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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) OFTHE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE 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 
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
 þ o
  o o 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 PEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of PEO Pursuant to Section 906Certification of CFO 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. i




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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 EndedMarch 31,2007
    
    
    2006Operating revenues
    
    $
    145
    
    
    $
    153Operating expensesOperation and maintenance
    
    
    45
    
    
    
    49Depreciation and amortization
    
    
    22
    
    
    
    24Taxes, other than income taxes
    
    
    8
    
    
    
    875
    
    
    
    81Operating income
    
    
    70
    
    
    
    72Other income, net
    
    
    1
    
    
    
    1Interest and debt expense
    
    
    (25
    )
    
    
    (23
    )Affiliated interest income, net
    
    
    16
    
    
    
    11Income before income taxes
    
    
    62
    
    
    
    61Income taxes
    
    
    23
    
    
    
    23Net income
    
    $
    39
    
    
    $
    38
  1




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EL PASO NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    1
    
    
    $
    Accounts and notes receivableCustomer, net of allowance of $5 in 2007 and 2006
    
    
    78
    
    
    
    81Affiliates
    
    
    41
    
    
    
    5Other
    
    
    1
    
    
    
    Materials and supplies
    
    
    40
    
    
    
    40Deferred income taxes
    
    
    49
    
    
    
    42Other
    
    
    4
    
    
    
    6Total current assets
    
    
    214
    
    
    
    174Property, plant and equipment, at cost
    
    
    3,592
    
    
    
    3,557Less accumulated depreciation and amortization
    
    
    1,269
    
    
    
    1,251Total property, plant and equipment, net
    
    
    2,323
    
    
    
    2,306Other assetsNotes receivable from affiliate
    
    
    1,099
    
    
    
    1,070Other
    
    
    93
    
    
    
    811,192
    
    
    
    1,151Total assets
    
    $
    3,729
    
    
    $
    3,631LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payableTrade
    
    $
    60
    
    
    $
    59Affiliates
    
    
    54
    
    
    
    17Other
    
    
    14
    
    
    
    9Taxes payable
    
    
    90
    
    
    
    87Accrued interest
    
    
    26
    
    
    
    27Accrued liabilities
    
    
    104
    
    
    
    84Other
    
    
    18
    
    
    
    21Total current liabilities
    
    
    366
    
    
    
    304Long-term debt
    
    
    1,111
    
    
    
    1,111Other liabilitiesDeferred income taxes
    
    
    393
    
    
    
    405Other
    
    
    90
    
    
    
    85483
    
    
    
    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
    
    
    501
    
    
    
    462Accumulated other comprehensive loss
    
    
    
    
    
    
    (4
    )Total stockholders equity
    
    
    1,769
    
    
    
    1,726Total liabilities and stockholders equity
    
    $
    3,729
    
    
    $
    3,631
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EL PASO NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Quarter EndedMarch 31,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    39
    
    
    $
    38Adjustments to reconcile net income to net cash from operating activitiesDepreciation and amortization
    
    
    22
    
    
    
    24Deferred income taxes
    
    
    19
    
    
    
    8Other non-cash income items
    
    
    3
    
    
    
    3Asset and liabilities changes
    
    
    6
    
    
    
    3Net cash provided by operating activities
    
    
    89
    
    
    
    76Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (23
    )
    
    
    (21
    )Net change in notes receivable from affiliate
    
    
    (66
    )
    
    
    (62
    )Net change in restricted cash
    
    
    
    
    
    
    7Other
    
    
    1
    
    
    
    Net cash used in investing activities
    
    
    (88
    )
    
    
    (76
    )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.
 4




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Credit Facilities.
 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.,
   Environmental Matters
   Balance at January 1, 2007
    
    $
    24Additions/adjustments for remediation activities
    
    
    3Payments for remediation activities
    
    
    (1
    )Balance at March 31, 2007
    
    $
    26
  Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Matters.
 6




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State of Arizona Chromium Review.
  Rates and Regulatory Matters
 EPNG Rate Case.
 Mojave Pipeline Company (Mojave) Rate Case.
  Other Matter
 Navajo Nation.
 7




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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.
  Other Affiliate Balances.
 8




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Affiliate Revenues and Expenses.
 2007
    
    2006(In millions)Revenues from affiliates
    
    $
    5
    
    
    $
    4Operation and maintenance expenses from affiliates
    
    
    14
    
    
    
    14Reimbursements of operating expenses charged to affiliates
    
    
    4
    
    
    
    4
 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
    
    $
    145
    
    
    $
    153Operating expenses
    
    
    (75
    )
    
    
    (81
    )Operating income
    
    
    70
    
    
    
    72Other income, net
    
    
    1
    
    
    
    1EBIT
    
    
    71
    
    
    
    73Interest and debt expense
    
    
    (25
    )
    
    
    (23
    )Affiliated interest income, net
    
    
    16
    
    
    
    11Income taxes
    
    
    (23
    )
    
    
    (23
    )Net income
    
    $
    39
    
    
    $
    38Throughput volumes (BBtu/d)(1)
    
    
    4,226
    
    
    
    4,094
 
 (1)
    
    Throughput volumes exclude
throughput transported by Mojave on behalf of EPNG. EBITRevenue
    
    
    Expense
    
    
    ImpactFavorable/(Unfavorable)(In millions)Reservation revenues
    
    $
    (8
    )
    
    $
    
    
    
    $
    (8
    )Operational gas and revaluations
    
    
    
    
    
    
    5
    
    
    
    5Other (1)
    
    
    
    
    
    
    1
    
    
    
    1Total impact on EBIT
    
    $
    (8
    )
    
    $
    6
    
    
    $
    (2
    )
 
 (1)
    
    Consists of individually
insignificant items. 10




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Reservation Revenues.
 
    
    EPNG In December 2006, we filed a settlement with the FERC providing 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 effective January 1, 2009. Our recorded income amounts currently reflect our proposed rates and we have
reserved sufficient amounts to meet EPNGs 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 the last rate case. No new services were proposed.
We anticipate a decrease in revenues of approximately
$13 million annually due to Mojaves reduced base rates.
The new base rates were effective March 1, 2007 and are subject
to further adjustment upon
the outcome of the hearing.
 Operational Gas and Revaluations.
 Affiliated Interest Income, Net
  Income Taxes
 Quarter EndedMarch 31,2007
    
    2006(In millions,except for rates)Income taxes
    
    $
    23
    
    
    $
    23Effective tax rate
    
    
    37
    %
    
    
    38
    %
  Liquidity and Capital Expenditures
 Liquidity Overview
  11




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Debt
   Capital Expenditures
 Quarter Ended
    
    
    2007March 31, 2007
    
    
    Remaining
    
    
    Total(In millions)Maintenance
    
    $
    21
    
    
    $
    99
    
    
    $
    120Expansion
    
    
    2
    
    
    
    22
    
    
    
    24$
    23
    
    
    $
    121
    
    
    $
    144
  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: May 7, 2007
    /s/     JAMES J. CLEARYJames J. ClearyPresident
(Principal Executive Officer)Date: May 7, 2007
    /s/     JOHN R. SULTJohn R. SultSenior Vice President,
Chief Financial Officer and Controller
(Principal Accounting and Financial Officer) 15




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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