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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission File Number 1-2700
 
 El Paso Natural Gas Company
  Delaware
    
    74-0608280(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)El Paso Building1001 Louisiana StreetHouston, Texas
    
    77002(Address of Principal Executive Offices)
    
    (Zip Code)
 Telephone Number: (713) 420-2600
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer
þ
 o þ
   EL PASO NATURAL GAS COMPANY MEETS THE CONDITIONS OF GENERAL 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.




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##### 



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
    
    
    15Certification of Principal Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Principal Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
  
 *
    
    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 unitsWhen 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.




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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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    136
    
    
    $
    142
    
    
    $
    281
    
    
    $
    295Operating expensesOperation and maintenance
    
    
    53
    
    
    
    48
    
    
    
    98
    
    
    
    97Depreciation and amortization
    
    
    20
    
    
    
    24
    
    
    
    42
    
    
    
    48Taxes, other than income taxes
    
    
    7
    
    
    
    8
    
    
    
    15
    
    
    
    1680
    
    
    
    80
    
    
    
    155
    
    
    
    161Operating income
    
    
    56
    
    
    
    62
    
    
    
    126
    
    
    
    134Other income, net
    
    
    2
    
    
    
    2
    
    
    
    3
    
    
    
    3Interest and debt expense
    
    
    (24
    )
    
    
    (24
    )
    
    
    (49
    )
    
    
    (47
    )Affiliated interest income, net
    
    
    16
    
    
    
    14
    
    
    
    32
    
    
    
    25Income before income taxes
    
    
    50
    
    
    
    54
    
    
    
    112
    
    
    
    115Income taxes
    
    
    19
    
    
    
    21
    
    
    
    42
    
    
    
    44Net income
    
    $
    31
    
    
    $
    33
    
    
    $
    70
    
    
    $
    71
  1




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EL PASO NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    1
    
    
    $
    Accounts and notes receivableCustomer, net of allowance of $4 in 2007 and $5 in 2006
    
    
    82
    
    
    
    81Affiliates
    
    
    75
    
    
    
    5Other
    
    
    2
    
    
    
    Materials and supplies
    
    
    40
    
    
    
    40Deferred income taxes
    
    
    49
    
    
    
    42Other
    
    
    4
    
    
    
    6Total current assets
    
    
    253
    
    
    
    174Property, plant and equipment, at cost
    
    
    3,638
    
    
    
    3,557Less accumulated depreciation and amortization
    
    
    1,277
    
    
    
    1,251Total property, plant and equipment, net
    
    
    2,361
    
    
    
    2,306Other assetsNotes receivable from affiliate
    
    
    1,117
    
    
    
    1,070Other
    
    
    102
    
    
    
    811,219
    
    
    
    1,151Total assets
    
    $
    3,833
    
    
    $
    3,631LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payableTrade
    
    $
    71
    
    
    $
    59Affiliates
    
    
    14
    
    
    
    17Other
    
    
    21
    
    
    
    9Accrued liabilities
    
    
    120
    
    
    
    84Taxes payable
    
    
    96
    
    
    
    87Accrued interest
    
    
    25
    
    
    
    27Other
    
    
    17
    
    
    
    21Total current liabilities
    
    
    364
    
    
    
    304Long-term debt
    
    
    1,166
    
    
    
    1,111Other liabilitiesDeferred income taxes
    
    
    412
    
    
    
    405Other
    
    
    91
    
    
    
    85503
    
    
    
    490Commitments and contingenciesStockholders equityCommon stock, par value $1 per share; 1,000 shares
authorized, issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1,268
    
    
    
    1,268Retained earnings
    
    
    532
    
    
    
    462Accumulated other comprehensive loss
    
    
    
    
    
    
    (4
    )Total stockholders equity
    
    
    1,800
    
    
    
    1,726Total liabilities and stockholders equity
    
    $
    3,833
    
    
    $
    3,631
  2




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EL PASO NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    70
    
    
    $
    71Adjustments to reconcile net income to net cash from operating activitiesDepreciation and amortization
    
    
    42
    
    
    
    48Deferred income taxes
    
    
    38
    
    
    
    14Other
    
    
    6
    
    
    
    1Asset and liability changes
    
    
    (18
    )
    
    
    30Net cash provided by operating activities
    
    
    138
    
    
    
    164Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (58
    )
    
    
    (83
    )Net change in notes receivable from affiliate
    
    
    (116
    )
    
    
    (92
    )Net change in restricted cash
    
    
    
    
    
    
    11Other
    
    
    1
    
    
    
    Net cash used in investing activities
    
    
    (173
    )
    
    
    (164
    )Cash flows from financing activitiesNet proceeds from issuance of long-term debt
    
    
    350
    
    
    
    Payment to retire long-term debt
    
    
    (314
    )
    
    
    Net cash used in financing activities
    
    
    36
    
    
    
    Net change in cash and cash equivalents
    
    
    1
    
    
    
    Cash and cash equivalentsBeginning of period
    
    
    
    
    
    
    End of period
    
    $
    1
    
    
    $
    
  3




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EL PASO NATURAL GAS COMPANY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation and Significant Accounting Policies
 Basis of Presentation
  Significant Accounting Policies
  Accounting for Uncertainty in Income Taxes. Accounting for Uncertainty in Income
Taxes. Accounting
for Income Taxes,
 2. Income Taxes
  3. Debt and Credit Facilities
 Debt.
 Credit Facilities.
 4




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4. Commitments and Contingencies
 Legal Proceedings
 Sierra Pacific Resources and Nevada Power Company v. El Paso et al.
 Carlsbad.
 Baldonado et al. v. EPNG Baldonado
 Gas Measurement Cases. re: Natural Gas Royalties
Qui Tam Litigation,
 Will Price, et
al. v. Gas Pipelines and Their Predecessors, et al.,
 5




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Bank of America. Bank of America,
et al. v. El Paso Natural Gas and Burlington Resources Oil and Gas Company, L.P., Bank of America v. El Paso Natural Gas
  Environmental Matters
    Balance at January 1, 2007
    
    $
    24Additions/adjustments for remediation activities
    
    
    3Payments for remediation activities
    
    
    (2
    )Balance at June 30, 2007
    
    $
    25
  6




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Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Matters.
 State of Arizona Chromium Review.
  Rates and Regulatory Matters
 EPNG Rate Case.
 Mojave Pipeline Company (Mojave) Rate Case.
 7




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Other
Matters
 Navajo Nation.
 Tuba City Uranium Milling Facility
  Guarantees
  5. Retirement Benefits
 Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No.
87, 88, 106, and 132(R) Employers Accounting for Postretirement Benefits Other Than Pensions,
 6. Transactions with Affiliates
 Cash Management Program.
 Taxes.
 8




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Other Affiliate Balances.
 Affiliate Revenues and Expenses.
 Quarter Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006(In millions)Revenues from affiliates
    
    $
    4
    
    
    $
    4
    
    
    $
    9
    
    
    $
    8Operation and maintenance expenses from affiliates
    
    
    13
    
    
    
    13
    
    
    
    27
    
    
    
    27Reimbursements of operating expenses charged to affiliates
    
    
    4
    
    
    
    4
    
    
    
    8
    
    
    
    8
 9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Results of Operations
  2007
    
    
    2006(In millions,except volumes)Operating revenues
    
    $
    281
    
    
    $
    295Operating expenses
    
    
    (155
    )
    
    
    (161
    )Operating income
    
    
    126
    
    
    
    134Other income, net
    
    
    3
    
    
    
    3EBIT
    
    
    129
    
    
    
    137Interest and debt expense
    
    
    (49
    )
    
    
    (47
    )Affiliated interest income, net
    
    
    32
    
    
    
    25Income taxes
    
    
    (42
    )
    
    
    (44
    )Net income
    
    $
    70
    
    
    $
    71Throughput volumes (BBtu/d)(1)
    
    
    4,157
    
    
    
    4,093
 
 (1)
    
    Throughput volumes exclude throughput transported by the Mojave system on behalf of the EPNG system. EBITRevenue
    
    
    Expense
    
    
    ImpactFavorable/(Unfavorable)(In millions)Transportation revenues
    
    $
    (14
    )
    
    $
    
    
    
    $
    (14
    )Operational gas and revaluations
    
    
    
    
    
    
    6
    
    
    
    6Depreciation and amortization expense
    
    
    
    
    
    
    6
    
    
    
    6Other (1)
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Total impact on EBIT
    
    $
    (14
    )
    
    $
    6
    
    
    $
    (8
    )
 
 (1)
    
    Consists of individually insignificant items. 10




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Transportation Revenues.
 
    
    EPNG In December 2006, we filed a settlement of our rate case and are awaiting the
FERCs approval. The settlement provides benefits for both us and our customers for a
three year period ending December 31, 2008. Under the terms of the settlement, EPNG
is required to file a new rate case to be effective January 1, 2009. Our financial
statements reflect the proposed rates and we have reserved sufficient amounts to meet
our refund obligations under this settlement.
    
    Mojave In February 2007, as required by its prior rate case settlement, Mojave
filed with the FERC a general rate case proposing a 33 percent decrease in its base
tariff rates resulting from a variety of factors, including a decline in rate base and
various changes in rate design since its last rate case. No new services were proposed.
We anticipate a decrease in revenues of approximately $13 million annually due to these
rate changes. The new base rates were effective March 1, 2007 and are subject to further
adjustment upon the outcome of the rate case proceeding. Mojave is actively engaged in
settlement negotiations with its customers, the outcome of which cannot be predicted at
this time.
 Operational Gas and Revaluations.
 Depreciation and Amortization Expense.
 Affiliated Interest Income, Net
  Income Taxes
  Liquidity and Capital Expenditures
 Liquidity Overview.
   11




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Debt.
  Capital Expenditures.
 Six Months Ended
    
    
    2007June 30, 2007
    
    
    Remaining
    
    
    Total(In millions)Maintenance
    
    $
    54
    
    
    $
    63
    
    
    $
    117Expansion
    
    
    4
    
    
    
    19
    
    
    
    23$
    58
    
    
    $
    82
    
    
    $
    140
 Commitments and Contingencies
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  12




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Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  13




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
   
 Item 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
  
 Item 6. Exhibits
  14




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SIGNATURES
  EL PASO NATURAL GAS COMPANYDate: August 7, 2007
    
    /s/ JAMES J. CLEARYJames J. ClearyPresident(Principal Executive Officer)Date: August 7, 2007
    
    /s/ JOHN R. SULTJohn R. SultSenior Vice President,Chief Financial Officer and Controller(Principal Accounting and Financial Officer)
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EL PASO NATURAL GAS COMPANY
 EXHIBIT INDEX
  ExhibitNumber
    
    Description4.A
    
    Second Supplemental Indenture dated as of April 4, 2007 between El Paso Natural Gas Company and
Wilmington Trust Company, as trustee, to indenture dated as of November 13, 1996 (Exhibit 4.A to
our Current Report on Form 8-K filed with the SEC on April 9, 2007).4.B
    
    Form of 5.95% Senior Note due 2017 (included as Exhibit A to Exhibit 4.A of our Current Report on
Form 8-K filed with the SEC on April 9, 2007).4.C
    
    First Supplemental Indenture dated as of April 4, 2007 between El Paso Natural Gas Company and
Wilmington Trust Company, as trustee, to indenture dated as of July 23, 2003 (Exhibit 4.C to our
Current Report on Form 8-K filed with the SEC on April 9, 2007).10.A
    
    Registration Rights Agreement, dated as of April 4, 2007, among El Paso Natural Gas Company and
Deutsche Bank Securities Inc., Citigroup Global Markets Inc., ABN AMRO Incorporated, Goldman,
Sachs & Co, Greenwich Capital Markets, Inc., J.P. Morgan Securities Inc., and SG Americas
Securities, LLC (Exhibit 10.A to our Current Report on Form 8-K filed with the SEC on April 9,
2007).*31.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.
 16