##### Table of Contents



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
    1934For the quarterly period ended
    September 30, 2006ORo

TRANSITION REPORT PURSUANT TO
    SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF
    1934For the transition period
    from          
    to    Commission File Number 1-2745
    Southern Natural Gas
    Company
   Delaware

63-0196650(State or Other Jurisdiction
    of Incorporation or Organization)

(I.R.S. Employer
    Identification No.)El Paso Building
    1001 Louisiana Street
    Houston, Texas(Address of Principal
    Executive Offices)

77002(Zip Code)   Telephone Number:
    (713) 420-2600
  þ o
  non-accelerated Rule 12b-2
  Large
    accelerated filer  o
    Accelerated
    filer  o
    Non-accelerated
    filer  þ  Rule 12b-2 o þ
      SOUTHERN 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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##### 



SOUTHERN
    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

8Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk

*Item 4.


Controls and
    Procedures

11PART II 
    Other InformationItem 1.


Legal
    Proceedings

12Item 1A.


Risk
    Factors

12Cautionary
    Statements for Purposes of the Safe Harbor
    Provisions of the Private
    Securities Litigation Reform Act of 1995Item 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

12Item 6.


Exhibits

13Signatures

14Certification 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.    /d

= per day

LNG

= liquefied natural gasBBtu

= billion British thermal
    units

MMcf

= million cubic feet     and/or
 i




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PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  SOUTHERN
    NATURAL GAS COMPANY
   CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
    COMPREHENSIVE INCOME
    (In millions)
    (Unaudited)
  Quarters Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Operating revenues

$
130


$
116


$
392


$
353Operating expensesOperation and maintenance


49



47



143



123Depreciation, depletion and
    amortization


14



12



41



38Gain on sale of long-lived assets














(9
)Taxes, other than income taxes


7



8



21



2270



67



205



174Operating income


60



49



187



179Earnings from unconsolidated
    affiliates


22



23



58



63Other income, net


3



7



6



17Interest and debt expense


(24
)


(23
)


(71
)


(70
)Affiliated interest income


5



3



14



7Income before income taxes


66



59



194



196Income taxes


21



20



61



62Net income


45



39



133



134Other comprehensive income






1



1



2Comprehensive income

$
45


$
40


$
134


$
136    1




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SOUTHERN
    NATURAL GAS COMPANY
   CONDENSED CONSOLIDATED BALANCE SHEETS
    (In millions, except share amounts)
    (Unaudited)
  September 30,


December 31,2006


2005ASSETSCurrent assetsCash and cash equivalents

$



$
Accounts and notes receivableCustomer, net of allowance of $1
    in 2006 and 2005


52



58Affiliates


8



Other


1



5Materials and supplies


12



12Deferred income taxes


9



9Other


10



17Total current assets


92



101Property, plant and equipment, at
    cost


3,539



3,369Less accumulated depreciation,
    depletion and amortization


1,399



1,368Total property, plant and
    equipment, net


2,140



2,001Other assetsInvestments in unconsolidated
    affiliates


689



697Notes receivable from affiliate


354



339Other


61



521,104



1,088Total assets

$
3,336


$
3,190LIABILITIES AND STOCKHOLDERS
    EQUITYCurrent liabilitiesAccounts payableTrade

$
32


$
40Affiliates


14



17Other


10



12Taxes payable


112



67Accrued interest


10



30Other


10



11Total current liabilities


188



177Long-term debt


1,196



1,195Other liabilitiesDeferred income taxes


330



320Other


34



44364



364Commitments and contingenciesStockholders equityCommon stock, par value
    $1 per share; 1,000 shares authorized, issued and
    outstanding






Additional paid-in capital


340



340Retained earnings


1,253



1,120Accumulated other comprehensive
    loss


(5
)


(6
)Total stockholders equity


1,588



1,454Total liabilities and
    stockholders equity

$
3,336


$
3,190    2




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SOUTHERN
    NATURAL GAS COMPANY
   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (In millions)
    (Unaudited)
  Nine Months EndedSeptember 30,2006


2005Cash flows from operating
    activitiesNet income

$
133


$
134Adjustments to reconcile net
    income to net cash from operating activitiesDepreciation, depletion and
    amortization


41



38Deferred income taxes


10



22Gain on sale of long-lived assets






(9
)Earnings from unconsolidated
    affiliates, adjusted for cash distributions


8



50Other non-cash income items


(1
)


(5
)Asset and liability changes


2



24Net cash provided by operating
    activities


193



254Cash flows from investing
    activitiesAdditions to property, plant and
    equipment


(186
)


(137
)Proceeds from the sale of assets


3



32Net change in notes receivable
    from affiliate


(15
)


(152
)Net change in restricted cash


5



4Other






(1
)Net cash used in investing
    activities


(193
)


(254
)Net change in cash and cash
    equivalents






Cash and cash equivalentsBeginning of period






End of period

$



$
    3




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SOUTHERN
    NATURAL GAS COMPANY
   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited)
  1.
    Basis of
    Presentation and Significant Accounting Policies  Basis of
    Presentation
  Form 10-Q Form 10-Q Form 10-K, Form 10-K.
  Significant
    Accounting Policies
  Form 10-K,
  Accounting for Pipeline Integrity Costs.
  New
    Accounting Pronouncements Issued But Not Yet Adopted
  Accounting for Uncertainty in Income Taxes. Accounting for
    Uncertainty in Income Taxes. Accounting for Income Taxes,
  Fair Value Measurements. Fair Value
    Measurements
  Accounting for Pension and Other Postretirement
    Benefits. Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans  An Amendment of FASB Statements No. 87,
    88, 106, and 132(R).
 4




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Evaluation of Prior Period Misstatements in Current Financial
    Statements. Considering the Effects of Prior Year Misstatements When
    Quantifying Misstatements in Current Year Financial
    Statements.
  2.
    Credit
    Facilities    3.
    Commitments
    and Contingencies  Legal
    Proceedings
  Gas Measurement Cases. and/or re: Natural Gas Royalties Qui Tam Litigation,
  Royalty Claim.
     5




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Environmental
    Matters
      Other
    Matter
  Duke Litigation.
  4.
    Investments
    in Unconsolidated Affiliates and Transactions with
    Affiliates  Investments
    in Unconsolidated Affiliates
    Quarters Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Operating results data:Operating revenues

$
69


$
70


$
197


$
194Operating expenses


29



28



86



80Income from continuing operations
    and net
    income(1)


21



22



57



59     (1)
    
    The difference between our
    proportionate share of our equity investments net income
    and our earnings from unconsolidated affiliates reflected in our
    income statement is due primarily to the excess purchase price
    amortization related to Citrus and differences between the
    estimated and actual equity earnings from our investments. 6




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##### Table of Contents



Quarters Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Operating results data:Operating revenues

$
65


$
66


$
184


$
181Operating expenses


27



27



80



75Income from continuing operations
    and net income


19



19



48



49     Transactions
    with Affiliates
  Cash Management Program. short-term
  Notes Receivable.
  Taxes.
  Other Affiliate Balances.
  September 30,


December 31,2006


2005(In millions)Accounts and notes receivable-other

$



$
4Other current liabilities


1



1   Affiliate Revenues and Expenses.
    Quarters Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Revenues from affiliates

$
2


$
2


$
7


$
5Operation and maintenance expenses
    from
    affiliates(1)


15



21



49



55     (1)
    
    Includes expenses related to a
    long-term storage contract with an affiliate. 7




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q. Form 10-K, Form 10-Q.
  Results
    of Operations
    2006


2005(In millions, except volumes)Operating revenues

$
392


$
353Operating expenses


(205
)


(174
)Operating income


187



179Earnings from unconsolidated
    affiliates


58



63Other income, net


6



17EBIT


251



259Interest and debt expense


(71
)


(70
)Affiliated interest income


14



7Income taxes


(61
)


(62
)Net income

$
133


$
134Throughput volumes
    (BBtu/d)(1)


3,244



2,990     (1)
    
    Throughput volumes include volumes
    associated with our proportionate share of our 50 percent
    equity interest in Citrus and billable transportation throughput
    volumes for storage injection.    EBITRevenue


Expense


Other


ImpactFavorable/(Unfavorable)(In millions)Higher services revenues

$
23


$



$



$
23Elba Island expansion


18



(2
)


(8
)


8Gas not used in operations and
    other natural gas sales


(3
)


(8
)






(11
)Impact of Hurricane Katrina






(12
)






(12
)Gain on the sale of assets in 2005






(9
)






(9
)Earnings from Citrus










(4
)


(4
)Other(1)


1







(4
)


(3
)Total impact on EBIT

$
39


$
(31
)

$
(16
)

$
(8
)     (1)
    
    Consists of individually
    insignificant items. 8




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Higher Services Revenues.
  Elba Island Expansion.
  Gas Not Used in Operations and Other Natural Gas
    Sales. Form 10-K.
  Impact of Hurricane Katrina.
  Gain on the Sale of Assets.
  Earnings from Citrus.
  Cypress Expansion.
  Affiliated
    Interest Income
    Income
    Taxes
  Nine Months EndedSeptember 30,2006


2005(In millions,except for rates)Income taxes

$
61


$
62Effective tax rate


31
%


32
%  9




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Liquidity
    and Capital Expenditures
  Liquidity
    Overview
      Capital
    Expenditures
        Commitments
    and Contingencies
    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-Q.
 10




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Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
      Changes
    in Internal Control Over Financial Reporting
   11




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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    Form 10-K.
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds  Form 10-Q.
  Item 3.
    Defaults
    Upon Senior Securities  Form 10-Q.
  Item 4.
    Submission
    of Matters to a Vote of Security Holders  Form 10-Q.
  Item 5.
    Other
    Information   12




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Item 6.
    Exhibits    ExhibitNumber

Description10
.A

First Tier Receivables Sale
    Agreement dated October 6, 2006, between Southern Natural
    Gas Company and SNG Finance Company, L.L.C. (Exhibit 10.A
    to our Current Report on
    Form 8-K,
    filed with the SEC on October 13, 2006).10
.B

Second Tier Receivables Sale
    Agreement dated October 6, 2006, between SNG Finance
    Company, L.L.C. and SNG Funding Company, L.L.C.
    (Exhibit 10.B to our Current Report on
    Form 8-K,
    filed with the SEC on October 13, 2006).10
.C

Receivables Purchase Agreement
    dated October 6, 2006, among SNG Funding Company, L.L.C.,
    as Seller, Southern Natural Gas Company, as Servicer, Starbird
    Funding Corporation, as the initial Conduit Investor and
    Committed Investor, the other investors from time to time
    parties thereto, BNP Paribas, New York Branch, as the
    initial Managing Agent, the other Managing Agents from time to
    time parties thereto, and BNP Paribas, New York Branch, as
    Program Agent (Exhibit 10.C to our Current Report on
    Form 8-K,
    filed with the SEC on October 13, 2006).*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.   Undertaking
  Regulation S-K,
 13




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SIGNATURES    SOUTHERN NATURAL GAS COMPANY
   
    Chairman of the Board and President
  (Principal Executive Officer)
   
    Senior Vice President,
  Chief Financial Officer and Controller
  (Principal Accounting and Financial Officer)
 14




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SOUTHERN
    NATURAL GAS COMPANY
  EXHIBIT INDEX
    ExhibitNumber

Description10
.A

First Tier Receivables Sale
    Agreement dated October 6, 2006, between Southern Natural
    Gas Company and SNG Finance Company, L.L.C. (Exhibit 10.A to our
    Current Report on
    Form 8-K,
    filed with the SEC on October 13 , 2006).10
.B

Second Tier Receivables Sale
    Agreement dated October 6, 2006, between SNG Finance
    Company, L.L.C. and SNG Funding Company, L.L.C.
    (Exhibit 10.B to our Current Report on
    Form 8-K,
    filed with the SEC on October 13, 2006).10
.C

Receivables Purchase Agreement
    dated October 6, 2006, among SNG Funding Company, L.L.C.,
    as Seller, Southern Natural Gas Company, as Servicer, Starbird
    Funding Corporation, as the initial Conduit Investor and
    Committed Investor, the other investors from time to time
    parties thereto, BNP Paribas, New York Branch, as the
    initial Managing Agent, the other Managing Agents from time to
    time parties thereto, and BNP Paribas, New York Branch, as
    Program Agent (Exhibit 10.C to our Current Report on
    Form 8-K,
    filed with the SEC on October 13, 2006).*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.