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 September 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 £
            Accelerated
      filer £
            Non-accelerated
      filer R
            Smaller reporting company £(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 November 7, 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  4T.
            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
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      revenues
            
            $
            145
            
            
            $
            136
            
            
            $
            438
            
            
            $
            417Operating
      expensesOperation and
      maintenance
            
            
            58
            
            
            
            54
            
            
            
            162
            
            
            
            152Depreciation and
      amortization
            
            
            19
            
            
            
            21
            
            
            
            60
            
            
            
            63Taxes, other than income
      taxes
            
            
            7
            
            
            
            7
            
            
            
            21
            
            
            
            2284
            
            
            
            82
            
            
            
            243
            
            
            
            237Operating
      income
            
            
            61
            
            
            
            54
            
            
            
            195
            
            
            
            180Other
      income, net
            
            
            2
            
            
            
            1
            
            
            
            5
            
            
            
            4Interest
      and debt expense
            
            
            (23
            )
            
            
            (25
            )
            
            
            (68
            )
            
            
            (74
            )Affiliated
      interest income, net
            
            
            10
            
            
            
            19
            
            
            
            36
            
            
            
            51Income
      before income taxes
            
            
            50
            
            
            
            49
            
            
            
            168
            
            
            
            161Income
      taxes
            
            
            19
            
            
            
            19
            
            
            
            64
            
            
            
            61Net
      income
            
            $
            31
            
            
            $
            30
            
            
            $
            104
            
            
            $
            100





See
accompanying notes.





1


EL
PASO NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
millions, except for share amounts)


(Unaudited)





September
      30,
            
            
            December 31,2008
            
            
            2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            —
            
            
            $
            —Accounts
      and notes receivableCustomer,
      net of allowance of $3 in 2008 and $4 in 2007
            
            
            81
            
            
            
            73Affiliates
            
            
            7
            
            
            
            6Other
            
            
            6
            
            
            
            1Materials
      and supplies
            
            
            43
            
            
            
            41Deferred
      income taxes
            
            
            10
            
            
            
            7Regulatory
      assets
            
            
            11
            
            
            
            —Other
            
            
            2
            
            
            
            7Total
      current assets
            
            
            160
            
            
            
            135Property,
      plant and equipment, at cost
            
            
            3,763
            
            
            
            3,710Less
      accumulated depreciation and amortization
            
            
            1,347
            
            
            
            1,298Total
      property, plant and equipment, net
            
            
            2,416
            
            
            
            2,412Other
      assetsNotes
      receivable from affiliate
            
            
            1,069
            
            
            
            1,113Other
            
            
            129
            
            
            
            1331,198
            
            
            
            1,246Total
      assets
            
            $
            3,774
            
            
            $
            3,793LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent
      liabilitiesAccounts
      payableTrade
            
            $
            50
            
            
            $
            101Affiliates
            
            
            21
            
            
            
            17Other
            
            
            18
            
            
            
            33Taxes
      payable
            
            
            104
            
            
            
            56Accrued
      interest
            
            
            28
            
            
            
            20Accrued
      liabilities
            
            
            12
            
            
            
            20Regulatory
      liabilities
            
            
            38
            
            
            
            19Other
            
            
            23
            
            
            
            13Total
      current liabilities
            
            
            294
            
            
            
            279Long-term
      debt
            
            
            1,166
            
            
            
            1,166Other
      liabilitiesDeferred
      income taxes
            
            
            397
            
            
            
            370Other
            
            
            100
            
            
            
            116Commitments
      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
            
            
            549
            
            
            
            594Total
      stockholder’s equity
            
            
            1,817
            
            
            
            1,862Total
      liabilities and stockholder’s equity
            
            $
            3,774
            
            
            $
            3,793





See
accompanying notes.





2


EL
PASO NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





Nine
      Months EndedSeptember
      30,2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            104
            
            
            $
            100Adjustments
      to reconcile net income to net cash from operating
    activitiesDepreciation
      and amortization
            
            
            60
            
            
            
            63Deferred
      income taxes
            
            
            24
            
            
            
            53Other
      non-cash income items
            
            
            16
            
            
            
            3Asset
      and liability changes
            
            
            31
            
            
            
            16Net
      cash provided by operating activities
            
            
            235
            
            
            
            235Cash
      flows from investing activitiesAdditions
      to property, plant and equipment
            
            
            (133
            )
            
            
            (83
            )Net
      change in notes receivable from affiliate
            
            
            44
            
            
            
            (190
            )Other
            
            
            4
            
            
            
            2Net
      cash used in investing activities
            
            
            (85
            )
            
            
            (271
            )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
            
            
            —
            
            
            
            —Cash
      and cash equivalentsBeginning
      of period
            
            
            —
            
            
            
            —End
      of period
            
            $
            —
            
            
            $
            —





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 September 30, 2008, and for the quarters and nine months ended September
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 do not anticipate that the adoption of the
deferred provisions of this standard will have a material impact 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. The case has been set for trial in September 2009 and
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 April 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. Our costs and legal exposure related to this lawsuit are
not currently determinable.





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. At
September 30, 2008, we accrued approximately $9 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 September 30, 2008, we had
accrued approximately $23 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
$43 million. Our accrual includes $20 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 September
30, 2008 (in millions):





Balance
      at January 1, 2008
            
            $
            25Additions/adjustments
      for remediation activities
            
            
            1Payments
      for remediation activities
            
            
            (3
            )Balance
      at September 30, 2008
            
            $
            23





For the
remainder of 2008, we estimate that our total remediation expenditures will be
approximately $2 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 September 30, 2008, we
have estimated our share of the remediation costs at these sites to be between
$11 million and $15 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 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 thirteen 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.   Currently, various legislative and regulatory
measures to address greenhouse gas (GHG) emissions are in various phases of
discussion or implementation. Various federal legislative proposals have been
made over the last several years. The Environmental Protection Agency (EPA) is
considering a rulemaking regarding potential regulation of GHG emissions from
stationary and mobile sources under the Clean Air Act. Legislation and
regulation are also in various stages of proposal, enactment, and implementation
in many states throughout the United States. If enacted as proposed, the federal
and state legislative and regulatory proposals would impact our operations and
financial results. However, until enacted, it is not possible to determine the
exact impact that these future measures might have on our operations and
financial results. Additionally, various governmental entities and environmental
groups have filed lawsuits seeking to force the federal government to regulate
GHG emissions and individual companies to reduce GHG emissions from their
operations. These and other suits may result in decisions by state courts,
federal agencies, and other governing bodies that could impact our operations
and ability to obtain certifications and permits to construct future
projects.





7


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. Negotiations on the remaining terms and conditions are
continuing. Based on the preliminary agreement, we made payments to the Navajo
Nation covering the period from January 2007 through October 2008. We made a
second payment to the Navajo Nation in October 2008 covering a twelve-month
period through October 2009.  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.





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 September 30, 2008, we have financial and
performance guarantees with a maximum exposure of approximately
$11 million.


8


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
September 30, 2008 and December 31, 2007, we had a note
receivable from El Paso of approximately $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 notes receivable from the cash management program to pay a
dividend to our parent. The interest rate on this note at
September 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 September
30, 2008 and December 31, 2007, we had income taxes payable of
$84 million and $54 million. The majority of these balances, as well as our
deferred income taxes, will become payable to El Paso. During 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.





Other Affiliate
Balances.  At September 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 September
30:





Quarter
      Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions)Revenues
      from affiliates
            
            $
            5
            
            
            $
            5
            
            
            $
            13
            
            
            $
            14Operation
      and maintenance expenses from affiliates
            
            
            15
            
            
            
            14
            
            
            
            43
            
            
            
            41Reimbursements
      of operating expenses charged to affiliates
            
            
            6
            
            
            
            5
            
            
            
            16
            
            
            
            13


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 nine months ended September 30, 2008
compared to the same period in 2007.





Operating
      Results:
            
            2008
            
            
            2007(In
      millions,
              except
      for volumes)Operating
      revenues
            
            $
            438
            
            
            $
            417Operating
      expenses
            
            
            (243
            )
            
            
            (237
            )Operating
      income
            
            
            195
            
            
            
            180Other
      income, net
            
            
            5
            
            
            
            4EBIT
            
            
            200
            
            
            
            184Interest
      and debt expense
            
            
            (68
            )
            
            
            (74
            )Affiliated
      interest income, net
            
            
            36
            
            
            
            51Income
      taxes
            
            
            (64
            )
            
            
            (61
            )Net
      income
            
            $
            104
            
            
            $
            100Throughput
      volumes (BBtu/d)(1)
            
            
            4,372
            
            
            
            4,192


____________


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





EBIT
      Analysis:
            
            
            
            
            
            
            
            
            
            
            EBITRevene
            
            
            Expense
            
            
            Other
            
            
            ImpactFavorable/(Unfavorable)(In
      millions)Reservation
      and other services revenues
            
            $
            16
            
            
            $
            —
            
            
            $
            —
            
            
            $
            16Enron
      bankruptcy settlement
            
            
            5
            
            
            
            1
            
            
            
            —
            
            
            
            6Operating
      and general and administrative expenses
            
            
            —
            
            
            
            (7
            )
            
            
            —
            
            
            
            (7
            )Other
      (1)
            
            
            —
            
            
            
            —
            
            
            
            1
            
            
            
            1Total
      impact on EBIT
            
            $
            21
            
            
            $
            (6
            )
            
            $
            1
            
            
            $
            16


____________





(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
reservation 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 of
our Mojave rate case, see our 2007 Annual Report on Form 10-K.


10


Enron Bankruptcy Settlement.During the nine months ended September 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 nine months ended September 30, 2008,
our operating and general and administrative expenses increased primarily as a
result of increased maintenance costs.





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 nine months ended September 30, 2008, was $6 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 nine months ended September 30, 2008, was
$15 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 nine months decreased from 6.1% in 2007 to 4.5% for the
same period in 2008. The average advances due from El Paso of $1.1 billion
for the nine months ended September 30, 2007 were approximately the same as
compared to the same period in 2008.





Income
Taxes





Our
effective tax rates of 38 percent for the nine months ended September 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 million of our notes receivable from the cash management program
to pay a dividend to our parent. At September 30, 2008, we had a note
receivable from El Paso of approximately $1.1 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 September 30, 2008, El Paso had
approximately $0.6 billion of capacity remaining under this credit agreement,
none of which was used by us. For a further discussion of this credit agreement,
see our 2007 Annual Report on Form 10-K.





Current
global financial markets are extremely volatile.  The U.S. and foreign
governments have recently enacted emergency financial packages that are designed
to restore confidence and liquidity in the global credit markets.  However,
it is uncertain whether such measures will be successful and, if successful,
when the positive effects will be achieved in the financial markets. 
Although we do not anticipate having a need to directly access the financial
markets in 2009 for any of our operating activities or expansion capital needs,
we do rely upon amounts available to us under El Paso’s cash management program
to meet our capital requirements and operating needs.  As of September 30,
2008, El Paso had approximately $1.2 billion of cash and approximately $0.7
billion of capacity available to it under various committed credit
facilities.  Additionally, in response to the volatility in the financial
markets, El Paso has also announced certain actions that are designed to reduce
its need to access such financial markets, including reductions in the capital
programs of certain of its operating subsidiaries and the sale of several
non-core assets.




In
addition to the liquidity sources and actions discussed above, we also have the
ability to pursue financial market transactions to supplement our operating cash
flows to fund our capital expenditure programs, meet operating needs and repay
debt maturities.  However, there is a risk that the financial markets could
remain volatile and we or El Paso are not able to access these markets, which
could impact our liquidity in the future. For a more detailed discussion of our
operations and risk factors related to our relationship with El Paso, refer to
our 2007 Annual Report on Form 10-K.





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





Nine
      Months Ended
            
            
            2008September
      30, 2008
            
            
            Remaining
            
            
            Total(In
      millions)Maintenance
            
            $
            93
            
            
            $
            55
            
            
            $
            148Expansion
            
            
            40
            
            
            
            18
            
            
            
            58$
            133
            
            
            $
            73
            
            
            $
            206





12


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.





Item 4T. Controls
and Procedures





Evaluation
of Disclosure Controls and Procedures





As of
September 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 September 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 third 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, such as limited access to the capital markets, 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, except as discussed in
Liquidity and Capital Expenditures in Part I, Item 2, Management’s Discussion
and Analysis of Financial Condition and Results of Operations.





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: 
      November 7, 2008
              /s/     
      James J. ClearyJames J. ClearyPresident(Principal
      Accounting and Financial Officer)/s/    
      John R. SultJohn
      R. SultDate: 
      November 7, 2008
              Senior
      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.





Exhibit
              Number
            
            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.