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
      from                           to




Commission
File Number 1-2745
  
 Southern
Natural Gas Company


(Exact
Name of Registrant as Specified in Its Charter)


Delaware
                63-0196650(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 No þ

















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
            12Item
      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
            13Item
      3.
            Defaults Upon
      Senior Securities
            13Item
      4.
            Submission of
      Matters to a Vote of Security Holders
            13Item
      5.
            Other
      Information
            13Item
      6.
            Exhibits
            14Signatures
            15




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,” or “ours,” we are describing Southern Natural Gas Company and/or our
subsidiaries.


























i





PART I —
FINANCIAL INFORMATION





Item 1. Financial
Statements





SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(In
millions)


(Unaudited)





Quarter
      Ended
              March 31,2009
            
            
            2008Operating
      revenues
            
            $
            126
            
            
            $
            163Operating
      expensesOperation
      and maintenance
            
            
            41
            
            
            
            41Depreciation
      and amortization
            
            
            14
            
            
            
            14Taxes,
      other than income taxes
            
            
            7
            
            
            
            762
            
            
            
            62Operating
      income
            
            
            64
            
            
            
            101Earnings from
      unconsolidated affiliate
            
            
            3
            
            
            
            4Other income
      (expense), net
            
            
            (4
            )
            
            
            4Interest and
      debt expense
            
            
            (16
            )
            
            
            (20
            )Affiliated
      interest income
            
            
            1
            
            
            
            6Net
      income
            
            $
            48
            
            
            $
            95





See accompanying
notes.

































1





SOUTHERN
NATURAL GAS COMPANY




CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
millions)


(Unaudited)




March
      31,
              2009
            
            
            December 31,
              2008ASSETSCurrent
      assetsCash and cash
      equivalents
            
            $
            —
            
            
            $
            —Accounts and
      notes receivableCustomer
            
            
            2
            
            
            
            3Affiliates
            
            
            111
            
            
            
            71Other
            
            
            —
            
            
            
            2Materials and
      supplies
            
            
            14
            
            
            
            14Other
            
            
            
            4
            
            
            
            15Total current
      assets
            
            
            131
            
            
            
            105Property,
      plant and equipment, at cost
            
            
            3,643
            
            
            
            3,636Less
      accumulated depreciation and amortization
            
            
            1,374
            
            
            
            1,373Total
      property, plant and equipment, net
            
            
            2,269
            
            
            
            2,263Other
      assetsInvestment in
      unconsolidated affiliate
            
            
            80
            
            
            
            81Note
      receivable from affiliate
            
            
            53
            
            
            
            95Other
            
            
            82
            
            
            
            85215
            
            
            
            261Total
      assets
            
            $
            2,615
            
            
            $
            2,629LIABILITIES
      AND PARTNERS’ CAPITALCurrent
      liabilitiesAccounts
      payableTrade
            
            $
            11
            
            
            $
            28Affiliates
            
            
            9
            
            
            
            10Other
            
            
            13
            
            
            
            18Taxes
      payable
            
            
            7
            
            
            
            8Accrued
      interest
            
            
            18
            
            
            
            18Other
            
            
            7
            
            
            
            10Total current
      liabilities
            
            
            65
            
            
            
            92Long-term
      debt
            
            
            910
            
            
            
            910Other
      liabilities
            
            
            50
            
            
            
            50Commitments
      and contingencies (Note 3)Partners’
      capital
            
            
            1,590
            
            
            
            1,577Total
      liabilities and partners’ capital
            
            $
            2,615
            
            
            $
            2,629




See accompanying
notes.





2





SOUTHERN
NATURAL GAS COMPANY




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
millions)


(Unaudited)




Quarter
      Ended
              March 31,2009
            
            
            2008Cash flows
      from operating activitiesNet
      income
            
            $
            48
            
            
            $
            95Adjustments
      to reconcile net income to net cash from operating
    activitiesDepreciation
      and amortization
            
            
            14
            
            
            
            14Earnings
      from unconsolidated affiliate, adjusted for cash
    distributions
            
            
            1
            
            
            
            —Other
      non-cash income items
            
            
            (1
            )
            
            
            (2
            )Asset
      and liability changes
            
            
            (2
            )
            
            
            10Net
      cash provided by operating activities
            
            
            60
            
            
            
            117Cash flows
      from investing activitiesAdditions
      to property, plant and equipment
            
            
            (22
            )
            
            
            (62
            )Net
      change in notes receivable from affiliate
            
            
            (3
            )
            
            
            (35
            )Net
      cash used in investing activities
            
            
            (25
            )
            
            
            (97
            )Cash flows
      from financing activitiesDistributions
      to partners
            
            
            (35
            )
            
            
            (20
            )Net
      cash used in financing activities
            
            
            (35
            )
            
            
            (20
            )Net change in
      cash and cash equivalents
            
            
            —
            
            
            
            —Cash and cash
      equivalentsBeginning
      of period
            
            
            —
            
            
            
            —End
      of period
            
            $
            —
            
            
            $
            —




See accompanying
notes.















3


SOUTHERN
NATURAL GAS COMPANY




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




1. Basis
of Presentation and Significant Accounting Policies




Basis
of Presentation




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 contains 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.
Long-Term Debt




In March 2009,
we, Southern Natural Issuing Corporation (SNIC), El Paso Corporation (El
Paso) and certain other El Paso subsidiaries filed a registration statement on
Form S-3 under which we and SNIC may co-issue debt securities in the future.
SNIC is a wholly owned finance subsidiary of us and is the co-issuer of certain
of our outstanding debt securities. SNIC has no material assets, operations,
revenues or cash flows other than those related to its service as a co-issuer of
our debt securities. Accordingly, it has no ability to service obligations
on our debt securities.




3. Commitments
and Contingencies




Legal
Proceedings




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. These
cases were filed in 1997 by an individual under the False Claims Act, which 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.





4





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
accrued approximately $2 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 $1 million for expected remediation costs and associated onsite,
offsite and groundwater technical studies. 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.




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 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.




Regulatory
Matters




Notice
of Proposed Rulemaking. In October 2007, the MMS issued a Notice of
Proposed Rulemaking for Oil and Gas and Sulphur Operations in the Outer
Continental Shelf (OCS) - Pipelines and Pipeline Rights-of-Way. If adopted, the
proposed rules would substantially revise MMS OCS pipeline and rights-of-way
regulations. The proposed rules would have the effect of: (1) increasing the
financial obligations of entities, like us, which have pipelines and pipeline
rights-of-way in the OCS; (2) increasing the regulatory requirements imposed on
the operation and maintenance of existing pipelines in the OCS; and (3)
increasing the requirements and preconditions for obtaining new rights-of-way in
the OCS.




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. 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.




5


Rate
Case.In March 2009, we filed a rate case with the FERC as permitted
under the settlement of our previous rate case. The filing proposed an increase
in our base tariff rates. In April 2009, the FERC issued an order accepting the
proposed rates effective September 1, 2009, subject to refund and the outcome of
a hearing and a technical conference on certain tariff proposals. The FERC
appointed an administrative law judge who will decide the rate case issues
should we be unable to reach a settlement with our
customers.




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
performance guarantees that are not recorded in our financial statements. As of
March 31, 2009, we have a performance guarantee related to contracts
held by Southern LNG Inc., an entity formerly owned by us, with a maximum
exposure of $225 million and a performance guarantee related to contracts
held by Elba Express, an entity formerly owned by us, with no stated maximum
limit. We estimate our potential exposure related to these guarantees is
approximately $468 million, which is based on their remaining estimated
obligations under the contracts.




4. Investment
in Unconsolidated Affiliate and Transactions with Affiliates




Investment
in Unconsolidated Affiliate




We have a 50
percent ownership interest in Bear Creek Storage Company (Bear Creek), a joint
venture with Tennessee Gas Storage Company, our affiliate, and we received $4
million in dividends from Bear Creek for the quarters ended March 31, 2009 and
2008. Summarized income statement information of our proportionate share of the
income of this investment for the quarters ended March 31 is as
follows:





2009
            
            
            2008(In
      millions)Operating
      results data:Operating
      revenues
            
            $
            5
            
            
            $
            6Operating
      expenses
            
            
            2
            
            
            
            2Income
      from continuing operations and net income
            
            
            3
            
            
            
            4




Transactions
with Affiliates





Distributions.We are
required to make distributions of available cash as defined in our partnership
agreement on a quarterly basis to our partners. During the first quarter of 2009
and 2008, we paid cash distributions of approximately $35 million and $20
million to our partners. In addition, in April 2009 we paid a cash distribution
to our partners of approximately $49 million.





Cash Management Program.We
participate in El Paso’s cash management program which matches short-term cash
surpluses and needs of participating affiliates, thus minimizing total
borrowings from outside sources. El Paso uses the cash management program to
settle intercompany transactions between participating affiliates. We have
historically advanced cash to El Paso in exchange for an affiliated note
receivable that is due upon demand. At March 31, 2009 and December 31, 2008, we
had a note receivable from El Paso of $139 million and $136 million. We
classified $86 million and $41 million of this receivable as current on our
balance sheets at March 31, 2009 and December 31, 2008, 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.








6





Accounts Receivable Sales Program.We sell certain accounts receivable to a qualifying special purpose
entity (QSPE) whose purpose is solely to invest in our receivables, which are
short-term assets that generally settle within 60 days. As of
March 31, 2009 and December 31, 2008, we sold approximately
$45 million and $48 million of receivables, received cash of
approximately $24 million in both periods and received subordinated
beneficial interests of approximately $21 million and
$23 million. The QSPE also issued senior beneficial interests on the
receivables sold to a third party financial institution, which totaled
$24 million and $25 million as of March 31, 2009 and Deceber 31,
2008. We recognized a loss of less than $1 million related to our transactions
with the QSPE during the quarters ended March 31, 2009 and 2008. We reflect the
subordinated interest in receivables sold (adjusted for subsequent collections)
at their fair value on the date they are issued as accounts receivable from
affiliate in our balance sheets. Our ability to recover our carrying value of
our subordinated beneficial interests is based on the collectibility of the
underlying receivables sold to the QSPE. We reflect accounts receivable sold
under this program and changes in the subordinated beneficial interests as
operating cash flows in our statement of cash flows. Under the agreements, we
earn a fee for servicing the receivables and performing all administrative
duties for the QSPE which is reflected as a reduction of operation and
maintenance expense in our income statement. The fair value of these servicing
and administrative agreements as well as the fees earned were not material to
our financial statements for the quarters ended March 31, 2009 and
2008.





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
            
            $
            1
            
            
            $
            1Operation and
      maintenance expenses from affiliates
            
            
            27
            
            
            
            27











































7





Item 2. Management’s
Discussion and Analysis of Financial Condition and Results
of Operations




The information
contained in Item 2 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, which consists of
consolidated operations as well as an investment in an unconsolidated affiliate.
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 with
the same period in 2008.




Operating
Results:


2009
            
            
            2008(In
      millions,
              except
      for volumes)Operating
      revenues
            
            $
            126
            
            
            $
            163Operating
      expenses
            
            
            (62
            )
            
            
            (62
            )Operating
      income
            
            
            64
            
            
            
            101Earnings from
      unconsolidated affiliate
            
            
            3
            
            
            
            4Other income
      (expense), net
            
            
            (4
            )
            
            
            4EBIT
            
            
            63
            
            
            
            109Interest and
      debt expense
            
            
            (16
            )
            
            
            (20
            )Affiliated
      interest income
            
            
            1
            
            
            
            6Net
      income
            
            $
            48
            
            
            $
            95Throughput volumes
      (BBtu/d)(1)
            
            
            2,547
            
            
            
            2,624


____________





(1)
            Throughput
      volumes include billable transportation throughput volumes for storage
      injection.





EBIT
Analysis:


Revenue
            
            
            Expense
            
            
            Other
            
            
            EBIT
              ImpactFavorable/(Unfavorable)(In
      millions)Expansions
            
            $
            —
            
            
            $
            (1
            )
            
            $
            (8
            )
            
            $
            (9
            )Gas not used
      in operations and other natural gas sales and purchases
            
            
            (5
            )
            
            
            1
            
            
            
            —
            
            
            
            (4
            )Calpine
      bankruptcy settlement
            
            
            (29
            )
            
            
            —
            
            
            
            —
            
            
            
            (29
            )Other(1)
            
            
            (3
            )
            
            
            —
            
            
            
            (1
            )
            
            
            (4
            )Total
      impact on EBIT
            
            $
            (37
            )
            
            $
            —
            
            
            $
            (9
            )
            
            $
            (46
            )


____________


(1)
              Consists of
      individually insignificant
items.








8





Expansions.During
the first quarter of 2009, we recorded lower allowance for funds used during
construction (AFUDC) due to lower capital expenditures as compared to the same
period in 2008. This decrease includes the completion of the Cypress Phase II
and Southeast Supply Header Phase I projects placed into service in May 2008 and
September 2008. For a further discussion of our significant growth projects, see
our 2008 Annual Report on Form 10-K.




Gas
Not Used in Operations and Other Natural Gas Sales and
Purchases.  The financial impacts of operational gas, net of
gas used in operations, is based on the price of natural gas and the amount of
natural gas we are allowed to retain and dispose of according to our tariff,
relative to the amounts of natural gas we use for operating purposes and the
cost of operating our electric compression facilities. Our share of retained gas
not used in operations results in revenues to us, which are impacted by volumes
and prices during a given period. During the quarter ended March 31, 2009, our
EBIT was lower primarily due to the replacement of depleted storage volumes
during the first quarter of 2009.




Calpine
Bankruptcy Settlement.  During the first quarter of 2008, we
recognized revenue related to distributions received under Calpine’s approved
plan of reorganization.




Rate
Case.In March 2009, we filed a rate case with the FERC as permitted
under the settlement of our previous rate case. The filing proposed an increase
in our base tariff rates. In April 2009, the FERC issued an order accepting the
proposed rates effective September 1, 2009, subject to refund and the outcome of
a hearing and a technical conference on certain tariff proposals. The FERC
appointed an administrative law judge who will decide the rate case issues
should we be unable to reach a settlement with our
customers.




Interest
and Debt Expense




Interest and debt
expense for the quarter ended March 31, 2009, was $4 million lower when compared
to the same period in 2008 primarily due to lower average outstanding debt
balances resulting from the retirement and repurchases of debt in the second and
third quarters of 2008. For a further discussion of our debt retirement and
repurchase activities, see our 2008 Annual Report on Form 10-K.




Affiliated
Interest Income




Affiliated interest
income for the quarter ended March 31, 2009, was $5 million lower than the same
period in 2008 due to lower average advances to El Paso under its cash
management program and lower average short-term interest rates. The average
advances due from El Paso decreased primarily due to debt retirement and
repurchases in the second and third quarters of 2008 with recoveries of our
notes receivable. 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
      millions, except for rates)Average
      advance due from El Paso
            
            $
            101
            
            
            $
            423Average
      short-term interest rate
            
            
            2.2
            %
            
            
            5.6
            %














9





Liquidity
and Capital Resources




Liquidity
Overview.  Our primary sources of liquidity are cash flows from
operating activities, El Paso’s cash management program and capital
contributions from our partners. Our primary uses of cash are for working
capital, capital expenditures and for required distributions to our partners. We
are required to make distributions of available cash as defined in our
partnership agreement on a quarterly basis to our partners. 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 $139 million of which
approximately $86 million was classified as current based on the net amount we
anticipate using in the next twelve months considering available cash sources
and needs. See Item 1, Financial Statements, Note 4 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 or contributions from our partners, will be adequate to meet our capital
requirements and our existing operating needs.




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, El Paso’s cash
management program and capital contributions from our partners, we do not
anticipate a need to directly access the financial markets in 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.




Cash
Flow Activities.Our cash flows for the quarters ended March 31 were as
follows:





2009
            
            
            2008(In
      millions)Cash flows
      provided by operating activities
            
            $
            60
            
            
            $
            117Cash flows
      used in investing activities
            
            
            (25
            )
            
            
            (97
            )Cash flows
      used in financing activities
            
            
            (35
            )
            
            
            (20
            )





Operating
Activities. For the first quarter of 2009 as compared to the same period
in 2008, operating cash flow decreased primarily due to the proceeds received
from the Calpine bankruptcy settlement in 2008, and the effects of working
capital changes.








10





Investing
Activities.Changes in investing activities can primarily be attributed
to activity under El Paso’s cash management program and capital expenditures.
For a further discussion of El Paso’s cash management program, see Item 1,
Financial Statements, Note 4. 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 system are listed
below:




Quarter
      Ended
              March 31,
      2009
            
            
            2009
              Remaining
            
            
            Total(In
      millions)Maintenance
            
            $
            17
            
            
            $
            53
            
            
            $
            70Expansion
            
            
            5
            
            
            
            94
            
            
            
            99$
            22
            
            
            $
            147
            
            
            $
            169




Financing
Activities.We are required to make distributions of available cash as
defined in our partnership agreement on a quarterly basis to our partners.
During the first quarters of 2009 and 2008, we paid cash distributions of
approximately $35 million and $20 million to our partners. In addition, in April
2009 we paid a cash distribution to our partners of approximately $49
million.











































11








Commitments
and Contingencies




See Item 1,
Financial Statements, Note 3 which is incorporated herein by
reference.




Item 3. Quantitative
and Qualitative Disclosures About Market Risk




There are no
material changes in our quantitative and qualitative disclosures about market
risks from those reported in our 2008 Annual Report on Form 10-K.




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 our Chief Financial Officer, does not expect that
our disclosure controls and procedures or our internal controls will prevent
and/or detect all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. Our disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
objective and our President and our 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 3 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




None.




Item 3. Defaults
Upon Senior Securities




None.




Item 4. Submission
of Matters to a Vote of Security Holders




None.




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, Southern Natural Gas
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





SOUTHERN
      NATURAL GAS COMPANYDate:  May
      11, 2009
              /s/
      James C. YardleyJames C.
      YardleyPresident(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





SOUTHERN
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