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 March 31, 2009OR£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE
      SECURITIES EXCHANGE ACT OF
      1934For
      the transition period
      fromto




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 Jurisdictionof
      Incorporation or Organization)
                (I.R.S.
      EmployerIdentification
      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.  YesR   No £
  Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files).   Yes £   No £
 
 Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or
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
      filerþ
                      (Do
      not check if a smaller reporting company)
                    Smaller Reporting
      Companyo
 
 Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o Noþ
  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 May 11, 2009:
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
            9Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            *Item
      4.
            Controls and
      Procedures
            12PART
      II — Other InformationItem
      1.
            Legal
      Proceedings
            13Item
      1A.
            Risk
      Factors
            13Item
      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
            13Item
      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
              March 31,2009
            
            
            2008Operating
      revenues
            
            $
            157
            
            
            $
            141Operating
      expensesOperation and
      maintenance
            
            
            47
            
            
            
            53Depreciation and
      amortization
            
            
            21
            
            
            
            20Taxes, other than income
      taxes
            
            
            8
            
            
            
            876
            
            
            
            81Operating
      income
            
            
            81
            
            
            
            60Other income,
      net
            
            
            1
            
            
            
            1Interest and
      debt expense
            
            
            (23
            )
            
            
            (23
            )Affiliated
      interest income, net
            
            
            5
            
            
            
            15Income before
      income taxes
            
            
            64
            
            
            
            53Income
      taxes
            
            
            24
            
            
            
            20Net
      income
            
            $
            40
            
            
            $
            33




See accompanying
notes.
























1





EL
PASO NATURAL GAS COMPANY




CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
millions, except share amounts)


(Unaudited)




March
      31,
              2009
            
            
            December 31,
              2008ASSETSCurrent
      assetsCash and cash
      equivalents
            
            $
            —
            
            
            $
            —Accounts and
      notes receivableCustomer, net
      of allowance of $2 in 2009 and 2008
            
            
            66
            
            
            
            66Affiliates
            
            
            6
            
            
            
            6Other
            
            
            2
            
            
            
            6Materials and
      supplies
            
            
            44
            
            
            
            43Deferred
      income taxes
            
            
            18
            
            
            
            12Prepaids
            
            
            11
            
            
            
            15Other
            
            
            9
            
            
            
            8Total current
      assets
            
            
            156
            
            
            
            156Property,
      plant and equipment, at cost
            
            
            3,811
            
            
            
            3,804Less
      accumulated depreciation and amortization
            
            
            1,374
            
            
            
            1,365Total
      property, plant and equipment, net
            
            
            2,437
            
            
            
            2,439Other
      assetsNote
      receivable from affiliate
            
            
            1,073
            
            
            
            986Other
            
            
            102
            
            
            
            1031,175
            
            
            
            1,089Total
      assets
            
            $
            3,768
            
            
            $
            3,684LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent
      liabilitiesAccounts
      payableTrade
            
            $
            40
            
            
            $
            48Affiliates
            
            
            19
            
            
            
            21Other
            
            
            14
            
            
            
            18Taxes
      payable
            
            
            111
            
            
            
            79Accrued
      interest
            
            
            28
            
            
            
            20Accrued
      liabilities
            
            
            26
            
            
            
            9Regulatory
      liabilities
            
            
            32
            
            
            
            33Other
            
            
            31
            
            
            
            31Total current
      liabilities
            
            
            301
            
            
            
            259Long-term
      debt
            
            
            1,167
            
            
            
            1,166Other
      liabilitiesDeferred
      income taxes
            
            
            395
            
            
            
            389Other
            
            
            67
            
            
            
            72462
            
            
            
            461Commitments
      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
            
            
            570
            
            
            
            530Total
      stockholder’s equity
            
            
            1,838
            
            
            
            1,798Total
      liabilities and stockholder’s equity
            
            $
            3,768
            
            
            $
            3,684




See accompanying
notes.








2





EL
PASO NATURAL GAS COMPANY




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)




Quarter
      Ended
              March 31,2009
            
            
            2008Cash flows
      from operating activitiesNet
      income
            
            $
            40
            
            
            $
            33Adjustments
      to reconcile net income to net cash from operating
    activitiesDepreciation
      and amortization
            
            
            21
            
            
            
            20Deferred
      income taxes
            
            
            —
            
            
            
            5Other
      non-cash income items
            
            
            (3
            )
            
            
            19Asset and
      liability changes
            
            
            48
            
            
            
            17Net
      cash provided by operating activities
            
            
            106
            
            
            
            94Cash flows
      from investing activitiesAdditions
      to property, plant and equipment
            
            
            (33
            )
            
            
            (34
            )Net
      change in note receivable from affiliate
            
            
            (87
            )
            
            
            91Other
            
            
            14
            
            
            
            (1
            )Net
      cash provided by (used) in investing activities
            
            
            (106
            )
            
            
            56Cash flows
      from financing activitiesDividend
      paid to parent
            
            
            —
            
            
            
            (150
            )Net
      cash used in financing activities
            
            
            —
            
            
            
            (150
            )Net 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 2008 Annual Report on Form 10-K, which includes a summary of our
significant accounting policies and other disclosures. The financial statements
as of March 31, 2009, and for the quarters ended March 31, 2009 and 2008,
are unaudited. We derived the condensed consolidated balance sheet as of
December 31, 2008, from the audited balance sheet filed in our 2008
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 as discussed in our 2008 Annual Report on Form
10-K.




Fair
Value Measurements.On January 1, 2009, we adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 157, Fair
Value Measurements, for our non-financial assets and liabilities that are
not measured at fair value on a recurring basis, which primarily relates to any
impairment of long-lived assets or investments. During the quarter ended March
31, 2009, there were no fair value measurements recorded on a non-recurring
basis.




Business
Combinations and Noncontrolling Interests.On January 1, 2009, we adopted
SFAS No. 141(R), Business
Combinations, and SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, which provide revised
guidance on the accounting for acquisitions of businesses and transactions
involving noncontrolling interests.  SFAS No. 141(R) changes the
current guidance to require that all acquired assets, liabilities,
noncontrolling interests and certain contingencies be measured at fair value,
and certain other acquisition-related costs be expensed rather than
capitalized. SFAS No. 160 requires that all transactions with
noncontrolling interest holders, including the issuance and repurchase of
noncontrolling interests, be accounted for as equity transactions unless a
change in control of the subsidiary occurs. The adoption of these standards did
not have an impact on our financial statements.  Application of these
standards will impact transactions that are entered into after December 31,
2008.
 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.




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. 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.






4
 
  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. In March 2009, the Tenth Circuit
Court of Appeals affirmed the dismissals and in April 2009, a motion for
reconsideration was 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 occurred in April 2009 and we
are awaiting a decision by the Court. 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.




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 March 31, 2009, we had
accrued approximately $5 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 March 31, 2009, we had accrued
approximately $22 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
$42 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.




For the remainder
of 2009, we estimate that our total remediation expenditures will be
approximately $7 million, which will be expended under government directed
clean-up programs.






5




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 March 31,
2009, 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.




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 proposed an increase in our base tariff rates. In August
2008, the FERC issued an order accepting the proposed rates effective January 1,
2009, subject to refund and the outcome of a hearing and a technical conference.
In December 2008, the FERC issued an order that generally accepted most of our
proposals in the technical conference proceeding. The FERC appointed an
administrative law judge who will decide the remaining issues should we be
unable to reach a settlement with our customers in upcoming
negotiations.




Greenhouse
Gas (GHG) Emissions. Legislative and regulatory measures to address GHG
emissions are in various phases of discussions or implementation at the
international, national, regional and state levels. In the United States, it is
likely that federal legislation requiring GHG controls will be enacted in the
next few years. In addition, the United States Environmental Protection Agency
(EPA) is considering initiating a rulemaking to regulate GHGs under the Clean
Air Act. Furthermore, the EPA recently issued proposed regulations requiring
monitoring and reporting of GHG emissions on an annual basis economy wide,
including extensive new monitoring and reporting requirements applicable to our
industry. The EPA has also recently proposed findings that GHGs in the
atmosphere endanger public health and welfare, and that emissions from mobile
sources cause or contribute to GHGs in the atmosphere.  These proposed
findings, if finalized as proposed, would not immediately affect our operations,
but standards eventually promulgated pursuant to these findings could affect our
operations and ability to obtain air permits for new or modified facilities.
Legislation and regulation are also in various stages of discussions or
implementation in many of the states in which we operate. These measures include
recommendations released by the Western Climate Initiative regarding a
cap-and-trade program and targeted emission reductions in several states in
which we operate in the western United States. In California, recently enacted
legislation and proposed rules would impose GHG emission reduction targets on
our operations there. Meanwhile, lawsuits have been filed seeking to force the
federal government to regulate GHG emissions under the Clean Air Act and to
require individual companies to reduce GHG emissions from their operations.
These and other lawsuits may result in decisions by state and federal courts and
agencies that could impact our operations and ability to obtain certifications
and permits to construct future projects. Our costs and legal exposure related
to GHG regulations are not currently determinable.




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 March 2009,
representatives of the Navajo Nation and EPNG executed an agreement setting
forth the terms and conditions of the Navajo Nation’s consent to EPNG’s
rights-of-way.  Under this agreement, we will make annual payments of
approximately $18 million for our rights-of-way beginning in 2009 and continuing
through 2025, subject to annual adjustments. EPNG submitted the Navajo Nation’s
consent agreement in support of EPNG’s pending application to the United States
Department of the Interior (the Department) for an extension of the Department’s
current right-of-way grant.  We expect that the submission of the
consent agreement will result in the Department’s final processing of our
application. We have filed with the FERC for recovery of these amounts in our
recent rate case.




6


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. In March 2009, the United States District
Court for the District of Columbia issued an opinion dismissing one of our
claims, from which we intend to make an appeal.  Also in March,
following our close cooperation with the Navajo Nation in joint legislative
efforts, President Obama signed the Fiscal Year 2009 Omnibus Appropriations Act,
which appropriated $5 million toward the final remediation by the DOE of one of
the two sites that are the subject of our lawsuit. Pending the 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 March 31, 2009, 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. 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. At
March 31, 2009 and December 31, 2008, we had a note receivable
from El Paso of approximately $1.1 billion and $1.0 billion. We have
classified these amounts as non-current on our balance sheets based on the net
amount we anticipate using in the next twelve months considering available cash
sources and needs. The interest rate on this variable rate note was 1.7% at
March 31, 2009 and 3.2% at December 31, 2008.




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 March
31, 2009 and December 31, 2008, we had federal and state income
taxes payable of $103 million and $79 million. The majority of these
balances, as well as our deferred income taxes, will become payable to
El Paso.


















7


Other
Affiliate Balances.  At March 31, 2009 and December 31,
2008, 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 2008 Annual Report on Form 10-K. The following
table shows revenues and charges from our affiliates for the quarters ended
March 31:




2009
            
            
            2008(In
      millions)Revenues from
      affiliates
            
            $
            5
            
            
            $
            4Operation and
      maintenance expenses from affiliates
            
            
            15
            
            
            
            14Reimbursements
      of operating expenses charged to affiliates
            
            
            6
            
            
            
            5





















































8


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 2008
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 or 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 quarter ended March 31, 2009 compared to the same period in
2008.





Operating
      Results:
            
            2009
            
            
            2008(In
      millions,
              except
      for volumes)Operating
      revenues
            
            $
            157
            
            
            $
            141Operating
      expenses
            
            
            (76
            )
            
            
            (81
            )Operating
      income
            
            
            81
            
            
            
            60Other income,
      net
            
            
            1
            
            
            
            1EBIT
            
            
            82
            
            
            
            61Interest and
      debt expense
            
            
            (23
            )
            
            
            (23
            )Affiliated
      interest income, net
            
            
            5
            
            
            
            15Income
      taxes
            
            
            (24
            )
            
            
            (20
            )Net
      income
            
            $
            40
            
            
            $
            33Throughput volumes
      (BBtu/d)(1)
            
            
            4,054
            
            
            
            4,125


____________


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




EBIT
      Analysis:
            
            Revenue
            
            
            Expense
            
            
            EBIT
              ImpactFavorable/(Unfavorable)(In
      millions)Reservation
      and other services revenues
            
            $
            16
            
            
            $
            —
            
            
            $
            16Operating and
      general and administrative expenses
            
            
            —
            
            
            
            4
            
            
            
            4Other(1)
            
            
            —
            
            
            
            1
            
            
            
            1Total
      impact on EBIT
            
            $
            16
            
            
            $
            5
            
            
            $
            21


____________
 (1)Consists of individually insignificant items.


Reservation
and Other Services Revenues.  Reservation and other services
revenues were higher for the quarter ended March 31, 2009 compared to 2008,
primarily due to an increase in reservation charges for capacity on our EPNG
system resulting from higher contracted capacity to California customers and an
increase in EPNG’s tariff rates effective January 1, 2009, subject to
refund.




In June 2008, we
filed a rate case with the FERC as required under the settlement of our previous
rate case. The filing proposed an increase in our base tariff rates. In August
2008, the FERC issued an order accepting the proposed rates effective January 1,
2009, subject to refund and the outcome of a hearing and a technical conference.
In December 2008, the FERC issued an order that generally accepted most of our
proposals in the technical conference proceeding. The FERC appointed an
administrative law judge who will decide the remaining issues should we be
unable to reach a settlement with our customers in upcoming
negotiations.


9


Operating
and General and Administrative Expenses. During the quarter ended March
31, 2009, our operating and general and administrative expenses decreased
primarily as a result of decreased repair and maintenance costs and higher
allocated costs to our affiliates related to our shared pipeline
services.




Affiliated
Interest Income, Net




Affiliated interest
income, net for the quarter ended March 31, 2009, was $10 million lower than the
same period in 2008 primarily due to lower average short-term interest rates on
advances to El Paso under its cash management program.  The following
table shows the average advances due from El Paso and the average short-term
interest rates for the quarters ended March 31:





2009
            
            
            2008(In billions, except for
    rates)Average
      advance due from El Paso
            
            $
            1.0
            
            
            $
            1.1Average
      short-term interest rate
            
            
            2.2
            %
            
            
            5.6
            %








Income
Taxes





Our effective tax
rate of 38 percent for the quarters ended March 31, 2009 and 2008 was higher
than the statutory rate of 35 percent primarily due to the effect of state
income taxes.













































10





Liquidity
and Capital Resources




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. At March 31, 2009, 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 March 31, 2009, El Paso had approximately $0.9
billion of capacity remaining and available to us under this credit agreement,
and none of the amount outstanding under the facility was issued or borrowed by
us. For a further discussion of this credit agreement, see our 2008 Annual
Report on Form 10-K.




Extreme volatility
in the financial markets, the energy industry and the global economy will likely
continue through the remainder of 2009 and possibly beyond. The global financial
markets remain extremely volatile and it is uncertain whether recent U.S. and
foreign government actions will successfully restore confidence and liquidity in
the global financial markets. This could impact our longer-term access to
capital for future growth projects as well as the cost of such capital. Based on
the liquidity available to us through our operating activities and El Paso’s
cash management program, we do not anticipate a need to directly access the
financial markets for the remainder of 2009 for any of our operating activities
or expansion capital needs. Additionally, although the impacts are difficult to
quantify at this point, a continued downward trend in the global economy could
have adverse impacts on natural gas consumption and demand. However, we believe
our exposure to changes in natural gas consumption and demand is largely
mitigated by a revenue base that is significantly comprised of long-term
contracts that are based on firm demand charges and are less affected by a
potential reduction in the actual usage or consumption of natural
gas.




As of March 31,
2009, El Paso had approximately $1.8 billion of cash and approximately $1.5
billion of capacity available to it under various committed credit facilities.
As noted above, we do not currently anticipate a need to directly access the
financial markets for the remainder of 2009; however, volatility in the
financial markets could impact our or El Paso’s ability to access these markets
at reasonable rates in the future.




Capital
Expenditures.Our cash capital expenditures for the quarter ended March
31, 2009, and our estimates of capital expenditures for the remainder of this
year to expand and maintain our systems are listed below. We expect to fund
these capital expenditures through a combination of internally generated funds
and amounts available under El Paso’s cash management
program.




Quarter
      Ended
              March 31,
      2009
            
            
            2009
              Remaining
            
            
            Total(In
      millions)Maintenance
            
            $
            29
            
            
            $
            84
            
            
            $
            113Expansion
            
            
            4
            
            
            
            —
            
            
            
            4$
            33
            
            
            $
            84
            
            
            $
            117




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.














11





Item 4. Controls
and Procedures




Evaluation
of Disclosure Controls and Procedures




As of March 31,
2009, 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. 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 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 our company have been detected. Our disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
objective and our President and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective at a reasonable level of
assurance at March 31, 2009.




Changes
in Internal Control Over Financial Reporting




There were no
changes in our internal control over financial reporting during the first
quarter of 2009 that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.




































12





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 2008
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.
























13





Item 6. Exhibits




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





The agreements
included as exhibits to this report, are intended to provide information
regarding their terms and not to provide any other factual or
disclosure information about us or the other parties to the agreements. The
agreements may contain representations and warranties by the parties to the
agreements, including us, solely for the benefit of the other parties to the
applicable agreement and:





·
            should not in
      all instances be treated as categorical statements of fact, but rather as
      a way of allocating the risk to one of the parties if those statements
      prove to be inaccurate;


·
            may have been
      qualified by disclosures that were made to the other party in connection
      with the negotiation of the applicable agreement, which disclosures are
      not necessarily reflected in the
agreement;


·
            may apply
      standards of materiality in a way that is different from what may be
      viewed as material to certain
  investors; and


·
            were made
      only as of the date of the applicable agreement or such other date or
      dates as may be specified in the agreement and are subject to more recent
      developments.





Accordingly, these
representations and warranties may not describe the actual state of affairs as
of the date they were made or at any other time.














































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:  May
      11, 2009
              /s/
      James J. ClearyJames J.
      ClearyPresident(Principal
      Executive Officer)Date:  May
      11, 2009
              /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.





Exhibit
              Number
            Description12
            Ratio of
      Earnings to Fixed Charges.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