##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


(Mark One)


þ


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2005


OR


o


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE SECURITIES EXCHANGE ACT OF 1934


For the transition period
from                to                .


Commission File
Number 1-2700


El Paso Natural Gas Company




|                                                                                                      |  |                    
|----------------------------------------------------------------------------------------------------- |  | -------------------
|Delaware                                                                                              |  | 74-0608280         
|(State or Other Jurisdiction of                                                                       |  | (I.R.S. Employer   
|Incorporation or Organization)                                                                        |  | Identification No.)
|El Paso Building
    1001 Louisiana Street
    Houston, Texas(Address of Principal Executive Offices) |  | 77002(Zip Code)    

Telephone Number:
(713) 420-2600


Securities registered pursuant to Section 12(b) of
the Act: None


Securities registered pursuant to Section 12(g) of the
Act: None


o þ


þ o




þ o


S-K 10-K 10-K. þ


non-accelerated 12b-2


|                          |                     |                        
|------------------------- | ------------------- | -----------------------
|Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ

o þ


State the aggregate market value of
the voting stock held by non-affiliates of the registrant:
None


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





EL PASO NATURAL GAS COMPANY
MEETS THE CONDITIONS OF GENERAL INSTRUCTION I(1)(a) AND (b)
TO FORM 10-K AND
IS THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT
AS PERMITTED BY SUCH INSTRUCTION.


Documents Incorporated by Reference: None










---



##### 










EL PASO NATURAL GAS COMPANY


TABLE OF CONTENTS


|                                                       |  |                                                                                                                                   |  |      |    | 
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                       |  | Caption                                                                                                                           |  | Page |   
|                                                       |  |                                                                                                                                   |  |      |   
|PART I                                                
|Item 1.                                                |  | Business                                                                                                                          |  |      | 1  | 
|Item 1A.                                               |  | Risk Factors                                                                                                                      |  |      | 5  | 
|                                                       |  | Cautionary Statement for Purposes of the
    Safe Harbor Provisions of the Private Securities
    Litigation Reform Act of 1995 |  |      |    | 
|Item 1B.                                               |  | Unresolved Staff Comments                                                                                                         |  |      | 10 | 
|Item 2.                                                |  | Properties                                                                                                                        |  |      | 10 | 
|Item 3.                                                |  | Legal Proceedings                                                                                                                 |  |      | 10 | 
|Item 4.                                                |  | Submission of Matters to a Vote of Security
    Holders                                                                           |  |      | *  | 
|PART II                                               
|Item 5.                                                |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities              |  |      | 11 | 
|Item 6.                                                |  | Selected Financial Data                                                                                                           |  |      | *  | 
|Item 7.                                                |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                         |  |      | 12 | 
|Item 7A.                                               |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                                    |  |      | 17 | 
|Item 8.                                                |  | Financial Statements and Supplementary
    Data                                                                                   |  |      | 18 | 
|Item 9.                                                |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                                          |  |      | 40 | 
|Item 9A.                                               |  | Controls and Procedures                                                                                                           |  |      | 40 | 
|Item 9B.                                               |  | Other Information                                                                                                                 |  |      | 40 | 
|PART III                                              
|Item 10.                                               |  | Directors and Executive Officers of the
    Registrant                                                                            |  |      | *  | 
|Item 11.                                               |  | Executive Compensation                                                                                                            |  |      | *  | 
|Item 12.                                               |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                                |  |      | *  | 
|Item 13.                                               |  | Certain Relationships and Related
    Transactions                                                                                |  |      | *  | 
|Item 14.                                               |  | Principal Accountant Fees and Services                                                                                            |  |      | 40 | 
|PART IV                                               
|Item 15.                                               |  | Exhibits and Financial Statement
    Schedules                                                                                    |  |      | 41 | 
|                                                       |  | Signatures                                                                                                                        |  |      | 44 | 
|Certification of CEO pursuant to Section 302          
|Certification of CFO pursuant to Section 302          
|Certification of CEO pursuant to 18 U.S.C Section 1350
|Certification of CFO pursuant to 18 U.S.C Section 1350








|  |                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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 I to Form 10-K.



|     |  |                                 |  |      |  |                        
|---- |  | ------------------------------- |  | ---- |  | -----------------------
|/d   |  | = per day                       |  | LNG  |  | = liquefied natural gas
|BBtu |  | = billion British thermal units |  | MDth |  | = thousand dekatherm   
|Bcf  |  | = billion cubic feet            |  | MMcf |  | = million cubic feet   







i



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##### Table of Contents






PART I





ITEM 1. BUSINESS


Overview and Strategy






Reservation revenues.


Usage revenues.








| |   |                                                 
| | - | ------------------------------------------------
| |  | Favorably resolve our open EPNG rate case;      
|
| |  | Successfully recontract transportation capacity;
|
| |  | Develop storage to serve our market area;       
|
| |  | Focus on cost efficiencies, especially fuel use;
|
| |  | Successfully complete expansion projects; and   
|
| |  | Attract new supply and transport to new markets.



The EPNG System.




1



---



##### Table of Contents



The Mojave System.


Markets and Competition












2



---



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|         |  |                                                              |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|-------- |  | ------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pipeline |  |                                                              |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|System   |  | Customer Information                                         |  | Contract Information                                                                                                               |  | Competition                                                                                                                                                                                                                                                                                                                                                               
|         |  |                                                              |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|EPNG     |  | Approximately 163 firm and interruptible customers           |  | Approximately 251 firm transportation contracts.
    Weighted average remaining contract term of approximately
    four years.(1)  |  | EPNG faces competition in the west and southwest from other
    existing and proposed pipelines, from California storage
    facilities, and alternative energy sources that are used to
    generate electricity such as hydroelectric power, nuclear, coal
    and fuel oil. In addition, initiatives to bring LNG into
    California and northern Mexico are underway.
|         |  | Major Customers:
    Southern California Gas  Company(SoCal) |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (453 BBtu/d)                                                 |  | Contract term expires in 2006.                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (93 BBtu/d)                                                  |  | Contract term expires in 2007.                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (768 BBtu/d)                                                 |  | Contract terms expire in 2009-2011.                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | Southwest Gas Corporation                                    |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (12 BBtu/d)                                                  |  | Contract term expires in 2006.                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (470 BBtu/d)                                                 |  | Contract term expires in 2011.                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (74 BBtu/d)                                                  |  | Contract term expires in 2015.                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                           
|Mojave   |  | Approximately 13 firm and interruptible customers            |  | Approximately six firm transportation contracts.
    Weighted average remaining contract term of approximately
    eight years.(2) |  | Mojave faces competition from other existing and proposed
    pipelines and alternative energy sources that are used to
    generate electricity such as hydroelectric power, nuclear, coal
    and fuel oil. In addition, initiatives to bring LNG into
    California and northern Mexico are underway.                                                                 
|         |  | Major Customers:                                             |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | EPNG                                                         |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (312 BBtu/d)                                                 |  | Contract term expires in 2015.                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | Los Angeles Department of
    Water and Power                |  |                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                           
|         |  | (50 BBtu/d)                                                  |  | Contract term expires in 2007.                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                           






|    |                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reflects the impact of 507 BBtu/d of contracts that will be
    terminated in August 2006. This capacity will be available for
    new contracts or utilized to provide new services. Additionally,
    we are in the process of recontracting an additional
    436 BBtu/d of capacity that is also subject to early
    termination in August 2006.
|   
|(2) | In December 2005, EPNG placed in service its Line 1903 project.
    EPNG holds approximately 312 BBtu/d of Mojave system
    capacity to fulfill its long-term obligations under the project.                                                                                                                                                        

Regulatory Environment
















3



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Environmental




Employees




4



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|          |             
|--------- | ------------
|ITEM  1A. | RISK FACTORS




| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE
    HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
    REFORM ACT OF 1995

forward-looking forward-looking forward-looking forward-looking forward-looking




Risks Related to Our Business


Our success depends on factors beyond our control.






| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | service area competition;                                                                                                                                                                                                         
|
| |  | expiration or turn back of significant contracts;                                                                                                                                                                                 
|
| |  | changes in regulation and actions of regulatory bodies;                                                                                                                                                                           
|
| |  | future weather conditions;                                                                                                                                                                                                        
|
| |  | price competition;                                                                                                                                                                                                                
|
| |  | drilling activity and availability of natural gas;                                                                                                                                                                                
|
| |  | decreased availability of conventional gas supply sources and
    the availability and timing of other gas supply sources, such as
    LNG;                                                                                       
|
| |  | decreased natural gas demand due to various factors, including
    increases in prices and the increased availability or popularity
    of alternative energy sources such as hydroelectric power,
    nuclear, coal and fuel oil;
|
| |  | increased costs of capital;                                                                                                                                                                                                       

5



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| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | opposition to energy infrastructure development, especially in
    environmentally sensitive areas;                   
|
| |  | adverse general economic conditions;                                                                                  
|
| |  | expiration or renewal of existing interests in real property
    including real property on Native American lands; and
|
| |  | unfavorable movements in natural gas prices in supply and demand
    areas.                                           

The revenues of our pipeline businesses are generated
under contracts that must be renegotiated periodically, some of
which are for a substantial portion of our firm transportation
capacity.








| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | competition by other pipelines, including the proposed
    construction by other companies of additional pipeline capacity
    or LNG terminals, such as those proposed in Baja California, in
    markets served by us;
|
| |  | changes in state regulation of local distribution companies,
    which may cause them to negotiate
    short-term contracts or
    turn back their capacity when their contracts expire;                                
|
| |  | reduced demand and market conditions in the areas we serve;                                                                                                                                                             
|
| |  | the availability of alternative energy sources or gas supply
    points; and                                                                                                                                            
|
| |  | regulatory actions.                                                                                                                                                                                                     





Fluctuations in energy commodity prices could adversely
affect our business.




6



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| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | regional, domestic and international supply and demand;                               
|
| |  | availability and adequacy of transportation facilities;                               
|
| |  | energy legislation;                                                                   
|
| |  | federal and state taxes, if any, on the transportation and
    storage of natural gas;
|
| |  | abundance of supplies of alternative energy sources; and                              
|
| |  | political unrest among oil producing countries.                                       

The agencies that regulate us and our customers affect our
profitability.








Environmental compliance and remediation costs and the
costs of environmental liabilities could exceed our
estimates.


clean-up




| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The uncertainties in estimating pollution control and clean up
    costs, including sites where preliminary site investigation or
    assessments have been completed;
|
| |  | The discovery of new sites or additional information at existing
    sites;                                                                                           

7



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| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The uncertainty in quantifying liability under environmental
    laws that impose joint and several liability on all potentially
    responsible parties; and
|
| |  | The nature of environmental laws and regulations, including the
    interpretation and enforcement thereof.                                                  





Our operations are subject to operational hazards and
uninsured risks.






The expansion of our business by constructing new
facilities subjects us to construction and other risks that may
adversely affect our financial results.






| |   |                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to obtain all necessary approvals and permits by
    regulatory agencies on a timely basis on terms that are
    acceptable to us;                                                                                                                     
|
| |  | potential changes of federal, state and local statutes and
    regulations, including environmental requirements that prevent a
    project from proceeding or increase the anticipated cost of the
    expansion project;                                         
|
| |  | impediments on our ability to acquire rights-of-ways or land
    rights on a timely basis within our anticipated costs;                                                                                                                                            
|
| |  | our ability to construct projects within anticipated costs,
    including the risk that we may incur cost overruns resulting
    from inflation or increased costs of equipment, materials or
    labor, or other factors beyond our control, that may be material;
|
| |  | anticipated future growth in natural gas supply does not
    materialize; and                                                                                                                                                                                      
|
| |  | lack of transportation, storage or throughput commitments that
    result in write-offs of development costs.                                                                                                                                                      

8



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Cost of litigation could exceed our estimates.




Risks Related to Our Affiliation with El Paso




Our relationship with El Paso and its financial condition
subjects us to potential risks that are beyond our
control.






Our system of internal controls is designed to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of our financial statements for
external purposes. A loss of public confidence in the quality of
our internal controls or disclosures could have a negative
impact on us.


decision-making


We may be subject to a change of control under certain
circumstances.




9



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| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A default under El Pasos $3 billion credit
    agreement by any party could accelerate our future borrowings,
    if any, under the credit agreement and our long-term debt, which
    could adversely affect our liquidity position.





We are an indirect subsidiary of El Paso.






| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | our payment of dividends;                                      
|
| |  | decisions on our financings and our capital raising activities;
|
| |  | mergers or other business combinations;                        
|
| |  | our acquisitions or dispositions of assets; and                
|
| |  | our participation in El Pasos cash management program.        






ITEM 1B. UNRESOLVED STAFF COMMENTS







ITEM 2. PROPERTIES









ITEM 3. LEGAL PROCEEDINGS




Arizona Pipe-Coating.


10



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##### Table of Contents





Tucson Waste Management.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS







PART II







|         |                                                                                                                 
|-------- | ----------------------------------------------------------------------------------------------------------------
|ITEM  5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES








ITEM 6. SELECTED FINANCIAL DATA


10-K.


11



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



Overview










|                |  |           |       |                  |                     |  |    | 
|--------------- |  | --------- | ----- | ---------------- | ------------------- |  | -- | 
|                |  |           |       | Percent of Total |                    
|                |  | BBtu/d(1) |       |                  | Contracted Capacity | 
|                |  |           |       |                  |                     | 
|2006            |  |           | 1,595 |                  |                     |  | 26 | 
|2007            |  |           | 1,384 |                  |                     |  | 22 | 
|2008            |  |           | 483   |                  |                     |  | 8  | 
|2009 and beyond |  |           | 2,779 |                  |                     |  | 44 | 






|    |                                             
|--- | --------------------------------------------
|(1) | Includes EPNG capacity on the Mojave system.

12



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Results of Operations




|                                |                  |                      |       |     |      |   |       |     | 
|------------------------------- | ---------------- | -------------------- | ----- | --- | ---- | - | ----- | --- | 
|                                |                  | 2005                 |       |     | 2004 |  
|                                |                  |                      |       |     |      |  
|                                |                  | (In millions, except |      
|                                |                  | volume amounts)      |      
|Operating revenues              |                  | $                    | 497   |     |      | $ | 508   |    
|Operating expenses              |                  |                      | (335  | )   |      |   | (266  | )  
|                                |                  |                      |       |     |      |  
|                                | Operating income |                      |       | 162 |      |   |       | 242 | 
|Other income, net               |                  |                      | 8     |     |      |   | 7     |    
|                                |                  |                      |       |     |      |  
|                                | EBIT             |                      |       | 170 |      |   |       | 249 | 
|Interest and debt expense       |                  |                      | (92   | )   |      |   | (92   | )  
|Affiliated interest income, net |                  |                      | 32    |     |      |   | 19    |    
|Income taxes                    |                  |                      | (46   | )   |      |   | (58   | )  
|                                |                  |                      |       |     |      |  
|                                | Net income       |                      | $     | 64  |      |   | $     | 118 | 
|                                |                  |                      |       |     |      |  
|Total throughput (BBtu/d)       |                  |                      | 4,214 |     |      |   | 4,235 |    
|                                |                  |                      |       |     |      |  



|                                            |                      |                         |     |     |         |   |     |       |   |   |        |   |  |   |     |     |  
|------------------------------------------- | -------------------- | ----------------------- | --- | --- | ------- | - | --- | ----- | - | - | ------ | - |  | - | --- | --- | -
|                                            |                      |                         |     |     |         |   |     | EBIT  |  
|                                            |                      | Revenue                 |     |     | Expense |   |     | Other |   |   | Impact |  
|                                            |                      |                         |     |     |         |   |     |       |   |   |        |  
|                                            |                      | Favorable/(Unfavorable) |    
|                                            |                      | (In millions)           |    
|Higher litigation accruals                  |                      | $                       |    |     |         | $ | (42 | )     |   | $ |       |   |  | $ | (42 | )  
|Gas not used in operations and revaluations |                      |                         | (15 | )   |         |   | (9  | )     |   |   |       |   |  |   | (24 | )  
|Higher general and administrative expenses  |                      |                         |    |     |         |   | (15 | )     |   |   |       |   |  |   | (15 | )  
|Other(1)                                    |                      |                         | 4   |     |         |   | (3  | )     |   |   | 1      |   |  |   | 2   |    
|                                            |                      |                         |     |     |         |   |     |       |   |   |        |  
|                                            | Total impact on EBIT |                         | $   | (11 | )       |   | $   | (69   | ) |   | $      | 1 |  |   | $   | (79 | )
|                                            |                      |                         |     |     |         |   |     |       |   |   |        |  




|    |                                              
|--- | ---------------------------------------------
|(1) | Consists of individually insignificant items.



Higher Litigation Accruals.


Gas Not Used in Operations and Revaluations.


13



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Higher General and Administrative Expenses.


Recontracting.


Accounting for Pipeline Integrity Costs.


Regulatory Matter.


rights-of


14



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Affiliated Interest Income, Net




Income Taxes


|                   |  |                   |    |   |      |   |    |  
|------------------ |  | ----------------- | -- | - | ---- | - | -- | -
|                   |  | Year Ended        |   
|                   |  | December 31,      |   
|                   |  |                   |   
|                   |  | 2005              |    |   | 2004 |  
|                   |  |                   |    |   |      |  
|                   |  | (In millions,     |   
|                   |  | except for rates) |   
|Income taxes       |  | $                 | 46 |   |      | $ | 58 |  
|Effective tax rate |  |                   | 42 | % |      |   | 33 | %



Liquidity and Capital Expenditures


Liquidity Overview


non-current




15



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##### Table of Contents



Capital Expenditures




|                |       |               |     |     |      |   |     |     | 
|--------------- | ----- | ------------- | --- | --- | ---- | - | --- | --- | 
|                |       | 2005          |     |     | 2004 |  
|                |       |               |     |     |      |  
|                |       | (In millions) |    
|Maintenance     |       | $             | 106 |     |      | $ | 107 |    
|Expansion/Other |       |               | 34  |     |      |   | 41  |    
|                |       |               |     |     |      |  
|                | Total |               | $   | 140 |      |   | $   | 148 | 
|                |       |               |     |     |      |  



Commitments and Contingencies




New Accounting Pronouncements Issued But Not Yet Adopted




16



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK


long-term


|             |                             |                                 |   |                   |     |          |   |       |     |        |   |            |  |  |   |       |  |  |   |       |  |  |   |       |  | 
|------------ | --------------------------- | ------------------------------- | - | ----------------- | --- | -------- | - | ----- | --- | ------ | - | ---------- |  |  | - | ----- |  |  | - | ----- |  |  | - | ----- |  | 
|             |                             | December 31, 2005               |   | December 31, 2004
|             |                             |                                 |   |                  
|             |                             | Expected Fiscal Year of         |   |                  
|             |                             | Maturity of Carrying Amounts    |   |                  
|             |                             |                                 |   |                  
|             |                             |                                 |   | Fair              |     | Carrying |   |      
|             |                             | 2010                            |   | Thereafter        |     | Total    |   | Value |     | Amount |   | Fair Value
|             |                             |                                 |   |                   |     |          |   |       |     |        |   |           
|             |                             | (In millions, except for rates)
|Liabilities: |                             |                                 |   |                   |     |          |   |       |     |        |   |            |  |  |   |       |  |  |   |       |  |  |   |      
|             | Long-term debt  fixed rate |                                 | $ | 352               |     |          | $ | 758   |     |        | $ | 1,110      |  |  | $ | 1,220 |  |  | $ | 1,110 |  |  | $ | 1,240 | 
|             |                             | Average interest rate           |   |                   | 7.9 | %        |   |       | 8.3 | %      |   |            |  |  |   |       |  |  |   |       |  |  |   |       |  | 

17



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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


EL PASO NATURAL GAS COMPANY





CONSOLIDATED STATEMENTS OF INCOME


(In millions)


|                                |                                          |                         |     |     |      |   |     |      |  |   |     |     | 
|------------------------------- | ---------------------------------------- | ----------------------- | --- | --- | ---- | - | --- | ---- |  | - | --- | --- | 
|                                |                                          | Year Ended December 31, |    
|                                |                                          |                         |    
|                                |                                          | 2005                    |     |     | 2004 |   |     | 2003 | 
|                                |                                          |                         |     |     |      |   |     |      | 
|Operating revenues              |                                          | $                       | 497 |     |      | $ | 508 |      |  | $ | 526 |    
|                                |                                          |                         |     |     |      |   |     |      | 
|Operating expenses              |                                          |                         |     |     |      |   |     |      |  |   |     |    
|                                | Operation and maintenance                |                         |     | 232 |      |   |     | 166  |  |   |     | 163 | 
|                                | Western Energy Settlement                |                         |     |    |      |   |     |     |  |   |     | 127 | 
|                                | Depreciation, depletion and amortization |                         |     | 74  |      |   |     | 72   |  |   |     | 66  | 
|                                | Taxes, other than income taxes           |                         |     | 29  |      |   |     | 28   |  |   |     | 29  | 
|                                |                                          |                         |     |     |      |   |     |      | 
|                                |                                          |                         | 335 |     |      |   | 266 |      |  |   | 385 |    
|                                |                                          |                         |     |     |      |   |     |      | 
|Operating income                |                                          |                         | 162 |     |      |   | 242 |      |  |   | 141 |    
|Other income, net               |                                          |                         | 8   |     |      |   | 7   |      |  |   | 7   |    
|Interest and debt expense       |                                          |                         | (92 | )   |      |   | (92 | )    |  |   | (90 | )  
|Affiliated interest income, net |                                          |                         | 32  |     |      |   | 19  |      |  |   | 20  |    
|                                |                                          |                         |     |     |      |   |     |      | 
|Income before income taxes      |                                          |                         | 110 |     |      |   | 176 |      |  |   | 78  |    
|Income taxes                    |                                          |                         | 46  |     |      |   | 58  |      |  |   | 31  |    
|                                |                                          |                         |     |     |      |   |     |      | 
|Net income                      |                                          | $                       | 64  |     |      | $ | 118 |      |  | $ | 47  |    
|                                |                                          |                         |     |     |      |   |     |      | 



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EL PASO NATURAL GAS COMPANY





CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


|                                       |                                                                                           |                                                    |                                            |       |      |       |       |       |    |       | 
|-------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------ | ----- | ---- | ----- | ----- | ----- | -- | ----- | 
|                                       |                                                                                           | December 31,                                       |                                           
|                                       |                                                                                           |                                                    |                                           
|                                       |                                                                                           | 2005                                               |                                            |       | 2004 |      
|                                       |                                                                                           |                                                    |                                            |       |      |      
|ASSETS                                
|Current assets                         |                                                                                           |                                                    |                                            |       |      |       |       |      
|                                       | Cash and cash equivalents                                                                 |                                                    | $                                          |      |      |       | $     | 1     |   
|                                       | Accounts and notes receivable                                                             |                                                    |                                            |       |      |       |       |       |   
|                                       |                                                                                           | Customer, net of allowance of $18 in 2005 and 2004 |                                            |       | 114  |       |       |       | 73 |      
|                                       |                                                                                           | Affiliates                                         |                                            |       | 4    |       |       |       | 38 |      
|                                       |                                                                                           | Other                                              |                                            |       |     |       |       |       | 3  |      
|                                       | Taxes receivable                                                                          |                                                    |                                            |      |      |       |       | 102   |   
|                                       | Materials and supplies                                                                    |                                                    |                                            | 41    |      |       |       | 41    |   
|                                       | Deferred income taxes                                                                     |                                                    |                                            | 14    |      |       |       | 27    |   
|                                       | Restricted cash                                                                           |                                                    |                                            | 17    |      |       |       |      |   
|                                       | Other                                                                                     |                                                    |                                            | 3     |      |       |       | 19    |   
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | Total current assets                       |       |      | 193   |       |       |    | 304   | 
|                                       |                                                                                           |                                                    |                                            |       |      |      
|Property, plant and equipment, at cost |                                                                                           |                                                    | 3,417                                      |       |      |       | 3,355 |      
|                                       | Less accumulated depreciation, depletion and amortization                                 |                                                    |                                            | 1,193 |      |       |       | 1,222 |   
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | Total property, plant and equipment, net   |       |      | 2,224 |       |       |    | 2,133 | 
|Other assets                           |                                                                                           |                                                    |                                            |       |      |       |       |      
|                                       | Note receivable from affiliate                                                            |                                                    |                                            | 872   |      |       |       | 702   |   
|                                       | Other                                                                                     |                                                    |                                            | 89    |      |       |       | 86    |   
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | 961                                        |       |      |       | 788   |      
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | Total assets                               |       | $    | 3,378 |       |       | $  | 3,225 | 
|                                       |                                                                                           |                                                    |                                            |       |      |      
|LIABILITIES AND STOCKHOLDERS EQUITY  
|Current liabilities                    |                                                                                           |                                                    |                                            |       |      |       |       |      
|                                       | Accounts payable                                                                          |                                                    |                                            |       |      |       |       |       |   
|                                       |                                                                                           | Trade                                              |                                            | $     | 84   |       |       | $     | 36 |      
|                                       |                                                                                           | Affiliates                                         |                                            |       | 6    |       |       |       | 16 |      
|                                       |                                                                                           | Other                                              |                                            |       | 17   |       |       |       | 4  |      
|                                       | Short-term borrowings                                                                     |                                                    |                                            |      |      |       |       | 7     |   
|                                       | Taxes payable                                                                             |                                                    |                                            | 27    |      |       |       | 29    |   
|                                       | Accrued interest                                                                          |                                                    |                                            | 25    |      |       |       | 25    |   
|                                       | Accrued liabilities                                                                       |                                                    |                                            | 50    |      |       |       | 10    |   
|                                       | Other                                                                                     |                                                    |                                            | 12    |      |       |       | 12    |   
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | Total current liabilities                  |       |      | 221   |       |       |    | 139   | 
|                                       |                                                                                           |                                                    |                                            |       |      |      
|Long-term debt                         |                                                                                           |                                                    | 1,110                                      |       |      |       | 1,110 |      
|                                       |                                                                                           |                                                    |                                            |       |      |      
|Other liabilities                      |                                                                                           |                                                    |                                            |       |      |       |       |      
|                                       | Deferred income taxes                                                                     |                                                    |                                            | 364   |      |       |       | 359   |   
|                                       | Other                                                                                     |                                                    |                                            | 105   |      |       |       | 104   |   
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | 469                                        |       |      |       | 463   |      
|                                       |                                                                                           |                                                    |                                            |       |      |      
|Commitments and contingencies          |                                                                                           |                                                    |                                            |       |      |       |       |      
|Stockholders equity                   |                                                                                           |                                                    |                                            |       |      |       |       |      
|                                       | Common stock, par value $1 per share; 1,000 shares
    authorized, issued and outstanding |                                                    |                                            |      |      |       |       |      |   
|                                       | Additional paid-in capital                                                                |                                                    |                                            | 1,268 |      |       |       | 1,267 |   
|                                       | Retained earnings                                                                         |                                                    |                                            | 310   |      |       |       | 246   |   
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | Total stockholders equity                 |       |      | 1,578 |       |       |    | 1,513 | 
|                                       |                                                                                           |                                                    |                                            |       |      |      
|                                       |                                                                                           |                                                    | Total liabilities and stockholders equity |       | $    | 3,378 |       |       | $  | 3,225 | 
|                                       |                                                                                           |                                                    |                                            |       |      |      



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EL PASO NATURAL GAS COMPANY





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |     |      |     |      |     |     |    |      |  
|--------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------- | ----------- | --------------------------------------------------- | --- | --- | ---- | --- | ---- | --- | ---- | --- | --- | -- | ---- | -
|                                        |                                                                               | Year Ended December 31,                  |                                    
|                                        |                                                                               |                                          |                                    
|                                        |                                                                               | 2005                                     |                                     |             | 2004                                                |     |     | 2003 |    
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|Cash flows from operating activities    |                                                                               |                                          |                                     |             |                                                     |     |     |      |     |      |     |     
|Net income                              |                                                                               | $                                        | 64                                  |             |                                                     | $   | 118 |      |     | $    | 47  |     
|                                        | Adjustments to reconcile net income to net cash from operating
    activities |                                          |                                     |             |                                                     |     |     |      |     |      |     |      |    
|                                        |                                                                               | Depreciation, depletion and amortization |                                     |             | 74                                                  |     |     |      | 72  |      |     |      | 66  |    
|                                        |                                                                               | Deferred income taxes                    |                                     |             | 7                                                   |     |     |      | 155 |      |     |      | (12 | )  
|                                        |                                                                               | Western Energy Settlement                |                                     |             |                                                    |     |     |      |    |      |     |      | 117 |    
|                                        |                                                                               | Other non-cash income items              |                                     |             |                                                    |     |     |      |    |      |     |      | (36 | )  
|                                        |                                                                               | Asset and liabilities changes            |                                     |             |                                                     |     |     |      |     |      |     |      |     |    
|                                        |                                                                               |                                          | Western Energy Settlement liability |             |                                                     |    |     |      |     | (538 | )   |      |     |    |   
|                                        |                                                                               |                                          | Accounts receivable                 |             |                                                     | (34 | )   |      |     | (5   | )   |      |     | 18  |   
|                                        |                                                                               |                                          | Accounts payable                    |             |                                                     | 41  |     |      |     | 4    |     |      |     | (33 | ) 
|                                        |                                                                               |                                          | Taxes receivable                    |             |                                                     | 102 |     |      |     | (102 | )   |      |     |    |   
|                                        |                                                                               |                                          | Taxes payable                       |             |                                                     | 16  |     |      |     | (93  | )   |      |     | (9  | ) 
|                                        |                                                                               |                                          | Other asset and liability changes   |             |                                                     |     |     |      |     |      |     |      |     |     |   
|                                        |                                                                               |                                          |                                     | Assets      |                                                     |     | 8   |      |     |      |    |      |     |     | (4 | )   
|                                        |                                                                               |                                          |                                     | Liabilities |                                                     |     | 26  |      |     |      | (47 | )    |     |     | 3  |     
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|                                        |                                                                               |                                          |                                     |             | Net cash provided by (used in) operating activities |     |     | 304  |     |      |     | (436 | )   |     |    | 157  |  
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|Cash flows from investing activities    |                                                                               |                                          |                                     |             |                                                     |     |     |      |     |      |     |     
|                                        | Additions to property, plant and equipment                                    |                                          |                                     | (141        | )                                                   |     |     | (148 | )   |      |     | (225 | )  
|                                        | Proceeds from the sale of assets                                              |                                          |                                     | 2           |                                                     |     |     | 1    |     |      |     | 38   |    
|                                        | Net change in restricted cash                                                 |                                          |                                     | (17         | )                                                   |     |     | 443  |     |      |     | (443 | )  
|                                        | Net change in affiliate advances                                              |                                          |                                     | (142        | )                                                   |     |     | 49   |     |      |     | 221  |    
|                                        | Other                                                                         |                                          |                                     |            |                                                     |     |     | (7   | )   |      |     |     |    
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|                                        |                                                                               |                                          |                                     |             | Net cash provided by (used in) investing activities |     |     | (298 | )   |      |     | 338  |     |     |    | (409 | )
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|Cash flows from financing activities    |                                                                               |                                          |                                     |             |                                                     |     |     |      |     |      |     |     
|                                        | Net proceeds from the issuance of debt                                        |                                          |                                     |            |                                                     |     |     |     |     |      |     | 354  |    
|                                        | Payments to retire debt                                                       |                                          |                                     | (7          | )                                                   |     |     |     |     |      |     | (200 | )  
|                                        | Capital contributions                                                         |                                          |                                     |            |                                                     |     |     | 73   |     |      |     | 121  |    
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|                                        |                                                                               |                                          |                                     |             | Net cash provided by (used in) financing activities |     |     | (7   | )   |      |     | 73   |     |     |    | 275  |  
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|Net change in cash and cash equivalents |                                                                               |                                          | (1                                  | )           |                                                     |     | (25 | )    |     |      | 23  |     
|Cash and cash equivalents               |                                                                               |                                          |                                     |             |                                                     |     |     |      |     |      |     |     
|                                        | Beginning of period                                                           |                                          |                                     | 1           |                                                     |     |     | 26   |     |      |     | 3    |    
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    
|                                        | End of period                                                                 |                                          | $                                   |            |                                                     |     | $   | 1    |     |      | $   | 26   |    
|                                        |                                                                               |                                          |                                     |             |                                                     |     |     |      |    



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EL PASO NATURAL GAS COMPANY





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In millions, except share amounts)


|                  |                                               |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |   |     |     |   |   |       |     |  
|----------------- | --------------------------------------------- | --------- | --- | ---- | ------------ |  | ---------- | ------ |  | -------- | - | ----- | ------------- | - | ----- | ------ | - | - | --- | --- | - | - | ----- | --- | -
|                  |                                               | 8%        |     |      | Common stock |  | Additional |        |  |          |   | Total |              
|                  |                                               | Preferred |     |      |              |  | paid-in    |        |  | Retained |   |       | stockholders |  
|                  |                                               | stock     |     |      | Shares       |  |            | Amount |  | capital  |   |       | earnings      |   |       | equity |  
|                  |                                               |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |  
|January 1, 2003   |                                               | $         | 350 |      |              |  | 1,000      |        |  | $        |  |       |               | $ | 715   |        |   | $ | 88  |     |   | $ | 1,153 |    
|                  | Net income                                    |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |   |     | 47  |   |   |       | 47  |  
|                  | Preferred stock dividends                     |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |   |     | (7  | ) |   |       | (7  | )
|                  | Redemption of preferred stock                 |           |     | (350 | )            |  |            |        |  |          |   |       |               |   |       | 359    |   |   |     |     |   |   |       | 9   |  
|                  | Western Energy Settlement contribution        |           |     |      |              |  |            |        |  |          |   |       |               |   |       | 121    |   |   |     |     |   |   |       | 121 |  
|                  | Allocated tax expense of El Paso equity plans |           |     |      |              |  |            |        |  |          |   |       |               |   |       | (1     | ) |   |     |     |   |   |       | (1  | )
|                  |                                               |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |  
|December 31, 2003 |                                               |           |    |      |              |  | 1,000      |        |  |          |  |       |               |   | 1,194 |        |   |   | 128 |     |   |   | 1,322 |    
|                  | Net income                                    |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |   |     | 118 |   |   |       | 118 |  
|                  | Western Energy Settlement contribution        |           |     |      |              |  |            |        |  |          |   |       |               |   |       | 73     |   |   |     |     |   |   |       | 73  |  
|                  |                                               |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |  
|December 31, 2004 |                                               |           |    |      |              |  | 1,000      |        |  |          |  |       |               |   | 1,267 |        |   |   | 246 |     |   |   | 1,513 |    
|                  | Net income                                    |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |   |     | 64  |   |   |       | 64  |  
|                  | Allocated tax benefit of El Paso equity plans |           |     |      |              |  |            |        |  |          |   |       |               |   |       | 1      |   |   |     |     |   |   |       | 1   |  
|                  |                                               |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |  
|December 31, 2005 |                                               | $         |    |      |              |  | 1,000      |        |  | $        |  |       |               | $ | 1,268 |        |   | $ | 310 |     |   | $ | 1,578 |    
|                  |                                               |           |     |      |              |  |            |        |  |          |   |       |               |   |       |        |   |  



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EL PASO NATURAL GAS COMPANY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies


Basis of Presentation and Principles of
Consolidation




Use of Estimates




Regulated Operations


Accounting for the Effects of Certain Types of
Regulation.


Cash and Cash Equivalents






Allowance for Doubtful Accounts




Materials and Supplies




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Natural Gas Imbalances






Property, Plant and Equipment








straight-line








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Asset Impairments




Revenue Recognition




Environmental Costs and Other
Contingencies








Income Taxes




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| |                                            
| | -------------------------------------------
| | Accounting for Asset Retirement Obligations

Accounting
for Asset Retirement Obligations Accounting for Conditional
Asset Retirement Obligations






2. Income Taxes


Components of Income Taxes.


|         |         |                    |    |    |      |  |     |      |    |  |     |     |    | 
|-------- | ------- | ------------------ | -- | -- | ---- |  | --- | ---- | -- |  | --- | --- | -- | 
|         |         | 2005               |    |    | 2004 |  |     | 2003 |   
|         |         |                    |    |    |      |  |     |      |   
|         |         | (In millions)      |   
|Current  |         |                    |    |    |      |  |     |      |    |  |     |    
|         | Federal |                    | $  | 35 |      |  | $   | (99  | )  |  | $   | 37  |   
|         | State   |                    |    | 4  |      |  |     | 2    |    |  |     | 6   |   
|         |         |                    |    |    |      |  |     |      |   
|         |         |                    | 39 |    |      |  | (97 | )    |    |  | 43  |    
|         |         |                    |    |    |      |  |     |      |   
|Deferred |         |                    |    |    |      |  |     |      |    |  |     |    
|         | Federal |                    |    | 5  |      |  |     | 159  |    |  |     | (11 | ) 
|         | State   |                    |    | 2  |      |  |     | (4   | )  |  |     | (1  | ) 
|         |         |                    |    |    |      |  |     |      |   
|         |         |                    | 7  |    |      |  | 155 |      |    |  | (12 | )  
|         |         |                    |    |    |      |  |     |      |   
|         |         | Total income taxes |    | $  | 46   |  |     | $    | 58 |  |     | $   | 31 | 
|         |         |                    |    |    |      |  |     |      |   

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Effective Tax Rate Reconciliation.


|                                                  |                                                               |                                 |    |   |      |   |    |      |   |   |    |   | 
|------------------------------------------------- | ------------------------------------------------------------- | ------------------------------- | -- | - | ---- | - | -- | ---- | - | - | -- | - | 
|                                                  |                                                               | 2005                            |    |   | 2004 |   |    | 2003 |  
|                                                  |                                                               |                                 |    |   |      |   |    |      |  
|                                                  |                                                               | (In millions, except for rates) |   
|Income taxes at the statutory federal rate of 35% |                                                               | $                               | 39 |   |      | $ | 62 |      |   | $ | 27 |  
|Increase (decrease)                               |                                                               |                                 |    |   |      |   |    |      |   |   |    |  
|                                                  | State income taxes, net of federal income tax effect          |                                 |    | 4 |      |   |    | 6    |   |   |    | 3 | 
|                                                  | State tax valuation allowance  Western Energy
    Settlement |                                 |    |  |      |   |    | (6   | ) |   |    |  | 
|                                                  | Deferred tax adjustments, including Mojave                    |                                 |    |  |      |   |    | (3   | ) |   |    |  | 
|                                                  | Non-deductible expenses                                       |                                 |    | 3 |      |   |    |     |   |   |    |  | 
|                                                  | Other                                                         |                                 |    |  |      |   |    | (1   | ) |   |    | 1 | 
|                                                  |                                                               |                                 |    |   |      |   |    |      |  
|Income taxes                                      |                                                               | $                               | 46 |   |      | $ | 58 |      |   | $ | 31 |  
|                                                  |                                                               |                                 |    |   |      |   |    |      |  
|Effective tax rate                                |                                                               |                                 | 42 | % |      |   | 33 | %    |   |   | 40 | %
|                                                  |                                                               |                                 |    |   |      |   |    |      |  

Deferred Tax Assets and Liabilities.


|                           |                                                         |                              |     |     |      |   |     |     |     | 
|-------------------------- | ------------------------------------------------------- | ---------------------------- | --- | --- | ---- | - | --- | --- | --- | 
|                           |                                                         | 2005                         |     |     | 2004 |  
|                           |                                                         |                              |     |     |      |  
|                           |                                                         | (In millions)                |    
|Deferred tax liabilities   |                                                         |                              |     |     |      |   |     |    
|                           | Property, plant and equipment                           |                              | $   | 427 |      |   | $   | 389 |    
|                           | Employee benefits and deferred compensation obligations |                              |     | 27  |      |   |     | 26  |    
|                           | Regulatory and other assets                             |                              |     | 45  |      |   |     | 73  |    
|                           |                                                         |                              |     |     |      |  
|                           |                                                         | Total deferred tax liability |     |     | 499  |   |     |     | 488 | 
|                           |                                                         |                              |     |     |      |  
|Deferred tax assets        |                                                         |                              |     |     |      |   |     |    
|                           | U.S. net operating loss and tax credit carryovers       |                              |     | 81  |      |   |     | 69  |    
|                           | State net operating loss carryovers                     |                              |     |    |      |   |     | 21  |    
|                           | Other liabilities                                       |                              |     | 68  |      |   |     | 66  |    
|                           |                                                         |                              |     |     |      |  
|                           |                                                         | Total deferred tax asset     |     |     | 149  |   |     |     | 156 | 
|                           |                                                         |                              |     |     |      |  
|Net deferred tax liability |                                                         | $                            | 350 |     |      | $ | 332 |    
|                           |                                                         |                              |     |     |      |  



Net Operating Loss Carryovers.


|                                       |  |               |     |  |                 |  |           | 
|-------------------------------------- |  | ------------- | --- |  | --------------- |  | --------- | 
|Carryover                              |  | Amount        |     |  | Expiration Year | 
|                                       |  |               |     |  |                 | 
|                                       |  | (In millions) |     |  |                
|U.S. federal net operating
    loss(1) |  | $             | 184 |  |                 |  | 2019-2024 | 






|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | Less than $1 million of this amount expires in 2019,
    $1 million in 2021 and $183 million in 2024.



Valuation Allowances.


Other Tax Matters.


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3. Financial Instruments




|                                     |                       |               |   |       |            |  |          |        |  |  |            |       |  |  |   |       | 
|------------------------------------ | --------------------- | ------------- | - | ----- | ---------- |  | -------- | ------ |  |  | ---------- | ----- |  |  | - | ----- | 
|                                     |                       | 2005          |   |       | 2004       | 
|                                     |                       |               |   |       |            | 
|                                     |                       | Carrying      |   |       |            |  | Carrying |        |  | 
|                                     |                       | Amount        |   |       | Fair Value |  |          | Amount |  |  | Fair Value |      
|                                     |                       |               |   |       |            |  |          |        |  |  |            |      
|                                     |                       | (In millions) |  
|Balance sheet financial instruments: |                       |               |   |       |            |  |          |        |  |  |            |       |  |  |   |      
|                                     | Long-term
    debt(1) |               | $ | 1,110 |            |  | $        | 1,220  |  |  | $          | 1,110 |  |  | $ | 1,240 | 






| |     |                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------
| | (1) | We estimated the fair value of debt with fixed interest rates
    based on quoted market prices for the same or similar issues.



4. Regulatory Assets and Liabilities




|                                   |                                                              |                                            |   |    |      |   |   |    |    | 
|---------------------------------- | ------------------------------------------------------------ | ------------------------------------------ | - | -- | ---- | - | - | -- | -- | 
|Description                        |                                                              | 2005                                       |   |    | 2004 |  
|                                   |                                                              |                                            |   |    |      |  
|                                   |                                                              | (In millions)                              |  
|Non-current regulatory assets      |                                                              |                                            |   |    |      |   |   |   
|                                   | Unamortized loss on reacquired debt                          |                                            | $ | 18 |      |   | $ | 21 |   
|                                   | Deferred taxes on capitalized funds used during construction |                                            |   | 19 |      |   |   | 17 |   
|                                   | Postretirement benefits                                      |                                            |   | 9  |      |   |   | 11 |   
|                                   | Under-collected state income taxes                           |                                            |   | 7  |      |   |   | 7  |   
|                                   | Other                                                        |                                            |   | 3  |      |   |   |   |   
|                                   |                                                              |                                            |   |    |      |  
|                                   |                                                              | Total non-current regulatory
    assets(1) |   | $  | 56   |   |   | $  | 56 | 
|                                   |                                                              |                                            |   |    |      |  
|Current regulatory liabilities     |                                                              | $                                          | 1 |    |      | $ |  |   
|Non-current regulatory liabilities |                                                              |                                            |   |    |      |   |   |   
|                                   | Property and plant depreciation                              |                                            |   | 41 |      |   |   | 35 |   
|                                   | Excess deferred federal income taxes                         |                                            |   | 2  |      |   |   | 3  |   
|                                   |                                                              |                                            |   |    |      |  
|                                   |                                                              | Total regulatory
    liabilities(1)        |   | $  | 44   |   |   | $  | 38 | 
|                                   |                                                              |                                            |   |    |      |  






| |     |                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------
| | (1) | Amounts are included as other non-current assets and other
    current and non-current liabilities in our balance sheet.

5. Debt and Credit Facilities




| |     
| | ----
| | Debt



|                            |                      |               |       |       |      |   |       |       | 
|--------------------------- | -------------------- | ------------- | ----- | ----- | ---- | - | ----- | ----- | 
|                            |                      | 2005          |       |       | 2004 |  
|                            |                      |               |       |       |      |  
|                            |                      | (In millions) |      
|7.625% Notes due 2010       |                      | $             | 355   |       |      | $ | 355   |      
|8.625% Debentures due 2022  |                      |               | 260   |       |      |   | 260   |      
|7.50%   Debentures due 2026 |                      |               | 200   |       |      |   | 200   |      
|8.375% Notes due 2032       |                      |               | 300   |       |      |   | 300   |      
|                            |                      |               |       |       |      |  
|                            |                      |               | 1,115 |       |      |   | 1,115 |      
|Less: Unamortized discount  |                      |               | 5     |       |      |   | 5     |      
|                            |                      |               |       |       |      |  
|                            | Total long-term debt |               | $     | 1,110 |      |   | $     | 1,110 | 
|                            |                      |               |       |       |      |  

27



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| |                  
| | -----------------
| | Credit Facilities



debt-related




6. Commitments and Contingencies


Legal Proceedings


Sierra Pacific Resources and Nevada Power Company v.
El Paso et al.


IMC Chemicals (IMCC) v. El Paso Marketing, L.P. (EPM),
et al.


Phelps Dodge vs. EPNG.


28



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Shareholder Class Action Suit. Marilyn Clark v.
Byron Allumbaugh, David A. Arledge, John M. Bissell,
Juan Carlos Braniff, James F. Gibbons, Anthony W.
Hall, Ronald L. Kuehn, J. Carleton MacNeil, Thomas
McDade, Malcolm Wallop, William Wise, Joe B. Wyatt,
El Paso Natural Gas Company and El Paso Merchant
Energy Company


Carlsbad.


Baldonado et al. vs. EPNG Baldonado


Grynberg. In re: Natural Gas Royalties Qui Tam
Litigation


Will Price (formerly Quinque). Will Price, et al. v. Gas
Pipelines and Their Predecessors, et al.,


29



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Bank of America. Bank of America, et al. v. El Paso Natural
Gas Company, et al. Deane W. Moore, et al.
v. Burlington Northern, Inc., et al Bank of
America, et al. v. El Paso Natural Gas and Burlington Resources
Oil and Gas Company El Paso Natural Gas Company v. Burlington Resources, Inc. and
Burlington Resources Oil and Gas Company, L.P.






Environmental Matters






|                                                 |  |   |    |  
|------------------------------------------------ |  | - | -- | -
|Balance at January 1, 2005                       |  | $ | 32 |  
|Additions/adjustments for remediation activities |  |   | 1  |  
|Payments for remediation activities              |  |   | (4 | )
|                                                 |  |   |   
|Balance at December 31, 2005                     |  | $ | 29 |  
|                                                 |  |   |   

30



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CERCLA Matters. clean-up


State of Arizona Chromium Review.




Rates and Regulatory Matters


Rate Case.


Rate Settlement.


FERC Order 2004 Audit.


31



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##### Table of Contents





California Public Utilities Commission (CPUC)s OIR
Proceeding. non-core non-core






| |             
| | ------------
| | Other Matter

Navajo Nation.




32



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Capital Commitments




Operating Leases




|             |       |                  |    |    | 
|------------ | ----- | ---------------- | -- | -- | 
|Year Ending  |       |                 
|December 31, |       | Operating Leases |   
|             |       |                  |   
|             |       | (In millions)    |   
|2006         |       | $                | 16 |   
|2007         |       |                  | 8  |   
|2008         |       |                  | 2  |   
|2009         |       |                  | 1  |   
|             |       |                  |   
|             | Total |                  | $  | 27 | 
|             |       |                  |   





Other Commercial Commitments




Guarantees




7. Retirement Benefits


Pension and Retirement Benefits




33



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Postretirement Benefits




106-2. Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003.




|                                 |                                                     |               |   |    |      |  |   |     |  
|-------------------------------- | --------------------------------------------------- | ------------- | - | -- | ---- |  | - | --- | -
|                                 |                                                     | 2005          |   |    | 2004 | 
|                                 |                                                     |               |   |    |      | 
|                                 |                                                     | (In millions) |  
|Change in benefit obligation:    |                                                     |               |   |    |      |  |   |    
|                                 | Projected benefit obligation at beginning of period |               | $ | 85 |      |  | $ | 107 |  
|                                 | Interest cost                                       |               |   | 4  |      |  |   | 6   |  
|                                 | Actuarial (gain) loss                               |               |   | 10 |      |  |   | (22 | )
|                                 | Benefits paid                                       |               |   | (6 | )    |  |   | (6  | )
|                                 |                                                     |               |   |    |      | 
|                                 | Projected benefit obligation at end of period       |               | $ | 93 |      |  | $ | 85  |  
|                                 |                                                     |               |   |    |      | 
|Change in plan assets:           |                                                     |               |   |    |      |  |   |    
|                                 | Fair value of plan assets at beginning period       |               | $ | 77 |      |  | $ | 70  |  
|                                 | Actual return on plan assets                        |               |   | 8  |      |  |   | 2   |  
|                                 | Employer contributions                              |               |   | 11 |      |  |   | 11  |  
|                                 | Benefits paid                                       |               |   | (6 | )    |  |   | (6  | )
|                                 |                                                     |               |   |    |      | 
|                                 | Fair value of plan assets at end of period          |               | $ | 90 |      |  | $ | 77  |  
|                                 |                                                     |               |   |    |      | 
|Reconciliation of funded status: |                                                     |               |   |    |      |  |   |    
|                                 | Under funded status as of September 30              |               | $ | (3 | )    |  | $ | (8  | )
|                                 | Fourth quarter contributions                        |               |   | 3  |      |  |   | 3   |  
|                                 | Unrecognized net actuarial loss                     |               |   | 15 |      |  |   | 9   |  
|                                 | Unrecognized net transition obligation              |               |   |   |      |  |   | 8   |  
|                                 |                                                     |               |   |    |      | 
|                                 | Prepaid benefit cost at December 31                 |               | $ | 15 |      |  | $ | 12  |  
|                                 |                                                     |               |   |    |      | 



|             |       |   |    |    |  |  |  |  | 
|------------ | ----- | - | -- | -- |  |  |  |  | 
|Year Ending  |       |   |    |   
|December 31, |       |   |    |   
|             |       |   |    |   
|2006         |       | $ | 8  |    |  |  |  | 
|2007         |       |   | 8  |    |  |  |  | 
|2008         |       |   | 8  |    |  |  |  | 
|2009         |       |   | 7  |    |  |  |  | 
|2010         |       |   | 8  |    |  |  |  | 
|2011-2015    |       |   | 40 |    |  |  |  | 
|             |       |   |    |    |  | 
|             | Total |   | $  | 79 |  |  |  |  | 
|             |       |   |    |    |  | 

34



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|                                      |  |               |    |   |      |   |    |      |  |   |    |  
|------------------------------------- |  | ------------- | -- | - | ---- | - | -- | ---- |  | - | -- | -
|                                      |  | 2005          |    |   | 2004 |   |    | 2003 | 
|                                      |  |               |    |   |      |   |    |      | 
|                                      |  | (In millions) |   
|Interest cost                         |  | $             | 4  |   |      | $ | 6  |      |  | $ | 7  |  
|Expected return on plan assets        |  |               | (5 | ) |      |   | (5 | )    |  |   | (4 | )
|Amortization of net actuarial gain    |  |               |   |   |      |   | 2  |      |  |   | 1  |  
|Amortization of transition obligation |  |               | 8  |   |      |   | 8  |      |  |   | 8  |  
|                                      |  |               |    |   |      |   |    |      | 
|Net postretirement benefit cost       |  | $             | 7  |   |      | $ | 11 |      |  | $ | 12 |  
|                                      |  |               |    |   |      |   |    |      | 



|                                                            |                                       |           |  |      |      |  |  |      |  |  |  |      | 
|----------------------------------------------------------- | ------------------------------------- | --------- |  | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|                                                            |                                       | 2005      |  |      | 2004 |  |  | 2003 | 
|                                                            |                                       |           |  |      |      |  |  |      | 
|                                                            |                                       | (Percent) | 
|Assumptions related to benefit obligations at September 30: |                                       |           |  |      |      |  |  |      |  |  |  |     
|                                                            | Discount rate                         |           |  | 5.25 |      |  |  | 5.75 |  |  |  |      | 
|Assumptions related to benefit costs at December 31:        |                                       |           |  |      |      |  |  |      |  |  |  |     
|                                                            | Discount rate                         |           |  | 5.75 |      |  |  | 6.00 |  |  |  | 6.75 | 
|                                                            | Expected return on plan
    assets(1) |           |  | 7.50 |      |  |  | 7.50 |  |  |  | 7.50 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The expected return on plan assets is a pre-tax rate (before a
    tax rate of 15 percent on postretirement benefits) that is
    primarily based on an expected risk-free investment return,
    adjusted for historical risk premiums and specific risk
    adjustments associated with our debt and equity securities.
    These expected returns were then weighted based on the target
    asset allocations of our investment portfolio.



|                               |                                               |               |   |    |      |  |   |    |  
|------------------------------ | --------------------------------------------- | ------------- | - | -- | ---- |  | - | -- | -
|                               |                                               | 2005          |   |    | 2004 | 
|                               |                                               |               |   |    |      | 
|                               |                                               | (In millions) |  
|One percentage point increase: |                                               |               |   |    |      |  |   |   
|                               | Aggregate of service cost and interest cost   |               | $ |   |      |  | $ |   |  
|                               | Accumulated postretirement benefit obligation |               | $ | 7  |      |  | $ | 6  |  
|One percentage point decrease: |                                               |               |   |    |      |  |   |   
|                               | Aggregate of service cost and interest cost   |               | $ |   |      |  | $ |   |  
|                               | Accumulated postretirement benefit obligation |               | $ | (6 | )    |  | $ | (5 | )

Postretirement Plan
Assets




|                  |       |           |    |     |        |  |    |     | 
|----------------- | ----- | --------- | -- | --- | ------ |  | -- | --- | 
|                  |       | Actual    |    |     | Actual | 
|Asset Category    |       | 2005      |    |     | 2004   | 
|                  |       |           |    |     |        | 
|                  |       | (Percent) |   
|Equity securities |       |           | 65 |     |        |  | 65 |    
|Debt securities   |       |           | 34 |     |        |  | 35 |    
|Other             |       |           | 1  |     |        |  |   |    
|                  |       |           |    |     |        | 
|                  | Total |           |    | 100 |        |  |    | 100 | 
|                  |       |           |    |     |        | 



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8. Preferred Stock




9. Transactions with Major Customers




|                          |  |               |     |  |      |   |     |      |  |   |     | 
|------------------------- |  | ------------- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                          |  | 2005          |     |  | 2004 |   |     | 2003 | 
|                          |  |               |     |  |      |   |     |      | 
|                          |  | (In millions) |    
|SoCal                     |  | $             | 156 |  |      | $ | 157 |      |  | $ | 154 | 
|Southwest Gas Corporation |  |               | 51  |  |      |   | 51  |      |  |   | 50  | 

10. Supplemental Cash Flow Information




|                                           |  |               |     |   |      |   |    |      |  |   |    | 
|------------------------------------------ |  | ------------- | --- | - | ---- | - | -- | ---- |  | - | -- | 
|                                           |  | 2005          |     |   | 2004 |   |    | 2003 | 
|                                           |  |               |     |   |      |   |    |      | 
|                                           |  | (In millions) |    
|Interest paid, net of capitalized interest |  | $             | 93  |   |      | $ | 92 |      |  | $ | 74 | 
|Income tax payments (refunds)              |  |               | (93 | ) |      |   | 98 |      |  |   | 51 | 

11. Transactions with Affiliates


Cash Management Program. non-current


Taxes.


Capital Contributions.


36



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##### Table of Contents



Other Affiliate Balances.




Affiliate Revenues and Expenses.


Share-Based Payment




|                                                           |  |               |    |  |      |   |    |      |  |   |    | 
|---------------------------------------------------------- |  | ------------- | -- |  | ---- | - | -- | ---- |  | - | -- | 
|                                                           |  | 2005          |    |  | 2004 |   |    | 2003 | 
|                                                           |  |               |    |  |      |   |    |      | 
|                                                           |  | (In millions) |   
|Revenues from affiliates                                   |  | $             | 17 |  |      | $ | 18 |      |  | $ | 18 | 
|Operation and maintenance expenses from affiliates         |  |               | 67 |  |      |   | 62 |      |  |   | 69 | 
|Reimbursements of operating expenses charged to affiliates |  |               | 16 |  |      |   | 14 |      |  |   | 13 | 

12. Supplemental Selected Quarterly Financial Information
(Unaudited)




|     |                    |                |   |     |         |  |   |              |  |  |             |     |  |       |   |     |  |  |   |     | 
|---- | ------------------ | -------------- | - | --- | ------- |  | - | ------------ |  |  | ----------- | --- |  | ----- | - | --- |  |  | - | --- | 
|     |                    | Quarters Ended |   |     |        
|     |                    |                |   |     |        
|     |                    | March 31       |   |     | June 30 |  |   | September 30 |  |  | December 31 |     |  | Total |  
|     |                    |                |   |     |         |  |   |              |  |  |             |     |  |       |  
|     |                    | (In millions)  |  
|2005 |                    |                |   |     |         |  |   |              |  |  |             |     |  |       |   |     |  |  |   |    
|     | Operating revenues |                | $ | 123 |         |  | $ | 123          |  |  | $           | 125 |  |       | $ | 126 |  |  | $ | 497 | 
|     | Operating income   |                |   | 47  |         |  |   | 57           |  |  |             | 19  |  |       |   | 39  |  |  |   | 162 | 
|     | Net income         |                |   | 19  |         |  |   | 27           |  |  |             | 5   |  |       |   | 13  |  |  |   | 64  | 
|2004 |                    |                |   |     |         |  |   |              |  |  |             |     |  |       |   |     |  |  |   |    
|     | Operating revenues |                | $ | 124 |         |  | $ | 130          |  |  | $           | 130 |  |       | $ | 124 |  |  | $ | 508 | 
|     | Operating income   |                |   | 60  |         |  |   | 69           |  |  |             | 59  |  |       |   | 54  |  |  |   | 242 | 
|     | Net income         |                |   | 34  |         |  |   | 32           |  |  |             | 32  |  |       |   | 20  |  |  |   | 118 | 

37



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














38



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##### Table of Contents



SCHEDULE II


EL PASO NATURAL GAS COMPANY





VALUATION AND QUALIFYING ACCOUNTS


Years Ended December 31, 2005, 2004 and 2003


(In millions)


|            |                                            |            |   |     |            |  |   |            |     |            |          |         |           |  |   |   |  |  |   |     | 
|----------- | ------------------------------------------ | ---------- | - | --- | ---------- |  | - | ---------- | --- | ---------- | -------- | ------- | --------- |  | - | - |  |  | - | --- | 
|            |                                            | Balance at |   |     | Charged to |  |   |            |     | Charged to |          | Balance |          
|            |                                            | Beginning  |   |     | Costs and  |  |   |            |     | Other      |          | at End  |          
|Description |                                            | of Period  |   |     | Expenses   |  |   | Deductions |     |            | Accounts |         | of Period | 
|            |                                            |            |   |     |            |  |   |            |     |            |          |         |           | 
|2005        |                                            |            |   |     |            |  |   |            |     |            |          |         |           |  |   |   |  |  |   |    
|            | Allowance for doubtful accounts            |            | $ | 18  |            |  | $ |           |     |            | $        |        |           |  | $ |  |  |  | $ | 18  | 
|            | Legal reserves                             |            |   | 3   |            |  |   | 42         | (1) |            |          |        |           |  |   |  |  |  |   | 45  | 
|            | Environmental reserves                     |            |   | 32  |            |  |   | 1          |     |            |          | (4      | )         |  |   |  |  |  |   | 29  | 
|2004        |                                            |            |   |     |            |  |   |            |     |            |          |         |           |  |   |   |  |  |   |    
|            | Allowance for doubtful accounts            |            | $ | 18  |            |  | $ |           |     |            | $        |        |           |  | $ |  |  |  | $ | 18  | 
|            | Valuation allowance on deferred tax assets |            |   | 6   |            |  |   |           |     |            |          | (6      | )         |  |   |  |  |  |   |    | 
|            | Legal reserves                             |            |   | 541 |            |  |   |           |     |            |          | (538    | )(2)      |  |   |  |  |  |   | 3   | 
|            | Environmental reserves                     |            |   | 28  |            |  |   | 7          |     |            |          | (3      | )         |  |   |  |  |  |   | 32  | 
|2003        |                                            |            |   |     |            |  |   |            |     |            |          |         |           |  |   |   |  |  |   |    
|            | Allowance for doubtful accounts            |            | $ | 18  |            |  | $ |           |     |            | $        |        |           |  | $ |  |  |  | $ | 18  | 
|            | Valuation allowance on deferred tax assets |            |   | 6   |            |  |   |           |     |            |          |        |           |  |   |  |  |  |   | 6   | 
|            | Legal reserves                             |            |   | 415 |            |  |   | 136        | (3) |            |          | (10     | )(2)      |  |   |  |  |  |   | 541 | 
|            | Environmental reserves                     |            |   | 29  |            |  |   | 1          |     |            |          | (2      | )         |  |   |  |  |  |   | 28  | 






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | For a discussion of our legal matters, see Item 8,
    Financial Statements and Supplementary Data, Note 6.
|   
|(2) | Relates to payments made pursuant to the Western Energy
    Settlement.                                    
|   
|(3) | Reflects charges for the Western Energy Settlement.                                                        

39



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures






Changes in Internal Control Over Financial Reporting







ITEM 9B. OTHER INFORMATION







PART III







ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


Audit Fees




All Other Fees




Policy for Approval of Audit and Non-Audit Fees




40



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##### Table of Contents






PART IV





ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


(a) The following documents are filed as a part of this
report:






|                                  |                                                                                                                                                                      |      |    |    | 
|--------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -- | -- | 
|                                  |                                                                                                                                                                      | Page
|                                  |                                                                                                                                                                      |     
|                                  | Consolidated Statements of Income                                                                                                                                    |      |    | 18 | 
|                                  | Consolidated Balance Sheets                                                                                                                                          |      |    | 19 | 
|                                  | Consolidated Statements of Cash Flows                                                                                                                                |      |    | 20 | 
|                                  | Consolidated Statements of
    Stockholders Equity                                                                                                                  |      |    | 21 | 
|                                  | Notes to Consolidated Financial
    Statements                                                                                                                       |      |    | 22 | 
|                                  | Report of Independent Registered Public
    Accounting Firm                                                                                                          |      |    | 38 | 
|2. Financial statement schedules.
|                                 
|                                  | Schedule II  Valuation and
    Qualifying Accounts                                                                                                                  |      |    | 39 | 
|                                 
|                                  | All other schedules are omitted because they are not applicable,
    or the required information is disclosed in the financial
    statements or accompanying notes. |      |    |    | 
|                                 
|3. Exhibit list                   |                                                                                                                                                                      |      | 42 |   

41



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EL PASO NATURAL GAS COMPANY





EXHIBIT LIST


December 31, 2005




|        |      |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | ---- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|Number  |      |  | Description
|        |      |  |            
|        | 3.A  |  |             | Restated Certificate of Incorporation dated April 8, 2003
    (Exhibit 3.A to our 2003 Second Quarter Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 3.B  |  |             | By-laws dated June 24, 2002 (Exhibit 3.B to our 2002
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4.A  |  |             | Indenture dated as of January 1, 1992, between El Paso
    Natural Gas Company and Wilmington Trust Company (as successor
    to Citibank, N.A.), as Trustee, (Exhibit 4.A to our 2004
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.B  |  |             | Indenture dated as of November 13, 1996, between
    El Paso Natural Gas Company and Wilmington Trust Company
    (as successor to JPMorgan Chase Bank, formerly known as The
    Chase Manhattan Bank), as Trustee, (Exhibit 4.B to our 2004
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4.C  |  |             | Indenture dated as of July 21, 2003, between El Paso
    Natural Gas Company and Wilmington Trust Company, as Trustee,
    (Exhibit 4.1 to our Form 8-K filed
    July 23, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.A |  |             | Amended and Restated Credit Agreement dated as of
    November 23, 2004, among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the several
    banks and other financial institutions from time to time parties
    thereto and JPMorgan Chase Bank, N.A., as administrative agent
    and as collateral agent (Exhibit 10.A to our Form 8-K
    filed November 29, 2004); Amended and Restated Subsidiary
    Guarantee Agreement dated as of November 23, 2004, made by
    each of the Subsidiary Guarantors in favor of JPMorgan Chase
    Bank, N.A., as Collateral Agent (Exhibit 10.C to our
    Form 8-K filed November 29, 2004).
|        | 10.B |  |             | Amended and Restated Security Agreement dated as of
    November 23, 2004, among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the
    Subsidiary Grantors and certain other credit parties thereto and
    JPMorgan Chase Bank, N.A., not in its individual capacity, but
    solely as collateral agent for the Secured Parties and as the
    depository bank (Exhibit 10.B to our Form 8-K filed
    November 29, 2004).                                                                                                                                                                                                            

42



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|        |       |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|Number  |       |  | Description
|        |       |  |            
|        | 10.C  |  |             | Master Settlement Agreement dated as of June 24, 2003, by
    and between, on the one hand, El Paso Corporation, El Paso
    Natural Gas Company, and El Paso Merchant Energy, L.P.; and, on
    the other hand, the Attorney General of the State of California,
    the Governor of the State of California, the California Public
    Utilities Commission, the California Department of Water
    Resources, the California Energy Oversight Board, the Attorney
    General of the State of Washington, the Attorney General of the
    State of Oregon, the Attorney General of the State of Nevada,
    Pacific Gas & Electric Company, Southern California Edison
    Company, the City of Los Angeles, the City of Long Beach, and
    classes consisting of all individuals and entities in California
    that purchased natural gas and/or electricity for use and not
    for resale or generation of electricity for the purpose of
    resale, between September 1, 1996 and March 20,
    2003, inclusive, represented by class representatives
    Continental Forge Company, Andrew Berg, Andrea Berg, Gerald J.
    Marcil, United Church Retirement Homes of Long Beach, Inc.,
    doing business as Plymouth West, Long Beach Brethren Manor,
    Robert Lamond, Douglas Welch, Valerie Welch, William Patrick
    Bower, Thomas L. French, Frank Stella, Kathleen Stella, John
    Clement Molony, SierraPine, Ltd., John Frazee and Jennifer
    Frazee, John W.H.K. Phillip, and Cruz Bustamante (Exhibit 10.HH
    to our second quarter 2003 Form 10-Q).
|        | 10.D  |  |             | Joint Settlement Agreement submitted and entered into by El Paso
    Natural Gas Company, El Paso Merchant Energy Company, El Paso
    Merchant Energy-Gas, L.P., the Public Utilities Commission of
    the State of California, Pacific Gas & Electric Company,
    Southern California Edison Company and the City of Los Angeles
    (Exhibit 10.II to our 2003 second quarter Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 21    |  |             | Omitted pursuant to the reduced disclosure format permitted by
    General Instruction I to Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | *31.A |  |             | Certification of Chief 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 Chief Executive Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | *32.B |  |             | Certification of Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Undertaking




43



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##### Table of Contents






SIGNATURES






| |                            
| | ---------------------------
| | EL PASO NATURAL GAS COMPANY



| |     |                    
| | --- | -------------------
| | By: | /s/ James J. Cleary

| |                                    
| | -----------------------------------
| |                                    
| | James J. Cleary                    
| | Chairman of the Board and President



|                                     |  |                                                                                                                    |  |              
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------ |  | -------------
|Signature                            |  | Title                                                                                                              |  | Date         
|                                     |  |                                                                                                                    |  |              
|/s/ James J. ClearyJames J. Cleary   |  | Chairman of the Board and President
    (Principal Executive Officer)                                              |  | March 3, 2006
|                                    
|/s/ John R. SultJohn R. Sult         |  | Senior Vice President,
    Chief Financial Officer and Controller
    (Principal Accounting and Financial Officer) |  | March 3, 2006
|                                    
|/s/ Daniel B. MartinDaniel B. Martin |  | Senior Vice President and Director                                                                                 |  | March 3, 2006
|                                    
|/s/ Thomas L. PriceThomas L. Price   |  | Vice President and Director                                                                                        |  | March 3, 2006

44



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##### Table of Contents



EL PASO NATURAL GAS COMPANY


EXHIBIT INDEX


December 31, 2005




|        |      |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | ---- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|Number  |      |  | Description
|        |      |  |            
|        | 3.A  |  |             | Restated Certificate of Incorporation dated April 8, 2003
    (Exhibit 3.A to our 2003 Second Quarter Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 3.B  |  |             | By-laws dated June 24, 2002 (Exhibit 3.B to our 2002
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4.A  |  |             | Indenture dated as of January 1, 1992, between El Paso
    Natural Gas Company and Wilmington Trust Company (as successor
    to Citibank, N.A.), as Trustee, (Exhibit 4.A to our 2004
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.B  |  |             | Indenture dated as of November 13, 1996, between
    El Paso Natural Gas Company and Wilmington Trust Company
    (as successor to JPMorgan Chase Bank, formerly known as The
    Chase Manhattan Bank), as Trustee, (Exhibit 4.B to our 2004
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4.C  |  |             | Indenture dated as of July 21, 2003, between El Paso
    Natural Gas Company and Wilmington Trust Company, as Trustee,
    (Exhibit 4.1 to our Form 8-K filed
    July 23, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.A |  |             | Amended and Restated Credit Agreement dated as of
    November 23, 2004, among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the several
    banks and other financial institutions from time to time parties
    thereto and JPMorgan Chase Bank, N.A., as administrative agent
    and as collateral agent (Exhibit 10.A to our Form 8-K
    filed November 29, 2004); Amended and Restated Subsidiary
    Guarantee Agreement dated as of November 23, 2004, made by
    each of the Subsidiary Guarantors in favor of JPMorgan Chase
    Bank, N.A., as Collateral Agent (Exhibit 10.C to our
    Form 8-K filed November 29, 2004).
|        | 10.B |  |             | Amended and Restated Security Agreement dated as of
    November 23, 2004, among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the
    Subsidiary Grantors and certain other credit parties thereto and
    JPMorgan Chase Bank, N.A., not in its individual capacity, but
    solely as collateral agent for the Secured Parties and as the
    depository bank (Exhibit 10.B to our Form 8-K filed
    November 29, 2004).                                                                                                                                                                                                            



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##### Table of Contents



|        |       |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|Number  |       |  | Description
|        |       |  |            
|        | 10.C  |  |             | Master Settlement Agreement dated as of June 24, 2003, by
    and between, on the one hand, El Paso Corporation, El Paso
    Natural Gas Company, and El Paso Merchant Energy, L.P.; and, on
    the other hand, the Attorney General of the State of California,
    the Governor of the State of California, the California Public
    Utilities Commission, the California Department of Water
    Resources, the California Energy Oversight Board, the Attorney
    General of the State of Washington, the Attorney General of the
    State of Oregon, the Attorney General of the State of Nevada,
    Pacific Gas & Electric Company, Southern California Edison
    Company, the City of Los Angeles, the City of Long Beach, and
    classes consisting of all individuals and entities in California
    that purchased natural gas and/or electricity for use and not
    for resale or generation of electricity for the purpose of
    resale, between September 1, 1996 and March 20,
    2003, inclusive, represented by class representatives
    Continental Forge Company, Andrew Berg, Andrea Berg, Gerald J.
    Marcil, United Church Retirement Homes of Long Beach, Inc.,
    doing business as Plymouth West, Long Beach Brethren Manor,
    Robert Lamond, Douglas Welch, Valerie Welch, William Patrick
    Bower, Thomas L. French, Frank Stella, Kathleen Stella, John
    Clement Molony, SierraPine, Ltd., John Frazee and Jennifer
    Frazee, John W.H.K. Phillip, and Cruz Bustamante (Exhibit 10.HH
    to our second quarter 2003 Form 10-Q).
|        | 10.D  |  |             | Joint Settlement Agreement submitted and entered into by El Paso
    Natural Gas Company, El Paso Merchant Energy Company, El Paso
    Merchant Energy-Gas, L.P., the Public Utilities Commission of
    the State of California, Pacific Gas & Electric Company,
    Southern California Edison Company and the City of Los Angeles
    (Exhibit 10.II to our 2003 second quarter Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 21    |  |             | Omitted pursuant to the reduced disclosure format permitted by
    General Instruction I to Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | *31.A |  |             | Certification of Chief 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 Chief 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.