­


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 September 30, 2010OR£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the transition period from                                                      to





Commission File Number 1-4101


________________




Tennessee Gas Pipeline Company


(Exact Name of Registrant as Specified in Its Charter)





Delaware
74-1056569(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 þ No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 o





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 filer þ
Small 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





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.





Common stock, par value $5 per share. Shares outstanding on November 5, 2010: 208





TENNESSEE GAS PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION H(1)(a) AND (b) TO FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.












TENNESSEE GAS PIPELINE COMPANY





TABLE OF CONTENTS





Caption
PagePART I — Financial InformationItem  1.
Financial  Statements
1Item  2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
9Item  3.
Quantitative and Qualitative Disclosures About Market Risk
*Item  4.
Controls and Procedures
14PART II — Other InformationItem  1.
Legal Proceedings
15Item  1A.
Risk Factors
15Item  2.
Unregistered Sales of Equity Securities and Use of Proceeds
*Item  3.
Defaults Upon Senior Securities
*Item  4.
(Removed and Reserved)
15Item  5.
Other Information
15Item  6.
Exhibits
16Signatures
17


____________


*   We have not included a response to this item in this document since no response is required pursuant to the reduced disclosure format permitted by General Instruction H to

Form 10-Q.





Below is a list of terms that are common to our industry and used throughout this document:





/d
=
per day
BBtu
=
billion British thermal unitsMMcf
=
million cubic feet





When we refer to cubic feet measurements, all measurements are at a pressure of 14.73 pounds per square inch.





When we refer to “us,” “we,” “our,” “ours,” or “the company,” we are describing Tennessee Gas Pipeline Company and/or our subsidiaries.











































i
 
 Table of Contents









PART I — FINANCIAL INFORMATION





Item 1.  Financial Statements





TENNESSEE GAS PIPELINE COMPANY





CONDENSED CONSOLIDATED STATEMENTS OF INCOME


(In millions)


(Unaudited)





Quarter Ended

September 30,


Nine Months Ended

September 30,2010


2009


2010


2009Operating revenues

$
213


$
221


$
637


$
704Operating expensesOperation and maintenance


81



97



235



274Depreciation and amortization


53



46



148



139Taxes, other than income taxes


14



14



41



43148



157



424



456Operating income


65



64



213



248Earnings from unconsolidated affiliate


4



3



11



8Other income, net


7



1



16



8Interest and debt expense


(38
)


(40
)


(113
)


(117
)Affiliated interest income, net


4



4



11



12Income before income taxes


42



32



138



159Income taxes


14



12



51



61Net income

$
28


$
20


$
87


$
98





See accompanying notes.













































1
 Table of Contents


TENNESSEE GAS PIPELINE COMPANY




CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


(Unaudited)


September 30,

2010


December 31,

2009ASSETSCurrent assetsCash and cash equivalents

$
—


$
—Accounts and notes receivableCustomer


14



12Affiliates


464



152Other


48



13Materials and supplies


41



43Deferred income taxes


44



44Other


11



8Total current assets


622



272Property, plant and equipment, at cost


4,844



4,680Less accumulated depreciation and amortization


1,044



9363,800



3,744Additional acquisition cost assigned to utility plant, net


1,932



1,963Total property, plant and equipment, net


5,732



5,707Other assetsNotes receivable from affiliates


587



939Investment in unconsolidated affiliate


57



79Other


68



70712



1,088Total assets

$
7,066


$
7,067LIABILITIES AND STOCKHOLDER’S EQUITYCurrent liabilitiesAccounts payableTrade

$
47


$
60Affiliates


65



72Other


42



47Taxes payable


33



94Contractual deposits


36



31Asset retirement obligations


32



66Accrued interest


47



33Regulatory liabilities


73



28Other


16



24Total current liabilities


391



455Long-term debt


1,849



1,846Other liabilitiesDeferred income taxes


1,401



1,351Regulatory liabilities


104



153Other


36



641,541



1,568Commitments and contingencies (Note 3)Stockholder’s equityCommon stock, par value $5 per share; 300 shares authorized; 208 shares issued and outstanding


—



—Additional paid-in capital


2,209



2,209Retained earnings


1,076



1,323Note receivable from affiliate


—



(334
)Total stockholder’s equity


3,285



3,198Total liabilities and stockholder’s equity

$
7,066


$
7,067


See accompanying notes.


2
 Table of Contents







TENNESSEE GAS PIPELINE COMPANY





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





Nine Months Ended

September 30,2010


2009Cash flows from operating activitiesNet income

$
87


$
98Adjustments to reconcile net income to net cash from operating activitiesDepreciation and amortization


148



139Deferred income taxes


49



11Earnings from unconsolidated affiliate, adjusted for cash distributions


22



2Other non-cash income items


(6
)


1Asset and liability changes


(107
)


99Net cash provided by operating activities


193



350Cash flows from investing activitiesCapital expenditures


(193
)


(251
)Net change in notes receivable from affiliates


327



(277
)Other


7



—Net cash provided by (used in) investing activities


141



(528
)Cash flows from financing activitiesNet proceeds from the issuance of long-term debt


—



234Dividend paid to parent


(334
)


—Other


—



(1
)Net cash provided by (used in) financing activities


(334
)


233Net change in cash and cash equivalents


—



55Cash and cash equivalentsBeginning of period


—



—End of period

$
—


$
55





See accompanying notes.


































3
 Table of Contents







TENNESSEE GAS PIPELINE COMPANY





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1. Basis of Presentation and Significant Accounting Policies





Basis of Presentation





We are an indirect wholly owned subsidiary of El Paso Corporation (El Paso).  We prepared this Quarterly Report on Form 10-Q under the rules and regulations of the United States Securities and Exchange Commission. 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 report along with our 2009 Annual Report on Form 10-K, which contains a summary of our significant accounting policies and other disclosures. The financial statements as of September 30, 2010, and for the quarters and nine months ended September 30, 2010 and 2009, are unaudited.  We derived the condensed consolidated balance sheet as of December 31, 2009, from the audited balance sheet filed in our 2009 Annual Report on Form 10-K. In our opinion, we have made adjustments, all of 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 following is an update of our significant accounting policies and accounting pronouncements issued and adopted during the nine months ended September 30, 2010.





Transfers of Financial Assets.On January 1, 2010, we adopted an accounting standards update for financial asset transfers.   Among other items, this update requires the sale of an entire financial asset or a proportionate interest in a financial asset in order to qualify for sale accounting.  These changes were effective for sales of financial assets occurring on or after January 1, 2010.  In January 2010, we terminated our prior accounts receivable sales program under which we previously sold a senior interest in certain accounts receivable to a third party financial institution (through a wholly-owned special purpose entity).  As a result, the adoption of this accounting standards update did not have a material impact on our financial statements.  Upon termination of the prior accounts receivable sales program, we entered into a new accounts receivable sales program under which we sell certain accounts receivable in their entirety to the third party financial institution (through a wholly-owned special purpose entity).  The transfer of these receivables qualifies for sale accounting under the provisions of this accounting standards update.  We present the cash flows related to the prior and new accounts receivable sales programs as operating cash flows in our statements of cash flows.  For further information, see Note 4.





Variable Interest Entities.On January 1, 2010, we adopted an accounting standards update for variable interest entities that revises how companies determine the primary beneficiary of these entities, among other changes. Companies are now required to use a qualitative approach based on their responsibilities and power over the entities’ operations, rather than a quantitative approach in determining the primary beneficiary as previously required.  The adoption of this accounting standards update did not have a material impact on our financial statements.





2. Fair Value of Financial Instruments





At September 30, 2010 and December 31, 2009, the carrying amounts of cash and cash equivalents and current receivables and payables represented fair value because of the short-term nature of these instruments. At September 30, 2010 and December 31, 2009, we had an interest bearing note receivable from El Paso of approximately $1.0 billion due upon demand, with a variable interest rate of 1.5% in both periods. While we are exposed to changes in interest income based on changes to the variable interest rate, the fair value of this note receivable approximates its carrying value due to the note being due on demand and the market-based nature of the interest rate.













4
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 In addition, the carrying amounts of our long-term debt and their estimated fair values, which are based on quoted market prices for the same or similar issues, are as follows:





September 30, 2010


December 31, 2009Carrying

Amount

Fair

Value


Carrying

Amount


Fair

Value(In millions)Long-term debt
$
1,849

$
2,081


$
1,846


$
2,086





3. Commitments and Contingencies





Legal Proceedings





We and our affiliates are named defendants in numerous legal proceedings and claims that arise in the ordinary course of our business. For each of these matters, we evaluate the merits of the case or claim, 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 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 had no accrual for our outstanding legal proceedings at September 30, 2010.  It is possible, however, that new information or future developments could require us to reassess our potential exposure related to these matters and establish accruals accordingly.




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 of the disposal or release of specified substances at current and former operating sites.  At September 30, 2010 and December 31, 2009, we had accrued approximately $6 million and $5 million for expected remediation costs and associated onsite, offsite and groundwater technical studies and for related environmental legal costs; however, we estimate that our exposure could be as high as $8 million at September 30, 2010.




Our environmental remediation projects are in various stages of completion. Our recorded liabilities reflect our current estimates of amounts we will expend to remediate these sites. However, depending on the stage of completion or assessment, the ultimate extent of contamination or remediation required may not be known. As additional assessments occur or remediation efforts continue, we may incur additional liabilities.





Polychlorinated Biphenyls (PCB) Cost Recoveries and Refund. Since 1994, we have been conducting remediation activities at certain of our compressor stations associated with PCBs and other hazardous materials.  We have collected amounts, substantially in excess of remediation costs to date, through a surcharge to our customers under a settlement approved by the Federal Energy Regulatory Commission (FERC) in November of 1995.  In November 2009, the FERC approved an amendment to the 1995 settlement that provides for interim refunds over a three year period of approximately $157 million of our collected amounts plus interest of 8%.  Through September 30, 2010, we have refunded approximately $49 million to our customers.  Our refund obligations are recorded as regulatory liabilities on our balance sheet and as of September 30, 2010, we have classified approximately $67 million as current liabilities based on the timing of when these amounts are expected to be refunded to our customers.





Superfund Matters.Included in our recorded environmental liabilities are projects where we have received notice that we have been designated or could be designated as a Potentially Responsible Party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund, or state equivalents for four active sites. Liability under the federal CERCLA statute may be joint and several, meaning that we could be required to pay in excess of our pro rata share of remediation costs.  We consider the financial strength of other PRPs in estimating our liabilities. Accruals for these issues are included in the environmental reserve discussed above.














5
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 For the remainder of 2010, we estimate that our total remediation expenditures will be approximately $1 million, most of which will be expended under government directed clean-up plans.  In addition, we expect to make capital expenditures for environmental matters of approximately $11 million in the aggregate for the remainder of 2010 through 2014.  Included in this amount is approximately $7 million to be expended from 2010 to 2013 associated with the impact of the Environmental Protection Agency (EPA) rule related to emissions of hazardous air pollutants from reciprocating internal combustion engines which was finalized in August 2010. Our engines that are subject to the regulations have to be in compliance by October 2013.





It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws, regulations and orders of regulatory agencies, as well as claims for damages to property and the environment or injuries to employees and other persons resulting from our current or past operations, could result in substantial costs and liabilities in the future. As this information becomes available, or other relevant developments occur, we will adjust our accrual amounts accordingly. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we believe our reserves are adequate.




Rates and Regulatory Matter





Rate Case. If we determine there is a sufficient change in our revenues, costs or billing determinants, we have the option to file a rate case with the FERC to provide an opportunity to recover our prudently incurred costs.  We anticipate filing a new rate case in November 2010 with revised rates expected to become effective June 2011.




Other Commitments





Capital Commitments. At September 30, 2010, we had capital commitments of approximately $263 million primarily related to our 300 Line expansion project, of which $40 million will be spent in the remainder of 2010, $218 million in 2011 and $5 million in 2012.





Asset Retirement Obligations. At September 30, 2010 and December 31, 2009, we had total asset retirement liabilities of $34 million and $91 million, and we have classified $32 million and $66 million as current liabilities on our balance sheets.





4. Accounts Receivable Sales Program





During 2009, we had an agreement to sell a senior interest in certain accounts receivable (which are short-term assets that generally settle within 60 days) to a third party financial institution (through a wholly-owned special purpose entity), and we retained a subordinated interest in those receivables.The sale of the senior interest qualified for sale accounting and was conducted to accelerate cash from these receivables, the proceeds from which were used to increase liquidity and lower our overall cost of capital. During the quarter and nine months ended September 30, 2009, we received $117 million and $356 million of cash related to the sale of the senior interest, collected $98 million and $373 million from the subordinated interest we retained in the receivables, and recognized a loss of less than $1 million on these transactions.  At December 31, 2009, the third party financial institution held $40 million of senior interest and we held $43 million of subordinated interest.  Our subordinated interest is reflected in accounts receivable on our balance sheet.  In January 2010, we terminated this accounts receivable sales program and paid $40 million to acquire the senior interest. We reflected the cash flows related to the accounts receivable sold under this program, changes in our retained subordinated interest, and cash paid to terminate the program, as operating cash flows on our statement of cash flows.





In the first quarter of 2010, we entered into a new accounts receivable sales program to continue to sell accounts receivable to the third party financial institution that qualify for sale accounting under the updated accounting standards related to financial asset transfers.  Under this program, we sell receivables in their entirety to the third party financial institution (through a wholly-owned special purpose entity).  As of September 30, 2010, the third party financial institution held $78 million of the accounts receivable we sold under the program.  In connection with our accounts receivable sales, we receive a portion of the sales proceeds up front and receive an additional amount upon the collection of the underlying receivables.  Our ability to recover this additional amount is based solely on the collection of the underlying receivables. During the quarter and nine months ended September 30, 2010, we received $117 million and $390 million of cash up front from the sale of the receivables and received an additional $128 million and $306 million of cash upon the collection of the underlying receivables.  As of September 30, 2010, we had not collected approximately $39 million related to our accounts receivable sales, which is reflected as other accounts receivable on our balance sheet ( and was initially recorded at an amount which approximates its fair value using observable inputs other than quoted prices in active markets) .  We recognized a loss of less than $1 million on our accounts receivable sales during the quarter and nine months ended September 30, 2010.  Because the cash received up front and the cash received as the underlying receivables are collected relate to the sale or ultimate collection of the underlying receivables, and are not subject to significant other risks given their short term nature, we reflect all cash flows under the new accounts receivable sales program as operating cash flows on our statement of cash flows.





6
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 Under both the prior and current accounts receivable sales programs, we serviced the underlying receivables for a fee.  The fair value of these servicing agreements as well as the fees earned were not material to our financial statements for the periods ended September 30, 2010 and 2009.





The third party financial institution involved in both of these accounts receivable sales programs acquires interests in various financial assets and issues commercial paper to fund those acquisitions.  We do not consolidate the third party financial institution because we do not have the power to direct its overall activities (and do not absorb a majority of its expected losses) since our receivables do not comprise a significant portion of its operations.





5. Investment in Unconsolidated Affiliate and Transactions with Affiliates





Investment in Unconsolidated Affiliate





We have a 50 percent ownership interest in Bear Creek Storage Company, L.L.C. (Bear Creek), a joint venture with Southern Natural Gas Company, our affiliate.  For the nine months ended September 30, 2010 and 2009, we received approximately $10 million in cash distributions from Bear Creek.  Also, during the third quarter of 2010, Bear Creek utilized its note receivable balance under the cash management program with El Paso to pay a cash distribution to its partners, including $23 million to us.  In October 2010, we received an additional $4 million in cash distributions.





Summarized financial information of our proportionate share of our unconsolidated affiliate for the periods ended September 30 is presented as follows:




Quarter Ended

September 30,


Nine Months Ended

September 30,2010


2009


2010


2009(In millions)Operating results data:Operating revenues

$
5


$
5


$
15


$
14Operating expenses


1



2



4



6Income from continuing operations and net income


4



3



11



8





Transactions with Affiliates





Cash Management Program and Other Notes Receivable.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 September 30, 2010 and December 31, 2009, we had a note receivable from El Paso of approximately $1.0 billion. We classified approximately $451 million of this receivable as current on our balance sheet at September 30, 2010, 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 1.5% at September 30, 2010 and December 31, 2009.





At December 31, 2009, we had a non-interest bearing note receivable of $334 million from an El Paso affiliate reflected as a reduction of our stockholder’s equity. During the third quarter of 2010, we collected this note receivable and then immediately distributed the cash received to our parent.


























7
 Table of Contents
   
 Income Taxes.El Paso files consolidated U.S. federal and certain state tax returns which include our taxable income. In certain states, we file and pay taxes directly to the state taxing authorities. At September 30, 2010 and December 31, 2009, we had net federal and state income taxes payable of $5 million and $75 million. The majority of these balances, as well as deferred income taxes and amounts associated with the resolution of unrecognized tax benefits, will become payable to El Paso.





Other Affiliate Balances. At September 30, 2010 and December 31, 2009, we had contractual deposits from our affiliates of $9 million.





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 2009 Annual Report on Form 10-K. The following table shows revenues and charges from our affiliates for the periods ended September 30:





Quarter Ended

September 30,


Nine Months Ended

September 30,2010


2009


2010


2009(In millions)Revenues from affiliates

$
5


$
4


$
15


$
12Operation and maintenance expenses from affiliates


17



18



58



52Reimbursement of operating expenses charged to affiliates


14



11



44



34




































































8
 Table of Contents


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





The information required by Item 2 is presented in a reduced disclosure format pursuant to General Instruction H to Form 10-Q.  In addition, Item 2 updates, and should be read in conjunction with the information disclosed in our 2009 Annual Report on Form 10-K, and the financial statements and notes 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 to provide them with the same measure used by El Paso to evaluate our performance. We define EBIT as net income adjusted for items such as (i) interest and debt expense, (ii) affiliated interest income, and (iii) income taxes. 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 measures used by other companies. Additionally, EBIT should be considered in conjunction with net income, income before income taxes 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 nine months ended September 30, 2010 compared with the same period in 2009.





Operating Results:


2010


2009(In millions,

except for volumes)Operating revenues

$
637


$
704Operating expenses


(424
)


(456
)Operating income


213



248Earnings from unconsolidated affiliate


11



8Other income, net


16



8EBIT


240



264Interest and debt expense


(113
)


(117
)Affiliated interest income, net


11



12Income taxes


(51
)


(61
)Net income

$
87


$
98Throughput volumes (BBtu/d)


4,950



4,650





EBIT Analysis:


Operating

Revenue


Operating

Expense


Other


TotalFavorable/(Unfavorable)(In millions)Gas not used in operations and other natural gas sales

$
(67
)

$
14


$
—


$
(53
)Expansions


6



(3
)


8



11Reservation and other services revenues


(7
)


—



—



(7
)Operating and general and administrative expenses


—



19



—



19Hurricane repairs


—



6



—



6Other(1)


1



(4
)


3



—Total impact on EBIT

$
(67
)

$
32


$
11


$
(24
)


_______________


(1)
Consists of individually insignificant items.





Gas Not Used in Operations and Other Natural Gas Sales.During the nine months ended September 30, 2010, our EBIT decreased $67 million primarily due to lower average realized prices on operational sales as compared to the same period in 2009.  Our EBIT was favorably impacted by $14 million due to lower electric compression expenses from decreased utilization.  For a further discussion of gas not used in operations and other natural gas sales, see our 2009 Annual Report on Form 10-K.







9
 Table of Contents
   
 Expansions.  In 2009, we placed several expansion projects in service including the Carthage expansion in May, the Concord Lateral expansion in October, and the Blue Water expansion in November. As a result, for the nine months ended September 30, 2010, our revenues increased as compared to the same period in 2009.  We capitalize a carrying cost (an allowance for funds used during construction or AFUDC) on equity funds related to our construction of long-lived assets.  During the nine months ended September 30, 2010, we benefited from an increase in other income of approximately $8 million associated with the pretax equity portion of AFUDC on our expansion projects.





Listed below are significant updates to our expansion projects discussed in our 2009 Annual Report on Form 10-K.





·
300 Line Expansion.  During 2010, the FERC issued a favorable environmental assessment and we received certificate authorization from the FERC to construct the expansion.  In June 2010, we commenced construction on our compression facilities related to this project.





·
Northeast Upgrade Project.  In 2010, we entered into precedent agreements with two shippers to provide 620 MMcf/d of additional firm transportation service from receipt points in the Marcellus shale basin to an interconnect in New Jersey.





·
Northeast Supply Diversification Project.  During 2010, we entered into precedent agreements with three shippers to provide approximately 250 MMcf/d of additional firm transportation service from receipt points in the Marcellus shale basin to delivery points in the New York and New England markets.  Total estimated cost of this project is less than $100 million.  Subject to FERC and other approvals, the project is expected to commence construction in the first half of 2012 and is anticipated to be placed in service in the fourth quarter of 2012.


Reservation and Other Services Revenues.During the nine months ended September 30, 2010, throughput volumes on our system increased by six percent compared to the same period in 2009; however, revenues were lower by approximately $11 million because long-haul transports decreased due to a shift in receipts from the Gulf Coast region to the Rockies Express Pipeline interconnect and the Marcellus shale basin, which is short-haul transportation and subject to lower rates.  While our long-haul transports decreased, our backhaul service from the Marcellus shale basin increased, which favorably impacted our EBIT by approximately $6 million.  In addition, usage revenues decreased by $7 million due to reduced interruptible services resulting from unfavorable price spreads, partially offset by an increase of $5 million in liquids separation dehydration sales due to higher contractual rates.
 We believe our Marcellus expansion projects (300 Line Expansion, Northeast Upgrade Project and Northeast Supply Diversification Project) will expand our presence from Marcellus to the New York and New England markets.
  If we determine there is a sufficient change in our revenues, costs or billing determinants, we have the option to file a rate case with the FERC to provide an opportunity to recover our prudently incurred costs.  We anticipate filing a new rate case in November 2010 with revised rates expected to become effective June 2011.  Although this rate case is intended to address significant factors leading to the loss in revenues or increased costs, it will not eliminate all ongoing business risks.  The changes in gas flows, contractual commitments and the outcome of our rate case can impact the financial performance of our pipeline.


Operating and General and Administrative Expenses.During the nine months ended September 30, 2010, our operating and general and administrative expenses were lower than the same period in 2009 primarily due to lower payroll costs, net of capitalization and reimbursement from affiliates.





Hurricane Repairs. For the nine months ended September 30, 2009, our EBIT was unfavorably impacted by repair costs that were not recoverable from insurance due to losses which did not exceed our self-retention levels.





Interest and Debt Expense


Interest and debt expense for the nine months ended September 30, 2010, was $4 million lower than the same period in 2009 primarily due to a lower outstanding balance on our PCB refund obligations.














10
 Table of Contents


Affiliated Interest Income, Net





The following table shows the average advances due from El Paso and the average short-term interest rates for the nine months ended September 30:





2010


2009(In millions, except for rates)Average advance due from El Paso

$
1,009


$
899Average short-term interest rate


1.5
%


1.8
%





Income Taxes





Our effective tax rates of 37 percent and 38 percent for the nine months ended September 30, 2010 and 2009 were higher than the statutory rate of 35 percent primarily due to the effect of state income taxes.











































































11
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Liquidity and Capital Resources





Our primary sources of liquidity are cash flows from operating activities and amounts available to us under El Paso’s cash management program. At September 30, 2010, we had a note receivable from El Paso of approximately $1.0 billion of which approximately $451 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. Our primary uses of cash are for working capital and capital expenditures. For the nine months ended September 30, 2010 compared to the same period in 2009, our operating cash flows decreased by approximately $157 million primarily due to the payment of income taxes during the third quarter of 2010 versus the fourth quarter of 2009, lower reservation revenues and settlement of refund obligations associated with our PCB liability.Our cash capital expenditures for the nine months ended September 30, 2010, and our estimated capital expenditures for the remainder of this year to expand and maintain our system are listed below.







Nine Months Ended

September 30, 2010


2010

Remaining


Total(In millions)Maintenance(1)

$
48


$
102


$
150Expansion


87



76



163Other(2)


58



32



90$
193


$
210


$
403


_______________


(1)
Amount is net of insurance proceeds received.


(2)
Relates to building renovations at our corporate facilities.




Although financial market conditions have improved since late 2008 and early 2009, volatility in the remainder of 2010 and beyond in the financial markets could impact our longer-term access to capital for future growth projects as well as the cost of such capital. Additionally, although the impacts are difficult to quantify at this point, a prolonged recovery of 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 partially mitigated by a revenue base that includes long-term contracts that are based on firm demand charges.





We believe we have adequate liquidity available to us to meet our capital requirements and our existing operating needs through cash flows from operating activities and amounts available to us under El Paso’s cash management program.  In addition to the cash management program above, we are eligible to borrow amounts available under El Paso’s $1.5 billion credit agreement and are only liable for amounts we directly borrow. As of September 30, 2010, El Paso had approximately $1.1 billion of capacity remaining and available to us and our affiliates under this credit agreement, and none of the amount outstanding under the facility was issued or borrowed by us. For a further discussion of this credit agreement, see our 2009 Annual Report on Form 10-K.  While we do not anticipate a need to directly access the financial markets in the remainder of 2010 for any of our operating activities or expansion capital needs based on liquidity available to us, market conditions may impact our ability to act opportunistically.


































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Commitments and Contingencies





Below is a summary of certain climate change, energy policies and pipeline integrity legislation recently enacted or proposed that, if enacted, will likely impact our business. For a further discussion of our commitments and contingencies, see Item 1, Financial Statements, Note 3, which is incorporated herein by reference.





Climate Change Legislation and Regulation. Legislative and regulatory efforts to address climate change and greenhouse gas (GHG) emissions are in various phases of discussions or implementation at international, federal, regional and state levels.  We believe that legislation that either limits or sets a price on carbon emissions will increase demand for natural gas depending on the legislative provisions ultimately adopted.  However, we also believe it is reasonably likely that the federal legislation being contemplated, as well as recently adopted and proposed federal regulations, would increase our cost of environmental compliance by requiring us to purchase emission allowances or offset credits, install additional equipment or change work practices, and could materially increase the cost of goods and services we purchase from suppliers due to their increased compliance costs.  Although we believe that many of these costs should be recoverable in our rates, recovery through these mechanisms is still uncertain at this time.





The EPA has adopted regulations that require us to monitor and report certain GHG emissions from our operations on an annual basis.  The EPA has proposed to further expand the monitoring and reporting requirements to additional natural gas transmission sources which could materially increase the costs of our operations.  Our preliminary estimate of the first-year cost to our company is approximately $1 million.





The EPA has also adopted regulations that will require permits to be obtained under the Clean Air Act for GHG emissions above certain thresholds.  Depending on the thresholds ultimately established by the EPA, these permit requirements could have a material impact upon the cost of our operations, could require us to install new equipment to control emissions from our facilities and could result in delays and negative impacts on our ability to obtain permits and other regulatory approvals with regard to new and existing facilities. The EPA’s regulations are being challenged in the federal courts; however, pending such judicial reviews, the thresholds that have been established by the EPA through at least 2016 are not expected to have a material impact on our operations or financial results.





It is uncertain what federal or state legislation or regulations will ultimately be adopted and whether adopted regulations will withstand likely legal challenges.  Therefore, the potential impact on our operations and construction projects remains uncertain.





Energy Legislation.In conjunction with these climate change proposals, there have been various federal and state legislative and regulatory proposals that would create additional incentives to move to a less carbon intensive “footprint.” Although it is reasonably likely that many of these proposals will be enacted over the next few years, we cannot predict the form of any laws and regulations that might be enacted, the timing of their implementation, or the precise impact on our operations or demand for natural gas. However, such proposals if enacted could impact natural gas demand over the longer term.





Air Quality Regulations. In February 2010, the EPA promulgated a new one-hour National Ambient Air Quality Standard (NAAQS) for oxides of nitrogen (NO2). The new standard is in addition to the existing annual NAAQS which was not changed.  While it is uncertain how the EPA and the states will apply the new one-hour NAAQS, the new NAAQS may impact our ability to obtain permits and other regulatory approvals with regard to existing and new facilities and may cause us to incur costs to install additional controls on existing and new facilities.  The EPA’s new rule is being challenged in the federal courts. While the new NAAQS, if upheld, could have a material impact on our cost of operations and our cost to install new facilities, we are unable, at this point, to estimate its financial impact.


Pipeline Integrity Legislation.  Several ruptures on third party pipelines have occurred recently.  In response, various legislative and regulatory reforms associated with pipeline safety and integrity issues have been proposed, including reforms that would require increased periodic inspections, installation of additional valves and other equipment on our pipeline and subjecting additional pipelines (including gathering facilities) to more stringent regulation.  It is uncertain what reforms, if any, will be adopted and what impact they might ultimately have on our operations or financial results.











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Item 3. Quantitative and Qualitative Disclosures About Market Risk





Omitted from this report pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q.





Item 4. Controls and Procedures





Evaluation of Disclosure Controls and Procedures





As of September 30, 2010, we carried out an evaluation under the supervision and with the participation of our management, including our President and Chief Financial Officer (CFO), 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 U.S. Securities and Exchange Commission reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act) is accurate, complete and timely. Our management, including our President and CFO, 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 objectives and our President and CFO concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of September 30, 2010.





Changes in Internal Control Over Financial Reporting





There were no changes in our internal control over financial reporting during the third quarter of 2010 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.




















































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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 2009 Annual Report on Form 10-K under Part I, Item 1A, Risk Factors. There have been no material changes in these risk factors since that report.





Item 2. Unregistered Sales of Equity Securities and Use of Proceeds





Omitted from this report pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q.





Item 3. Defaults Upon Senior Securities





Omitted from this report pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q.





Item 4. (Removed and Reserved)





Item 5. Other Information





None.
























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Item 6. Exhibits





The Exhibit Index is incorporated herein by reference.





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.

































































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SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, Tennessee Gas Pipeline Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  TENNESSEE GAS PIPELINE COMPANYDate: November 5, 2010
/s/ Norman G. HolmesNorman G. Holmes

President

(Principal Executive Officer)Date: November 5, 2010
/s/ John R. SultJohn R. Sult

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)


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TENNESSEE GAS PIPELINE 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.


















































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