriate reserves for these matters. It is
possible, however, that new information or future developments could require us
to reassess our potential exposure related to these matters and adjust our
accruals accordingly, and these adjustments could be material. A June 30, 2008,
we accrued approximately $6 million for our outstanding legal
matters.





Environmental
Matters





We are
subject to federal, state and local laws and regulations governing environmental
quality and pollution control. These laws and regulations require us to remove
or remedy the effect on the environment of the disposal or release of specified
substances at current and former operating sites. At June 30, 2008, we had
accrued approximately $24 million for expected remediation costs and associated
onsite, offsite and groundwater technical studies and for related environmental
legal costs; however, we estimate that our exposure could be as high
as $44 million. Our accrual includes $21 million for
environmental contingencies related to properties we previously
owned.





Our
accrual represents a combination of two estimation methodologies. First, where
the most likely outcome can be reasonably estimated, that cost has been accrued.
Second, where the most likely outcome cannot be estimated, a range of costs is
established and if no one amount in that range is more likely than any other,
the lower end of the expected range has been accrued. Our environmental
remediation projects are in various stages of completion. Our recorded
liabilities reflect our current estimates of amounts we will expend to remediate
these sites. However, depending on the stage of completion or assessment, the
ultimate extent of contamination or remediation required may not be known. As
additional assessments occur or remediation efforts continue, we may incur
additional liabilities.





Below is
a reconciliation of our accrued liability from January 1, 2008 to June 30,
2008 (in millions):





Balance
      at January 1, 2008
            
            $
            25Additions/adjustments
      for remediation activities
            
            
            1Payments
      for remediation activities
            
            
            (2
            )Balance
      at June 30, 2008
            
            $
            24





For the
remainder of 2008, we estimate that our total remediation expenditures will be
approximately $4  million, which will be expended under government
directed clean-up programs.





Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) Matters.We have
received notice that we could be designated, or have been asked for information
to determine whether we could be designated, as a Potentially Responsible Party
(PRP) with respect to three active sites under the CERCLA or state equivalents.
We have sought to resolve our liability as a PRP at these sites through
indemnification by third parties and settlements which provide for payment of
our allocable share of remediation costs. As of June 30, 2008, we have estimated
our share of the remediation costs at these sites to be between $12 million and
$16 million. Because the clean-up costs are estimates and are subject to
revision as more information becomes available about the extent of remediation
required, and in some cases we have asserted a defense to any liability, our
estimates could change. Moreover, liability under the federal CERCLA statute is
joint and several, meaning that we could be required to pay in excess of our pro
rata share of remediation costs. Our understanding of the financial strength of
other PRPs has been considered, where appropriate, in estimating our
liabilities. Accruals for these matters are included in the environmental
reserve discussed above.





6


Chromium Review.In April
2004, the State of Arizona’s Department of Environmental Quality (ADEQ)
requested information regarding the historical use of chromium containing
compounds in our operations. In June 2004, we responded fully to the
request and began working with the ADEQ on this matter. We commenced a study of
our facilities in Arizona, Texas and New Mexico, as well as on tribal lands in
Arizona and New Mexico to determine if there were any issues concerning the
usage of chromium. Of the 12 Arizona sites that were investigated, nine were
found not to have chromium contamination above regulatory thresholds and no
further action is required. Of the three remaining sites, one was already
enrolled in Arizona’s Voluntary Remediation Program (VRP) and is subject to
an Aquifer Protection Program (APP) Permit and is being investigated under
the requirements of that permit.  The second site has been entered in
the VRP and has been further investigated with VRP approval. We have
performed further investigation on the chromium levels at the third
site and are evaluating the results to determine if this location should be
entered into the VRP. Additional work has been conducted at these three
sites as directed by the ADEQ. We investigated eight Texas sites that previously
used chromium of which two sites will require further investigation for chromium
impacts to soil and groundwater. We investigated 13 New Mexico sites of which
four sites will require further investigation. None of the sites on the tribal
lands were determined to require further investigation. We will be coordinating
the additional work at the Texas and New Mexico sites with the respective state
environmental agencies.





It is
possible that new information or future developments could require us to
reassess our potential exposure related to environmental matters. We may incur
significant costs and liabilities in order to comply with existing environmental
laws and regulations. It is also possible that other developments, such as
increasingly strict environmental laws, regulations and orders of regulatory
agencies, as well as claims for damages to property and the environment or
injuries to employees and other persons resulting from our current or past
operations, could result in substantial costs and liabilities in the future. As
this information becomes available, or other relevant developments occur, we
will adjust our accrual amounts accordingly. While there are still uncertainties
related to the ultimate costs we may incur, based upon our evaluation and
experience to date, we believe our reserves are adequate.





Rates
and Regulatory Matters





EPNG Rate Case.In
June 2008, we filed a rate case with the Federal Energy Regulatory Commission
(FERC) as required under the settlement of our previous rate
case.  The filing proposes an increase in our base tariff rates which
would increase revenue by $83 million annually over current tariff rates. In
August 2008, the FERC issued an order accepting and suspending the effective
date of the proposed rates to January 1, 2009, subject to refund and the outcome
of a hearing and technical conference.





Greenhouse Gas
Emissions.  In July 2008, the U.S. Environmental Protection
Agency (EPA) requested public comments on the potential regulation of greenhouse
gases (GHGs) under the Clean Air Act. Some of the regulatory alternatives
identified by the EPA in its request for comments, if eventually promulgated as
final rules, would likely impact our operations and financial results. It is
uncertain whether the EPA will proceed with adopting final rules or whether the
regulation of the GHGs will be addressed in federal and state legislation. Since
it is uncertain what, if any, regulatory or legislative alternatives may be
adopted, it is not possible at this time to determine whether and how such laws
or regulations could impact our operations and financial results and whether
those impacts will be material to our financial statements.





Other
Matters





Navajo Nation.Approximately
900 looped pipeline miles of the north mainline of our EPNG pipeline system are
located on lands held in trust by the United States for the benefit of the
Navajo Nation. Our rights-of-way on lands crossing the Navajo Nation are the
subject of a pending renewal application filed in 2005 with the Department of
the Interior’s Bureau of Indian Affairs. In June 2008, we reached an agreement
in principle on the fundamental economic terms of a tribal consent extension
through October 2025. Based on the preliminary agreement, we made payments to
the Navajo Nation covering the period from January 2007 through October 2008.
 Negotiations on the remaining terms and conditions are continuing. We have
filed with the FERC for recovery of these amounts in our recent rate case, but
are uncertain as to whether such recovery will be allowed.





7


Tuba City Uranium Milling
Facility. For a period of approximately ten years beginning in the mid to
late 1950s, Rare Metals Corporation of America, a historical affiliate,
conducted uranium mining and milling operations in the vicinity of Tuba City,
Arizona, under a contract with the United States government as part of the Cold
War nuclear program. The site of the Tuba City uranium mill, which is on land
within the Navajo Indian Reservation, reverted to the Navajo Nation after the
mill closed in 1966. The tailings at the mill site were encapsulated and a
ground water remediation system was installed by the U.S. Department of Energy
(DOE) under the Federal Uranium Mill Tailings Radiation Control Act of 1978. In
May 2007, we filed suit against the DOE and other federal agencies requesting a
judicial determination that the DOE was fully and legally responsible for any
remediation of any waste associated with historical uranium production activity
at two sites in the vicinity of the mill facilities near Tuba City, Arizona. We
are also cooperating with the Navajo Nation in joint legislative efforts to
achieve appropriations for the DOE to assess and remediate the sites. Pending
the potential remedial response by the United States government, we have taken
certain interim site control measures in coordination with the Navajo
Nation.





While the
outcome of these matters cannot be predicted with certainty, based on current
information, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our financial position, operating results or cash
flows. It is possible that new information or future developments could require
us to reassess our potential exposure related to these matters. The impact of
these changes may have a material effect on our results of operations, our
financial position, and our cash flows in the periods these events
occur.





Guarantees





We are or
have been involved in various ownership and other contractual arrangements that
sometimes require us to provide additional financial support that results in the
issuance of financial and performance guarantees that are not recorded in our
financial statements. As of June 30, 2008, we have financial and
performance guarantees with a maximum exposure of approximately
$11 million.





3. Transactions
with Affiliates





Cash Management
Program.  We participate in El Paso’s cash management
program which matches short-term cash surpluses and needs of participating
affiliates, thus minimizing total borrowings from outside sources. El Paso
uses the cash management program to settle intercompany transactions between
participating affiliates. We have historically advanced cash to El Paso in
exchange for an affiliated note receivable that is due upon demand. At June
30, 2008 and December 31, 2007, we had a note receivable from
El Paso of approximately $1.0 billion and   $1.1 billion. We
do not intend to settle this note within twelve months and therefore, classified
it as non-current on our balance sheets. During the first quarter of 2008, we
utilized $150 million of our note receivable from the cash management program to
pay a dividend to our parent. The interest rate on this note at June 30, 2008
and December 31, 2007 was 3.7% and 6.5%.





Income
Taxes.  El Paso files consolidated U.S. federal and
certain state tax returns which include our taxable income. In certain states,
we file and pay taxes directly to the state taxing authorities. At June
30, 2008 and December 31, 2007, we had income taxes payable of
$77 million and $54 million. The majority of these balances, as well as our
deferred income taxes, will become payable to El Paso. During the second
quarter of 2007, we settled $40 million with El Paso through its cash management
program for certain tax attributes previously reflected as deferred income taxes
in our financial statements. These settlements were reflected as operating
activities in our statement of cash flows.


8


Other Affiliate
Balances.  At June 30, 2008 and December 31, 2007, we had
contractual deposits from our affiliates of $8 million, included in other
current liabilities on our balance sheets.





Affiliate Revenues and
Expenses. We enter into transactions with our affiliates within the
ordinary course of business. For a further discussion of our affiliated
transactions, see our 2007 Annual Report on Form 10-K. The following table shows
revenues and charges from our affiliates for the periods ended June
30:





Quarter
      Ended
            
            
            Six
      Months EndedJune 30,
            
            
            June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions)Revenues
      from affiliates
            
            $
            4
            
            
            $
            4
            
            
            $
            8
            
            
            $
            9Operation
      and maintenance expenses from affiliates
            
            
            14
            
            
            
            13
            
            
            
            28
            
            
            
            27Reimbursements
      of operating expenses charged to affiliates
            
            
            5
            
            
            
            4
            
            
            
            10
            
            
            
            8


9


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





The
information required by this Item is presented in a reduced disclosure format
pursuant to General Instruction H to Form 10-Q. In addition, this Item
updates, and should be read in conjunction with the information disclosed in our
2007 Annual Report on Form 10-K, and our condensed consolidated financial
statements and the accompanying footnotes presented in Item 1 of this
Quarterly Report on Form 10-Q.





Results
of Operations





Our
management uses earnings before interest expense and income taxes (EBIT) as a
measure to assess the operating results and effectiveness of our business. We
believe EBIT is useful to investors because it allows them to evaluate more
effectively our operating performance using the same performance measure
analyzed internally by our management. We define EBIT as net income adjusted for
(i) items that do not impact our income from continuing operations, (ii) income
taxes, (iii) interest and debt expense and (iv) affiliated interest income. We
exclude interest and debt expense from this measure so that investors may
evaluate our operating results without regard to our financing methods. EBIT may
not be comparable to measurements used by other companies. Additionally, EBIT
should be considered in conjunction with net income and other performance
measures such as operating income and operating cash flows. Below is a
reconciliation of our EBIT to net income, our throughput volumes and an analysis
and discussion of our results for the six months ended June 30, 2008 compared to
the same period in 2007.





Operating
      Results:
            
            2008
            
            
            2007(In
      millions,
              except
      for volumes)Operating
      revenues
            
            $
            293
            
            
            $
            281Operating
      expenses
            
            
            (159
            )
            
            
            (155
            )Operating
      income
            
            
            134
            
            
            
            126Other
      income, net
            
            
            3
            
            
            
            3EBIT
            
            
            137
            
            
            
            129Interest
      and debt expense
            
            
            (45
            )
            
            
            (49
            )Affiliated
      interest income, net
            
            
            26
            
            
            
            32Income
      taxes
            
            
            (45
            )
            
            
            (42
            )Net
      income
            
            $
            73
            
            
            $
            70Throughput
      volumes (BBtu/d)(1)
            
            
            4,231
            
            
            
            4,157


____________


(1)Throughput volumes exclude
      throughput transported by the Mojave Pipeline Company (Mojave) system on
      behalf of the EPNG system.





EBIT
      Analysis:
            
            Revenue
            
            
            Expense
            
            
            EBIT
              ImpactFavorable/(Unfavorable)(In
      millions)Reservation
      and other services revenues
            
            $
            6
            
            
            $
            —
            
            
            $
            6Enron
      bankruptcy settlement
            
            
            5
            
            
            
            1
            
            
            
            6Operating
      and general and administrative expenses
            
            
            —
            
            
            
            (5
            )
            
            
            (5
            )Operational
      gas
            
            
            —
            
            
            
            (3
            )
            
            
            (3
            )Other
      (1)
            
            
            1
            
            
            
            3
            
            
            
            4Total
      impact on EBIT
            
            $
            12
            
            
            $
            (4
            )
            
            $
            8


__________________


(1)Consists of individually
      insignificant items.





Reservation and Other Services
Revenues.  Reservation and other services revenues were higher
in 2008 compared to the same period in 2007 primarily due to an increase in
demand charges for capacity on our EPNG system, higher pipeline integrity
program surcharges and increased pipeline usage by firm customers in 2008,
partially offset by lower reservation revenues on our Mojave system due to a
decrease in tariff rates under its rate case settlement and the expiration of
certain firm contracts, both effective March 1, 2007. For further discussion for
our Mojave rate case, see our 2007 Annual Report on Form 10-K.


10


Enron Bankruptcy Settlement.During the six months ended June 30, 2008 and 2007, we recorded income of
approximately $8 million and $2 million
as a result of settlements received from the Enron bankruptcy.




Operating and General and
Administrative Expenses. During the six months ended June 30, 2008, our
operating and general and administrative expenses increased primarily as a
result of increased maintenance and payroll costs.





Operational Gas. During the
six months ended June 30, 2008, we established an allowance for certain
uncollectible gas imbalances.





Regulatory Matter.In June
2008, we filed a rate case with the FERC as required under the settlement of our
previous rate case.  The filing proposes an increase in our base
tariff rates which would increase revenue by $83 million annually over
current tariff rates. In August 2008, the FERC issued an order accepting and
suspending the effective date of the proposed rates to January 1, 2009, subject
to refund and the outcome of a hearing and technical conference.





Interest
and Debt Expense





Interest
and debt expense for the six months ended June 30, 2008, was $4 million lower
than the same period in 2007 primarily due to interest recorded in 2007 on
EPNG’s rate refund.





Affiliated
Interest Income, Net





Affiliated
interest income, net for the six months ended June 30, 2008, was $6 million
lower than the same period in 2007 due to lower short-term interest rates
compared to the same period in 2007. The average short-term interest rate for
the six months decreased from 5.9% in 2007 to 4.8% for the same period in 2008.
The average advances due from El Paso of $1.1 billion for the six months of
2007 were approximately the same in 2008.





Income
Taxes





Our
effective tax rates of 38 percent for the six months ended June 30, 2008 and
2007 were higher than the statutory rate of 35 percent primarily due to the
effect of state income taxes.





11


Liquidity
and Capital Expenditures





Liquidity Overview.Our
primary sources of liquidity are cash flows from operating activities and
El Paso’s cash management program. Our primary uses of cash are for working
capital and capital expenditures.  We have historically advanced cash
to El Paso under its cash management program, which we reflect in investing
activities in our statement of cash flows. During the first quarter of 2008, we
utilized  $150 millionof
our note receivable from the cash management program to pay a dividend to our
parent. At June 30, 2008, we had a note receivable from El Paso of
approximately $1.0 billion. We do not intend to settle this note within the next
twelve months and therefore, classified it as non-current on our balance
sheet.  See Item 1, Financial Statements, Note 3, for a further
discussion of El Paso’s cash management program. We believe that cash flows from
operating activities combined with amounts available to us under El Paso’s cash
management program will be adequate to meet our capital requirements and our
existing operating needs.





In
addition to the cash management program, we are eligible to borrow amounts
available under El Paso’s $1.5 billion credit agreement and are only
liable for amounts we directly borrow. As of June 30, 2008, El Paso had
approximately $0.3 billion of letters of credit issued, none of which was issued
by us. For a further discussion of this credit agreement, see our 2007 Annual
Report on Form 10-K.





Capital Expenditures.Our
cash capital expenditures for the six months ended June 30, 2008, and our
estimates of capital expenditures for the remainder of this year to expand and
maintain our systems are listed below.





Six
      Months Ended
              June 30, 2008
            
            
            2008
              Remaining
            
            
            Total(In
      millions)Maintenance
            
            $
            64
            
            
            $
            87
            
            
            $
            151Expansion
            
            
            24
            
            
            
            41
            
            
            
            65$
            88
            
            
            $
            128
            
            
            $
            216





Commitments
and Contingencies





See
Item 1, Financial Statements, Note 2, which is incorporated herein by
reference.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Omitted
from this report pursuant to the reduced disclosure format permitted by General
Instruction H to Form 10-Q.





12


Item 4. Controls
and Procedures





Evaluation
of Disclosure Controls and Procedures





As of
June 30, 2008, we carried out an evaluation under the supervision and with the
participation of our management, including our President and our Chief Financial
Officer, as to the effectiveness, design and operation of our disclosure
controls and procedures, as defined by the Securities Exchange Act of 1934, as
amended. This evaluation considered the various processes carried out under the
direction of our disclosure committee in an effort to ensure that information
required to be disclosed in the SEC reports we file or submit under the Exchange
Act is accurate, complete and timely. Our management, including our President
and our Chief Financial Officer, does not expect that our disclosure controls
and procedures or our internal controls will prevent and/or detect all errors
and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected. Based on the results of our evaluation, our President and our Chief
Financial Officer concluded that our disclosure controls and procedures are
effective at a reasonable level of assurance at June 30, 2008.





Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting during the second quarter of 2008.





13


PART
II — OTHER INFORMATION





Item 1. Legal
Proceedings





See Part
I, Item 1, Financial Statements, Note 2, which is incorporated herein
by reference.





Item 1A. Risk
Factors





CAUTIONARY
STATEMENTS FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF


THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995





This
report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on assumptions or beliefs that we believe to be reasonable; however,
assumed facts almost always vary from actual results, and differences between
assumed facts and actual results can be material, depending upon the
circumstances. Where, based on assumptions, we or our management express an
expectation or belief as to future results, that expectation or belief is
expressed in good faith and is believed to have a reasonable basis. We cannot
assure you, however, that the stated expectation or belief will occur, be
achieved or accomplished. The words “believe,” “expect,” “estimate,”
“anticipate,” and similar expressions will generally identify forward-looking
statements. All of our forward-looking statements, whether written or oral, are
expressly qualified by these cautionary statements and any other cautionary
statements that may accompany such forward-looking statements. In addition, we
disclaim any obligation to update any forward-looking statements to reflect
events or circumstances after the date of this report.





Important
factors that could cause actual results to differ materially from estimates or
projections contained in forward-looking statements are described in our 2007
Annual Report on Form 10-K under Part I, Item 1A, Risk Factors. There have
been no material changes in these risk factors since that report.





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





Omitted
from this report pursuant to the reduced disclosure format permitted by General
Instruction H to Form 10-Q.





Item 3. Defaults
Upon Senior Securities





Omitted
from this report pursuant to the reduced disclosure format permitted by General
Instruction H to Form 10-Q.





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





Omitted
from this report pursuant to the reduced disclosure format permitted by General
Instruction H to Form 10-Q.





Item 5. Other
Information





None.





Item 6. Exhibits





The
Exhibit Index is hereby incorporated herein by reference and sets forth a
list of those exhibits filed herewith.





14


SIGNATURES





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






EL PASO NATURAL GAS
      COMPANYDate: 
      August 8, 2008
              /s/ James
      J. ClearyJames
      J. ClearyPresident(Principal
      Executive Officer)




Date: 
      August 8, 2008
              /s/ John
      R. SultJohn
      R. SultSenior
      Vice President,Chief
      Financial Officer and Controller(Principal Accounting and Financial
      Officer)




15


EL PASO
NATURAL GAS COMPANY





EXHIBIT
INDEX





Each
exhibit identified below is filed as a part of this report.





ExhibitNumber
            
            Description31.A
            
            Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.B
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.A
            
            Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.B
            
            Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.