UNITED
STATES SECURITIES AND EXCHANGECOMMISSION
 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 March 31, 2008ORo
              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
 (Exact
Name of Registrant as Specified in Its Charter)


Delaware
            63-0196650(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




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.  Yes R No £
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, 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. (Check
one):
  Large accelerated
      filer o
              Accelerated
      filer o
              Non-accelerated filer þ
              Smaller
      reporting company o(Do
      not check if a smaller reporting company)
 
 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
            
            9Item  3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            12Item  4.
            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
            
            14Item  3.
            Defaults
      Upon Senior Securities
            
            14Item  4.
            Submission
      of Matters to a Vote of Security Holders
            
            14Item  5.
            Other
      Information
            
            14Item  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 31,2008
            
            
            2007Operating
      revenues
            
            $
            163
            
            
            $
            120Operating
      expensesOperation
      and maintenance
            
            
            41
            
            
            
            36Depreciation
      and amortization
            
            
            14
            
            
            
            12Taxes,
      other than income taxes
            
            
            7
            
            
            
            562
            
            
            
            53Operating
      income
            
            
            101
            
            
            
            67Earnings
      from unconsolidated affiliates
            
            
            4
            
            
            
            26Other
      income, net
            
            
            4
            
            
            
            6Interest
      and debt expense
            
            
            (20
            )
            
            
            (22
            )Affiliated
      interest income
            
            
            6
            
            
            
            4Income
      before income taxes
            
            
            95
            
            
            
            81Income
      taxes
            
            
            —
            
            
            
            24Income
      from continuing operations
            
            
            95
            
            
            
            57Discontinued
      operations, net of income taxes
            
            
            —
            
            
            
            6Net
      income
            
            $
            95
            
            
            $
            63





See
accompanying notes.





1





SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
millions)


(Unaudited)





March
      31,
              2008
            
            
            December 31,
              2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            —
            
            
            $
            —Accounts
      and notes receivableCustomer
            
            
            4
            
            
            
            5Affiliates
            
            
            55
            
            
            
            89Other
            
            
            2
            
            
            
            1Materials
      and supplies
            
            
            12
            
            
            
            12Other
            
            
            —
            
            
            
            11Total
      current assets
            
            
            73
            
            
            
            118Property,
      plant and equipment, at cost
            
            
            3,543
            
            
            
            3,448Less
      accumulated depreciation and amortization
            
            
            1,349
            
            
            
            1,298Total
      property, plant and equipment, net
            
            
            2,194
            
            
            
            2,150Other
      assetsInvestments
      in unconsolidated affiliates
            
            
            84
            
            
            
            84Note
      receivable from affiliate
            
            
            434
            
            
            
            378Other
            
            
            67
            
            
            
            73585
            
            
            
            535Total
      assets
            
            $
            2,852
            
            
            $
            2,803LIABILITIES
      AND PARTNERS’ CAPITALCurrent
      liabilitiesAccounts
      payableTrade
            
            $
            7
            
            
            $
            29Affiliates
            
            
            13
            
            
            
            3Other
            
            
            13
            
            
            
            16Current
      maturities of long-term debt
            
            
            34
            
            
            
            34Taxes
      payable
            
            
            7
            
            
            
            11Accrued
      interest
            
            
            20
            
            
            
            24Other
            
            
            6
            
            
            
            10Total
      current liabilities
            
            
            100
            
            
            
            127Long-term
      debt, less current maturities
            
            
            1,098
            
            
            
            1,098Other
      liabilities
            
            
            37
            
            
            
            36Commitments
      and contingencies (Note 4)Partners'
      captial
            
            
            1,617
            
            
            
            1,542Total
      liabilities and partners’ capital
            
            $
            2,852
            
            
            $
            2,803





See
accompanying notes.





2





SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
millions)


(Unaudited)





Quarter
      Ended
              March 31,2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            95
            
            
            $
            63Less
      income from discontinued operations, net of income taxes
            
            
            —
            
            
            
            6Income
      from continuing operations
            
            
            95
            
            
            
            57Adjustments
      to reconcile net income to net cash from operating
    activitiesDepreciation
      and amortization
            
            
            14
            
            
            
            12Deferred
      income taxes
            
            
            —
            
            
            
            7Earnings
      from unconsolidated affiliates, adjusted for cash
      distributions
            
            
            —
            
            
            
            22Other
      non-cash income items
            
            
            (2
            )
            
            
            (3
            )Asset
      and liability changes
            
            
            10
            
            
            
            (13
            )Cash
      provided by continuing activities
            
            
            117
            
            
            
            82Cash
      provided by discontinued activities
            
            
            —
            
            
            
            10Net
      cash provided by operating activities
            
            
            117
            
            
            
            92Cash
      flows from investing activitiesAdditions
      to property, plant and equipment
            
            
            (62
            )
            
            
            (80
            )Net
      change in notes receivable from affiliate
            
            
            (35
            )
            
            
            (26
            )Cash
      used in continuing activities
            
            
            (97
            )
            
            
            (106
            )Cash
      used in discontinued activities
            
            
            —
            
            
            
            (10
            )Net
      cash used in investing activities
            
            
            (97
            )
            
            
            (116
            )Cash
      flows from financing activitiesNet
      proceeds from issuance of long-term debt
            
            
            —
            
            
            
            494Payment
      to retire long-term debt
            
            
            —
            
            
            
            (470
            )Distributions
      to partners
            
            
            (20
            )
            
            
            —Net
      cash provided by (used in) financing activities
            
            
            (20
            )
            
            
            24Net
      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
2007 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, 2008, and for the quarters ended March 31, 2008 and 2007, are unaudited. We
derived the condensed consolidated balance sheet as of
December 31, 2007, from the audited balance sheet filed in our 2007
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.





Effective
November 1, 2007, we converted our legal structure into a general partnership in
contemplation of El Paso’s formation of a new master limited partnership, El
Paso Pipeline Partners, L.P. (MLP). In conjunction with the formation of El
Paso’s MLP in November 2007, we distributed our 50 percent interest in Citrus
Corp. (Citrus) and our wholly owned subsidiaries, Southern LNG, Inc. (SLNG) and
Elba Express Company, LLC (Elba Express) to El Paso Corporation (El Paso). We
have reflected the SLNG and Elba Express operations as discontinued operations in
our financial statements for periods prior to their
distribution.




Significant
Accounting Policies




The
information below provides an update of our significant accounting policies and
accounting pronouncements issued but not yet adopted as discussed in our 2007
Annual Report on Form 10-K.




Fair
Value Measurements. On January 1, 2008, we adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 157,Fair Value Measurements, for
our financial assets and liabilities. The adoption of the standard did not have
an impact on our financial statements. We elected to defer the adoption of SFAS
No. 157 for our non-financial assets and liabilities until January 1, 2009. We
are currently evaluating the impact, if any, that the deferred provisions of
this standard will have on our financial statements.





Measurement Date of Postretirement
Benefits. Effective January 1, 2008, we adopted the measurement date
provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106, and
132(R)and changed the measurement date of our postretirement benefit
plan from September 30 to December 31. The adoption of the measurement date
provisions of this standard did not have a material impact on our financial
statements.









































4





2.
Divestitures





In
November 2007, we distributed our wholly owned subsidiaries, SLNG and Elba
Express, to El Paso.  We have reflected these operations as
discontinued operations in our financial statements for periods prior to their
distribution. We also distributed our investment in Citrus to El Paso which is
not reflected in discontinued operations. The table below summarizes the
operating results of our discontinued operations for the quarter ended March 31,
2007.




(In millions)Revenues
            
            $
            17Costs
      and expenses
            
            
            (7
            )Income
      before income taxes
            
            
            10Income
      taxes
            
            
            4Income
      from discontinued operations, net of income taxes
            
            $
            6





3. Income
Taxes





Effective
November 1, 2007, we converted our legal structure into a general partnership
and no longer pay income taxes.





4. 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.  An appeal has
been filed.





Royalty
Claim.  In five contract settlements reached in the late 1980s
with Elf Aquitaine (Elf) pertaining to the pricing of gas produced from certain
federal offshore blocks, we indemnified Elf against royalty claims that
potentially could have been asserted by the Minerals Management Service (MMS).
Following its settlements with us, Elf received demands from the MMS for royalty
payments related to the settlements. With our approval, Elf protested the
demands for over a decade while trying to reach a settlement with the MMS. Elf,
which is now TOTAL E&P USA (TOTAL), advised us that it had renewed efforts
to settle these claims. TOTAL has informed us that the MMS is claiming royalties
in excess of $13 million, a large portion of which is interest for the
settlements.  We advised TOTAL that not all of the amounts sought by
the MMS are covered by our indemnity. If TOTAL cannot resolve these claims
administratively with the MMS, then an appeal can be taken to the federal
courts. We have the right under a pre-existing settlement with our customers to
recover, through a surcharge payable by our customers, a portion of the amount
ultimately paid under the royalty indemnity with TOTAL.





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,
2008, we accrued approximately $2 million for our outstanding legal
matters.









5








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,
2008, 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 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.





Regulatory
Matters





Notice
of Inquiry on Pipeline Fuel Retention Policies. In September 2007, the
Federal Energy Regulatory Commission (FERC) issued a Notice of Inquiry regarding
its policy about the in-kind recovery of fuel and lost and unaccounted for gas
by natural gas pipeline companies. Under current policy, pipeline companies have
options for recovering these costs. For some companies, the tariff states the
recovery of a fixed percentage as a non-negotiable fee-in-kind retained from the
volumes tendered for shipment by each shipper. There is also a tracker approach,
where the pipeline company’s tariff provides for prospective adjustments to the
fuel retention rates from time-to-time, but does not include a mechanism to
allow the company to reconcile past over or under-recoveries of fuel. Finally,
some pipeline companies’ tariffs provide for a tracker with a true-up approach,
where provisions in the companies’ tariff allow for periodic adjustments to the
fuel retention rates, and also provide for a true-up of past over and
under-recoveries of fuel and lost and unaccounted for gas. In this proceeding,
the FERC is seeking comments on whether it should change its current policy and
prescribe a uniform method for all pipeline companies to use in recovering these
costs. Pursuant to our most recent rate case settlement, we utilize a variation
of these methodologies in which we share with our customers past over-recoveries
of fuel and lost and unaccounted for gas but absorb past under-collections of
fuel and lost and unaccounted for gas. At this time, we do not know what impact,
if any, this proceeding may ultimately have on us.





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.

























6









Rate of Return Proxy
Groups.  In April 2008, the FERC adopted a new policy that will
allow master limited partnerships to be included in rate of return proxy groups
for determining rates for services provided by interstate natural gas and oil
pipelines.  The FERC uses a discounted cash flow model that
incorporates the use of proxy groups to develop a range of reasonable returns
earned on equity interests in companies with corresponding risks. The FERC then
assigns a rate of return on equity within that range to reflect specific risks
of that pipeline when compared to the proxy group companies.  The
FERC’s policy statement concludes among other items that (i) there should be no
cap on the level of distributions included in the current discounted cash flow
methodology and (ii) there should be a downward adjustment to the long-term
growth rate used for the equity cost of capital of natural gas pipeline master
limited partnerships. The FERC is not exploring other methods of
determining a pipeline’s equity cost of capital at this time. We believe this
ruling will not have a  material impact on our financial position or
results of operations.





Other
Matters





Calpine
Bankruptcy. In connection with its bankruptcy proceeding, Calpine
Corporation (Calpine) filed its plan of reorganization in June 2007, which
rejected its firm transportation contract with us. The term on the contract ran
through 2019. Although our original undiscounted claim for this contract
rejection was approximately $75 million, we entered into a settlement with
Calpine that provides approximately $33 million toward our claim for the
contract rejection. During the first quarter of 2008, we received a partial
distribution under Calpine’s approved plan of reorganization and recognized
revenue of $29 million.




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, 2008, we have performance guarantees related to
contracts held by SLNG and Elba Express, entities formerly owned by us, with a
maximum exposure of $725 million.





5. Investments
in Unconsolidated Affiliates and Transactions with Affiliates





Investments in Unconsolidated
Affiliates





We
have a 50 percent ownership interest in Bear Creek Storage Company (Bear Creek),
a joint venture with Tennessee Gas Storage Company, our affiliate. Prior to its
distribution to El Paso in November 2007, we had a 50 percent ownership interest
in Citrus. Summarized income statement information of our proportionate share of
the income of these investments for the quarters ended March 31 is as
follows:





2008
            
            
            2007(In
      millions)Operating
      results data:Operating
      revenues
            
            $
            6
            
            
            $
            60Operating
      expenses
            
            
            2
            
            
            
            28Income
      from continuing operations and net income
            
            
            4
            
            
            
            24
            (1)


____________





(1)
            The
      difference between our proportionate share of our equity investments’ net
      income and our earnings from unconsolidated affiliates in 2007 was due
      primarily to the excess purchase price amortization related to Citrus and
      differences between the estimated and actual equity earnings on our
      investments.





For
the quarter ended March 31, 2008, we received $4 million in dividends from Bear
Creek. For the quarter ended March 31, 2007, we received $48 million in
dividends from Citrus.





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. In January 2008, we paid a cash
distribution of approximately $20 million to our partners. In addition, in April
2008 we paid a cash distribution of $91 million.










7






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. At March 31, 2008 and December 31, 2007, we had a
note receivable from El Paso of $460 million and $425 million. We
classified $26 million and $47 million of this receivable as current on our
balance sheet at March 31, 2008 and December 31, 2007, based on the net
amount we anticipate using in the next twelve months considering available cash
sources and needs. The interest rate on this note at March 31, 2008 and December
31, 2007 was 4.3% and 6.5%.





Income
Taxes.  During the first quarter of 2007, El Paso billed us $20
million through intercompany accounts for certain tax attributes previously
reflected as deferred income taxes in our financial statements.





Accounts
Receivable Sales Program.We sell certain accounts receivable to a
qualifying special purpose entity (QSPE) and reflect our subordinated interest
in these receivables as accounts receivable — affiliate on our balance sheets.
We earn a fee for servicing the receivables and performing all administrative
duties for the QSPE. At March 31, 2008 and December 31, 2007, our
subordinated beneficial interest in the receivables sold was $26 million and $30
million. The fair value of the fees earned was immaterial to our financial
statements for the quarters ended March 31, 2008 and 2007.





Affiliate Revenues and
Expenses.  We enter into transactions with our affiliates
within the ordinary course of business. For a further discussion of our
affiliated revenues and charges, see our 2007 Annual Report on
Form 10-K.The following table shows transactions from our affiliates for
the quarters ended March 31:





2008
            
            
            2007(In
      millions)Revenues
      from affiliates
            
            $
            1
            
            
            $
            2Operating
      expenses from affiliates
            
            
            27
            
            
            
            17





































8







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 2007 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.





Overview





In
November 2007, we distributed our 50 percent interest in Citrus and our wholly
owned subsidiaries, SLNG and Elba Express, to El Paso. We have reflected the
SLNG and Elba Express operations as discontinued operations in our
financial statements for periods prior to their distribution. For a further
discussion of our discontinued operations, see Item 1, Financial Statements,
Note 2. In addition, effective  November 1, 2007, we converted our
legal structure into a general partnership, which is not subject to income
taxes.





Updates of Growth Projects.
We expect to spend approximately $505million on
contracted organic growth projects through 2012. Of this amount, $71 million
will be spent in 2008 on contracted expansion projects consisting of the
following:





·
            CypressPhase II. The Cypress
      Phase II project has an estimated cost of $20 million. The Cypress Phase
      II project began construction in September 2007 and is expected to be
      in-service in May 2008. FERC approval for this project has been
      received.





·
            CypressPhase III. The Cypress
      Phase III expansion project has an estimated cost of $85 million. A FERC
      certificate has been issued for the project. Construction of Cypress Phase
      III is at the option of BG LNG Services. If BG LNG Services elects to have
      us build Cypress Phase III, then construction is expected to commence in
      2010 with an in-service date of
  January 2011.





·
            South System III. The
      South System III expansion project will be completed in three phases at a
      total estimated cost of $285 million. We anticipate filing an application
      with the FERC during the fourth quarter of 2008 for certificate
      authorization to construct and operate these facilities. The project has
      estimated in-service dates of December 2010 for Phase I,
      June 2011 for Phase II and June 2012 for Phase
    III.





·
            Southeast Supply
      Header. The Southeast Supply Header project will be jointly owned
      by us, Spectra Energy Corp and CenterPoint Energy. The estimated cost to
      us for this project is $185 million. This project is expected to be
      completed in two phases. The FERC issued an order approving the first
      phase in September 2007. The estimated in-service dates are
      July 2008 for Phase I and October 2010 for Phase
    II.





For
a further discussion of our various regulatory, development and operational
risks, see our 2007 Annual Report on Form 10-K.







































9





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 investments in unconsolidated
affiliates. 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,
such as discontinued 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 and 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, 2008 compared to the same period in
2007.





Operating
Results:


2008
            
            
            2007(In
      millions,
              except
      volumes)Operating
      revenues
            
            $
            163
            
            
            $
            120Operating
      expenses
            
            
            (62
            )
            
            
            (53
            )Operating
      income
            
            
            101
            
            
            
            67Earnings
      from unconsolidated affiliates
            
            
            4
            
            
            
            26Other
      income, net
            
            
            4
            
            
            
            6EBIT
            
            
            109
            
            
            
            99Interest
      and debt expense
            
            
            (20
            )
            
            
            (22
            )Affiliated
      interest income
            
            
            6
            
            
            
            4Income
      taxes
            
            
            —
            
            
            
            (24
            )Income
      from continuing operations
            
            
            95
            
            
            
            57Discontinued
      operations, net of income taxes
            
            
            —
            
            
            
            6Net
      income
            
            $
            95
            
            
            $
            63Throughput
      volumes (BBtu/d)(1)
            
            
            2,624
            
            
            
            3,226


____________





(1)
            Throughput volumes include
      billable transportation throughput volumes for storage injection and
      volumes associated with our proportionate share of our 50 percent equity
      interest in Citrus for 2007.





EBIT
Analysis:


Revenue
            
            
            Expense
            
            
            Other
            
            
            EBIT
              ImpactFavorable/(Unfavorable)(In
      millions)Expansions
            
            $
            9
            
            
            $
            (1
            )
            
            $
            (2
            )
            
            $
            6Gas
      not used in operations and other natural gas sales
            
            
            2
            
            
            
            (5
            )
            
            
            —
            
            
            
            (3
            )Calpine
      bankruptcy settlement
            
            
            29
            
            
            
            —
            
            
            
            —
            
            
            
            29Earnings
      from Citrus
            
            
            —
            
            
            
            —
            
            
            
            (22
            )
            
            
            (22
            )Other(1)
            
            
            3
            
            
            
            (3
            )
            
            
            —
            
            
            
            —Total
      impact on EBIT
            
            $
            43
            
            
            $
            (9
            )
            
            $
            (24
            )
            
            $
            10


____________





(1)
            Consists
      of individually insignificant
items.





Expansions.In May 2007, we placed Phase I of our Cypress project in service, and
placed Phase II in service in May 2008. Additionally, we continue to make
progress on various projects further discussed in Updates of Growth Projects
under Overview.











10











Gas
Not Used in Operations and Other Natural Gas Sales.  The
financial impact of operational gas, net of gas used in operations, is based on
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 price of natural gas. 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, 2008, our EBIT was lower
primarily due to an increase in volumes used in our operations relative to
amounts we retained.





Calpine Bankruptcy
Settlement.  During the first quarter of 2008, we received a
partial distribution under Calpine’s approved plan of reorganization and
recognized revenue of $29 million.




Earnings from Citrus. In
November 2007, in conjunction with the formation of El Paso’s MLP, we
distributed our 50 percent interest in Citrus to El Paso. As a result, we no
longer record equity earnings from Citrus.





Interest
and Debt Expense


Interest
and debt expense for the quarter ended March 31, 2008, was $2 million lower than
the same period in 2007 primarily due to a lower average outstanding debt
balance.





Affiliated
Interest Income





Affiliated
interest income for the quarter ended March 31, 2008, was $2 million higher than
the same period in 2007 due to higher average advances to El Paso under the
cash management program, offset by lower average   short-term
interest rates. The average advances due from El Paso of $275 million for the
first quarter of 2007 increased to $423 million for the same period in 2008. The
average short-term interest rate for the first quarter decreased from 5.9% in
2007 to 5.6% for the same period in 2008.





Income
Taxes


Our
effective tax rate of 30 percent for the quarter ended March 31, 2007 was lower
than the statutory rate of 35 percent primarily due to the tax effect of
earnings from unconsolidated affiliates where we anticipate receiving dividends
that qualify for a dividends received deduction, partially offset by the effect
of state income taxes. Additionally, effective November 1, 2007, we no longer
pay income taxes as a result of our conversion to a partnership. For a further
discussion of these transactions, see our 2007 Annual Report on Form
10-K.




















11







Liquidity
and Capital Expenditures





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, capital expenditures, debt service requirements,
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, 2008, we had a note receivable from El
Paso of approximately $460 million of which approximately $26 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 5, 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.





Overview
of Cash Flows.Our cash flows for the quarters ended March 31 were as
follows:





2008
            
            
            2007(In
      millions)Cash
      flows provided by continuing operating activities
            
            $
            117
            
            
            $
            82Cash
      flows used in continuing investing activities
            
            
            (97
            )
            
            
            (106
            )Cash
      flows provided by (used in) continuing financing
activities
            
            
            (20
            )
            
            
            24





For
the first quarter of 2008 as compared to the same period in 2007, operating cash
flow increased primarily due to higher cash generated from expansions
and the proceeds from the Calpine bankruptcy settlement, among other items.
We used our operating cash flow to fund capital maintenance and growth projects
and make distributions to our partners.





Capital Expenditures. Our capital
expenditures for the quarter ended March 31, 2008, 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, 2008
            
            
            2008
              Remaining
            
            
            Total(In
      millions)Maintenance
            
            $
            10
            
            
            $
            50
            
            
            $
            60Expansion
            
            
            52
            
            
            
            19
            
            
            
            71$
            62
            
            
            $
            69
            
            
            $
            131





In
the first quarter of 2008, our capital expenditures primarily included amounts
spent on our Southeast Supply Header expansion project.





Cash
Distributions.We are required to make distributions of available cash as
defined in our partnership agreement on a quarterly basis to our partners. In
January 2008, we paid a cash distribution of approximately $20 million to
our partners. In addition, in April 2008 we paid a cash distribution of $91
million.





Debt.As previously
announced, we anticipate repurchasing approximately $223 million of debt in 2008
in addition to scheduled debt retirements with recoveries of receivables from El
Paso under its cash management program.





Commitments
and Contingencies




See Item 1,
Financial Statements, Note 4, 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 2007 Annual Report on Form
10-K.









12





Item 4. Controls
and Procedures





Evaluation
of Disclosure Controls and Procedures





As
of March 31, 2008, 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, as defined by the Securities Exchange Act of
1934, as amended. 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 a companyhave been detected. Based on the
results of our evaluation, our President and our Chief Financial Officer
concluded that our disclosure controls and procedures are effective at a
reasonable level of assurance at March 31, 2008.





Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting during the first quarter
of 2008.












































13





PART II —
OTHER INFORMATION





Item 1. Legal
Proceedings





See
Part I, Item 1, Financial Statements, Note 4, 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 2007
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.





Item 6. Exhibits





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


















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
      9, 2008
            /s/
      James C. YardleyJames
      C. YardleyPresident(Principal
      Executive Officer)Date:  May
      9, 2008
            /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
            Description31.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.