##### Table of Contents





















Form 10-Q/A








(Amendment No. 1)







[X]


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended
September 30, 2004


OR


[  ]


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 1-14365





El Paso Corporation




|                                                                                                      |  |                                                   
|----------------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or Other Jurisdiction
    of Incorporation or Organization)                            |  | 76-0568816(I.R.S. Employer
    Identification No.)
|El Paso Building
    1001 Louisiana Street
    Houston, Texas(Address of Principal Executive Offices) |  | 77002(Zip Code)                                   

(713) 420-2600




o þ


þ o














---










EL PASO CORPORATION


TABLE OF CONTENTS





|                                          |  |                                                                                           |  |      |    | 
|----------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                          |  | Caption                                                                                   |  | Page |   
|                                          |  |                                                                                           |  |      |   
|                                          |  | PART I  Financial Information                                                            |  |      |    | 
|Item 1.                                   |  | Financial Statements                                                                      |  |      | 1  | 
|Item 2.                                   |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |      | 41 | 
|                                          |  | Cautionary Statement Regarding
    Forward-Looking Statements                             |  |      | 66 | 
|Item 3.                                   |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |  |      | 67 | 
|Item 4.                                   |  | Controls and Procedures                                                                   |  |      | 68 | 
|                                          |  | PART II  Other Information                                                               |  |      |    | 
|Item 1.                                   |  | Legal Proceedings                                                                         |  |      | 69 | 
|Item 2.                                   |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                           |  |      | 69 | 
|Item 3.                                   |  | Defaults Upon Senior Securities                                                           |  |      | 69 | 
|Item 4.                                   |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 69 | 
|Item 5.                                   |  | Other Information                                                                         |  |      | 69 | 
|Item 6.                                   |  | Exhibits                                                                                  |  |      | 70 | 
|                                          |  | Signatures                                                                                |  |      | 72 | 
|Certfication of CEO pursuant to Sec. 302 
|Certification of CFO pursuant to Sec. 302
|Certification of CEO pursuant to Sec. 906
|Certification of CFO pursuant to Sec. 906











|      |  |                                                 
|----- |  | ------------------------------------------------
|/d    |  | = per day                                       
|Bbl   |  | = barrels                                       
|BBtu  |  | = billion British thermal units                 
|Bcf   |  | = billion cubic feet                            
|Bcfe  |  | = billion cubic feet of natural gas equivalents 
|MBbls |  | = thousand barrels                              
|Mcf   |  | = thousand cubic feet                           
|Mcfe  |  | = thousand cubic feet of natural gas equivalents
|MMBtu |  | = million British thermal units                 
|MMcf  |  | = million cubic feet                            
|MMcfe |  | = million cubic feet of natural gas equivalents 
|TBtu  |  | = trillion British thermal units                
|MW    |  | = megawatt                                      





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EXPLANATORY NOTE








Business Combinations Goodwill
and Other Intangible Assets













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##### Table of Contents






PART I  FINANCIAL INFORMATION





Item 1. Financial Statements


EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF INCOME


(In millions, except per common share amounts)


(Unaudited)





|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |       |   |   |        |       |  
|----------------------------------------------------------------- | ------------------------------------------------------------ | ------------- | ----- | ----- | ----------------- | - | ----- | ---------- | - | ---- | ---------- | ----- | - | - | ------ | ----- | -
|                                                                  |                                                              | Quarter Ended |       |       | Nine Months Ended |  
|                                                                  |                                                              | September 30, |       |       | September 30,     |  
|                                                                  |                                                              |               |       |       |                   |  
|                                                                  |                                                              |               |       | 2003  |                   |   | 2004  |            |   | 2003 |           
|                                                                  |                                                              | 2004          |       |       | (Restated)        |   |       | (Restated) |   |      | (Restated) |      
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Operating revenues                                                |                                                              | $             | 1,429 |       |                   | $ | 1,714 |            |   | $    | 4,510      |       |   | $ | 5,111  |      
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Operating expenses                                                |                                                              |               |       |       |                   |   |       |            |   |      |            |       |   |   |        |      
|                                                                  | Cost of products and services                                |               |       | 390   |                   |   |       | 362        |   |      |            | 1,215 |   |   |        | 1,415 |  
|                                                                  | Operation and maintenance                                    |               |       | 507   |                   |   |       | 453        |   |      |            | 1,281 |   |   |        | 1,634 |  
|                                                                  | Depreciation, depletion and amortization                     |               |       | 270   |                   |   |       | 283        |   |      |            | 808   |   |   |        | 897   |  
|                                                                  | Loss on long-lived assets                                    |               |       | 550   |                   |   |       | 54         |   |      |            | 805   |   |   |        | 463   |  
|                                                                  | Taxes, other than income taxes                               |               |       | 67    |                   |   |       | 81         |   |      |            | 197   |   |   |        | 229   |  
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|                                                                  |                                                              |               | 1,784 |       |                   |   | 1,233 |            |   |      | 4,306      |       |   |   | 4,638  |      
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Operating income (loss)                                           |                                                              |               | (355  | )     |                   |   | 481   |            |   |      | 204        |       |   |   | 473    |      
|Earnings from unconsolidated affiliates                           |                                                              |               | 617   |       |                   |   | 79    |            |   |      | 802        |       |   |   | 31     |      
|Other income                                                      |                                                              |               | 36    |       |                   |   | 49    |            |   |      | 146        |       |   |   | 132    |      
|Other expense                                                     |                                                              |               | (21   | )     |                   |   |      |            |   |      | (57        | )     |   |   | (129   | )    
|Interest and debt expense                                         |                                                              |               | (396  | )     |                   |   | (475  | )          |   |      | (1,229     | )     |   |   | (1,352 | )    
|Distributions on preferred interests of consolidated subsidiaries |                                                              |               | (6    | )     |                   |   | (7    | )          |   |      | (18        | )     |   |   | (45    | )    
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Income (loss) before income taxes                                 |                                                              |               | (125  | )     |                   |   | 127   |            |   |      | (152       | )     |   |   | (890   | )    
|Income taxes                                                      |                                                              |               | 77    |       |                   |   | 62    |            |   |      | 135        |       |   |   | (451   | )    
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Income (loss) from continuing operations                          |                                                              |               | (202  | )     |                   |   | 65    |            |   |      | (287       | )     |   |   | (439   | )    
|Discontinued operations, net of income taxes                      |                                                              |               | (12   | )     |                   |   | (41   | )          |   |      | (118       | )     |   |   | (1,195 | )    
|Cumulative effect of accounting changes, net of income taxes      |                                                              |               |      |       |                   |   |      |            |   |      |           |       |   |   | (9     | )    
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Net income (loss)                                                 |                                                              | $             | (214  | )     |                   | $ | 24    |            |   | $    | (405       | )     |   | $ | (1,643 | )    
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Basic and diluted income (loss) per common share                  |                                                              |               |       |       |                   |   |       |            |   |      |            |       |   |   |        |      
|                                                                  | Income (loss) from continuing operations                     |               | $     | (0.31 | )                 |   | $     | 0.11       |   |      | $          | (0.45 | ) |   | $      | (0.74 | )
|                                                                  | Discontinued operations, net of income taxes                 |               |       | (0.02 | )                 |   |       | (0.07      | ) |      |            | (0.18 | ) |   |        | (2.00 | )
|                                                                  | Cumulative effect of accounting changes, net of income taxes |               |       |      |                   |   |       |           |   |      |            |      |   |   |        | (0.02 | )
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|                                                                  | Net income (loss) per common share                           |               | $     | (0.33 | )                 |   | $     | 0.04       |   |      | $          | (0.63 | ) |   | $      | (2.76 | )
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Basic and diluted average common shares outstanding               |                                                              |               | 639   |       |                   |   | 596   |            |   |      | 639        |       |   |   | 596    |      
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      
|Dividends declared per common share                               |                                                              | $             | 0.04  |       |                   | $ | 0.04  |            |   | $    | 0.12       |       |   | $ | 0.12   |      
|                                                                  |                                                              |               |       |       |                   |   |       |            |   |      |            |      






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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


(Unaudited)





|                                       |                                                           |                                                              |                                          |        |              |        |        |        |       |        | 
|-------------------------------------- | --------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                       |                                                           | September 30,                                                |                                          |        | December 31, |       
|                                       |                                                           | 2004                                                         |                                          |        | 2003         |       
|                                       |                                                           | (Restated)                                                   |                                          |        | (Restated)   |       
|                                       |                                                           |                                                              |                                          |        |              |       
|ASSETS                                
|Current assets                         |                                                           |                                                              |                                          |        |              |        |        |       
|                                       | Cash and cash equivalents                                 |                                                              | $                                        | 2,329  |              |        | $      | 1,429  |      
|                                       | Accounts and notes receivable                             |                                                              |                                          |        |              |        |        |        |      
|                                       |                                                           | Customers, net of allowance of $196 in 2004 and $272 in 2003 |                                          |        | 1,280        |        |        |        | 2,039 |       
|                                       |                                                           | Affiliates                                                   |                                          |        | 123          |        |        |        | 189   |       
|                                       |                                                           | Other                                                        |                                          |        | 231          |        |        |        | 245   |       
|                                       | Inventory                                                 |                                                              |                                          | 154    |              |        |        | 181    |      
|                                       | Assets from price risk management activities              |                                                              |                                          | 325    |              |        |        | 706    |      
|                                       | Assets held for sale and from discontinued operations     |                                                              |                                          | 480    |              |        |        | 2,538  |      
|                                       | Restricted cash                                           |                                                              |                                          | 234    |              |        |        | 590    |      
|                                       | Deferred income taxes                                     |                                                              |                                          | 563    |              |        |        | 593    |      
|                                       | Other                                                     |                                                              |                                          | 258    |              |        |        | 413    |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | Total current assets                     |        |              | 5,977  |        |        |       | 8,923  | 
|                                       |                                                           |                                                              |                                          |        |              |       
|Property, plant and equipment, at cost |                                                           |                                                              |                                          |        |              |        |        |       
|                                       | Pipelines                                                 |                                                              |                                          | 19,175 |              |        |        | 18,563 |      
|                                       | Natural gas and oil properties, at full cost              |                                                              |                                          | 14,884 |              |        |        | 14,689 |      
|                                       | Power facilities                                          |                                                              |                                          | 1,544  |              |        |        | 1,660  |      
|                                       | Gathering and processing systems                          |                                                              |                                          | 167    |              |        |        | 334    |      
|                                       | Other                                                     |                                                              |                                          | 890    |              |        |        | 998    |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | 36,660                                   |        |              |        | 36,244 |       
|                                       | Less accumulated depreciation, depletion and amortization |                                                              |                                          | 18,035 |              |        |        | 18,049 |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | Total property, plant and equipment, net |        |              | 18,625 |        |        |       | 18,195 | 
|                                       |                                                           |                                                              |                                          |        |              |       
|Other assets                           |                                                           |                                                              |                                          |        |              |        |        |       
|                                       | Investments in unconsolidated affiliates                  |                                                              |                                          | 2,910  |              |        |        | 3,409  |      
|                                       | Assets from price risk management activities              |                                                              |                                          | 1,555  |              |        |        | 2,338  |      
|                                       | Goodwill and other intangible assets, net                 |                                                              |                                          | 424    |              |        |        | 1,082  |      
|                                       | Other                                                     |                                                              |                                          | 2,162  |              |        |        | 2,996  |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | 7,051                                    |        |              |        | 9,825  |       
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | Total assets                             |        | $            | 31,653 |        |        | $     | 36,943 | 
|                                       |                                                           |                                                              |                                          |        |              |       






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EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS 
(Continued)


(In millions, except share amounts)


(Unaudited)





|                                     |                                                                                                                                                 |               |                                            |        |              |        |        |        |       |        | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | ------------------------------------------ | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                     |                                                                                                                                                 | September 30, |                                            |        | December 31, |       
|                                     |                                                                                                                                                 | 2004          |                                            |        | 2003         |       
|                                     |                                                                                                                                                 | (Restated)    |                                            |        | (Restated)   |       
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities                  |                                                                                                                                                 |               |                                            |        |              |        |        |       
|                                     | Accounts payable                                                                                                                                |               |                                            |        |              |        |        |        |      
|                                     |                                                                                                                                                 | Trade         |                                            | $      | 938          |        |        | $      | 1,552 |       
|                                     |                                                                                                                                                 | Affiliates    |                                            |        | 13           |        |        |        | 26    |       
|                                     |                                                                                                                                                 | Other         |                                            |        | 385          |        |        |        | 438   |       
|                                     | Short-term financing obligations, including current maturities                                                                                  |               |                                            | 1,554  |              |        |        | 1,457  |      
|                                     | Liabilities from price risk management activities                                                                                               |               |                                            | 599    |              |        |        | 734    |      
|                                     | Western Energy Settlement                                                                                                                       |               |                                            | 44     |              |        |        | 633    |      
|                                     | Liabilities related to assets held for sale and discontinued
    operations                                                                     |               |                                            | 149    |              |        |        | 933    |      
|                                     | Accrued interest                                                                                                                                |               |                                            | 359    |              |        |        | 391    |      
|                                     | Other                                                                                                                                           |               |                                            | 787    |              |        |        | 910    |      
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|                                     |                                                                                                                                                 |               | Total current liabilities                  |        |              | 4,828  |        |        |       | 7,074  | 
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|Long-term financing obligations      |                                                                                                                                                 |               | 17,673                                     |        |              |        | 20,275 |       
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|Other                                |                                                                                                                                                 |               |                                            |        |              |        |        |       
|                                     | Liabilities from price risk management activities                                                                                               |               |                                            | 1,046  |              |        |        | 781    |      
|                                     | Deferred income taxes                                                                                                                           |               |                                            | 1,580  |              |        |        | 1,558  |      
|                                     | Western Energy Settlement                                                                                                                       |               |                                            | 342    |              |        |        | 415    |      
|                                     | Other                                                                                                                                           |               |                                            | 1,910  |              |        |        | 2,047  |      
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|                                     |                                                                                                                                                 |               | 4,878                                      |        |              |        | 4,801  |       
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|Commitments and contingencies        |                                                                                                                                                 |               |                                            |        |              |        |        |       
|Securities of subsidiaries           |                                                                                                                                                 |               | 366                                        |        |              |        | 447    |       
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|Stockholders equity                 |                                                                                                                                                 |               |                                            |        |              |        |        |       
|                                     | Common stock, par value $3 per share; authorized
    1,500,000,000 shares; issued 650,956,586 shares in
    2004 and 639,299,156 shares in 2003 |               |                                            | 1,952  |              |        |        | 1,917  |      
|                                     | Additional paid-in capital                                                                                                                      |               |                                            | 4,557  |              |        |        | 4,576  |      
|                                     | Accumulated deficit                                                                                                                             |               |                                            | (2,267 | )            |        |        | (1,862 | )    
|                                     | Accumulated other comprehensive income                                                                                                          |               |                                            | (84    | )            |        |        | (40    | )    
|                                     | Treasury stock (at cost); 7,522,799 shares in 2004 and
    7,097,326 shares in 2003                                                             |               |                                            | (224   | )            |        |        | (222   | )    
|                                     | Unamortized compensation                                                                                                                        |               |                                            | (26    | )            |        |        | (23    | )    
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|                                     |                                                                                                                                                 |               | Total stockholders equity                 |        |              | 3,908  |        |        |       | 4,346  | 
|                                     |                                                                                                                                                 |               |                                            |        |              |       
|                                     |                                                                                                                                                 |               | Total liabilities and stockholders equity |        | $            | 31,653 |        |        | $     | 36,943 | 
|                                     |                                                                                                                                                 |               |                                            |        |              |       






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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





|                                      |                                                                                      |                                                                              |                                                     |        |               |        |    |        |        |        |  
|------------------------------------- | ------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------------- | ------ | -- | ------ | ------ | ------ | -
|                                      |                                                                                      | Nine Months Ended                                                            |                                                    
|                                      |                                                                                      | September 30,                                                                |                                                    
|                                      |                                                                                      |                                                                              |                                                    
|                                      |                                                                                      | 2004                                                                         |                                                     |        | 2003          |       
|                                      |                                                                                      | (Restated)(1)                                                                |                                                     |        | (Restated)(1) |       
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|Cash flows from operating activities  |                                                                                      |                                                                              |                                                     |        |               |        |    |       
|                                      | Net loss                                                                             |                                                                              | $                                                   | (405   | )             |        | $  | (1,643 | )     
|                                      |                                                                                      | Less loss from discontinued operations, net of income taxes                  |                                                     |        | (118          | )      |    |        | (1,195 | )     
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      | Net loss before discontinued operations                                              |                                                                              |                                                     | (287   | )             |        |    | (448   | )     
|                                      | Adjustments to reconcile net loss to net cash from operating
    activities          |                                                                              |                                                     |        |               |        |    |        |       
|                                      |                                                                                      | Depreciation, depletion and amortization                                     |                                                     |        | 808           |        |    |        | 897    |       
|                                      |                                                                                      | Loss on long-lived assets                                                    |                                                     |        | 805           |        |    |        | 463    |       
|                                      |                                                                                      | Earnings from unconsolidated affiliates, adjusted for cash
    distributions |                                                     |        | (579          | )      |    |        | 224    |       
|                                      |                                                                                      | Deferred income tax expense (benefit)                                        |                                                     |        | 99            |        |    |        | (482   | )     
|                                      |                                                                                      | Cumulative effect of accounting changes                                      |                                                     |        |              |        |    |        | 9      |       
|                                      |                                                                                      | Other non-cash items                                                         |                                                     |        | 146           |        |    |        | 412    |       
|                                      |                                                                                      | Asset and liability changes                                                  |                                                     |        | (384          | )      |    |        | 633    |       
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      |                                                                                      | Cash provided by continuing operations                                       |                                                     |        | 608           |        |    |        | 1,708  |       
|                                      |                                                                                      | Cash provided by discontinued operations                                     |                                                     |        | 191           |        |    |        | 58     |       
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      |                                                                                      |                                                                              | Net cash provided by operating activities           |        |               | 799    |    |        |        | 1,766  |  
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|Cash flows from investing activities  |                                                                                      |                                                                              |                                                     |        |               |        |    |       
|                                      | Additions to property, plant and equipment                                           |                                                                              |                                                     | (1,246 | )             |        |    | (1,868 | )     
|                                      | Purchases of interests in equity investments                                         |                                                                              |                                                     | (26    | )             |        |    | (25    | )     
|                                      | Net proceeds from the sale of assets and investments                                 |                                                                              |                                                     | 1,758  |               |        |    | 1,382  |       
|                                      | Cash paid for acquisitions, net of cash acquired                                     |                                                                              |                                                     | (47    | )             |        |    | (1,078 | )     
|                                      | Net change in restricted cash                                                        |                                                                              |                                                     | 470    |               |        |    | (137   | )     
|                                      | Other                                                                                |                                                                              |                                                     | 108    |               |        |    | (42    | )     
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      |                                                                                      | Cash provided by (used in) continuing operations                             |                                                     |        | 1,017         |        |    |        | (1,768 | )     
|                                      |                                                                                      | Cash provided by discontinued operations                                     |                                                     |        | 1,140         |        |    |        | 297    |       
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      |                                                                                      |                                                                              | Net cash provided by (used in) investing activities |        |               | 2,157  |    |        |        | (1,471 | )
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|Cash flows from financing activities  |                                                                                      |                                                                              |                                                     |        |               |        |    |       
|                                      | Payments to retire long-term debt and other financing obligations                    |                                                                              |                                                     | (1,705 | )             |        |    | (2,091 | )     
|                                      | Net repayments under short-term debt and credit facilities                           |                                                                              |                                                     |       |               |        |    | (250   | )     
|                                      | Net proceeds from the issuance of long-term debt and other
    financing obligations |                                                                              |                                                     | 50     |               |        |    | 3,433  |       
|                                      | Dividends paid                                                                       |                                                                              |                                                     | (75    | )             |        |    | (178   | )     
|                                      | Payments to redeem preferred interests of consolidated
    subsidiaries              |                                                                              |                                                     |       |               |        |    | (1,177 | )     
|                                      | Contributions from discontinued operations                                           |                                                                              |                                                     | 966    |               |        |    | 355    |       
|                                      | Issuances of common stock, net                                                       |                                                                              |                                                     | 73     |               |        |    |       |       
|                                      | Other                                                                                |                                                                              |                                                     | (34    | )             |        |    | 20     |       
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      |                                                                                      | Cash provided by (used in) continuing operations                             |                                                     |        | (725          | )      |    |        | 112    |       
|                                      |                                                                                      | Cash used in discontinued operations                                         |                                                     |        | (1,331        | )      |    |        | (355   | )     
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      |                                                                                      |                                                                              | Net cash used in financing activities               |        |               | (2,056 | )  |        |        | (243   | )
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|Increase in cash and cash equivalents |                                                                                      |                                                                              | 900                                                 |        |               |        | 52 |       
|Cash and cash equivalents             |                                                                                      |                                                                              |                                                     |        |               |        |    |       
|                                      | Beginning of period                                                                  |                                                                              |                                                     | 1,429  |               |        |    | 1,591  |       
|                                      |                                                                                      |                                                                              |                                                     |        |               |       
|                                      | End of period                                                                        |                                                                              | $                                                   | 2,329  |               |        | $  | 1,643  |       
|                                      |                                                                                      |                                                                              |                                                     |        |               |       









|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Only individual line items in cash flows from operating
    activities have been restated. Total cash flows from continuing
    operating, investing and financing activities, as well as
    discontinued operations, were unaffected.



4



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EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In millions)


(Unaudited)





|                                                                                                                             |                                                                                                                                                                       |                                   |      |      |                   |   |      |            |    |      |            |     |     |   |        |     |     | 
|---------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---- | ---- | ----------------- | - | ---- | ---------- | -- | ---- | ---------- | --- | --- | - | ------ | --- | --- | 
|                                                                                                                             |                                                                                                                                                                       | Quarter Ended                     |      |      | Nine Months Ended |  
|                                                                                                                             |                                                                                                                                                                       | September 30,                     |      |      | September 30,     |  
|                                                                                                                             |                                                                                                                                                                       |                                   |      |      |                   |  
|                                                                                                                             |                                                                                                                                                                       |                                   |      | 2003 |                   |   | 2004 |            |    | 2003 |           
|                                                                                                                             |                                                                                                                                                                       | 2004                              |      |      | (Restated)        |   |      | (Restated) |    |      | (Restated) |    
|                                                                                                                             |                                                                                                                                                                       |                                   |      |      |                   |   |      |            |    |      |            |    
|Net income (loss)                                                                                                            |                                                                                                                                                                       | $                                 | (214 | )    |                   | $ | 24   |            |    | $    | (405       | )   |     | $ | (1,643 | )  
|                                                                                                                             |                                                                                                                                                                       |                                   |      |      |                   |   |      |            |    |      |            |    
|Foreign currency translation adjustments (net of income taxes of
    less than $1 and $51 in 2004, and less than $1 in 2003) |                                                                                                                                                                       |                                   | 3    |      |                   |   | 4    |            |    |      | (17        | )   |     |   | 120    |    
|Unrealized net gains (losses) from cash flow hedging activity                                                                |                                                                                                                                                                       |                                   |      |      |                   |   |      |            |    |      |            |     |     |   |        |    
|                                                                                                                             | Unrealized mark-to-market gains (losses) arising during period
    (net of income taxes of $33 and $45 in 2004 and $8 and $50 in
    2003)                            |                                   |      | (47  | )                 |   |      | 38         |    |      |            | (70 | )   |   |        | 108 |    
|                                                                                                                             | Reclassification adjustments for changes in initial value to the
    settlement date (net of income taxes of $3 and $18 in 2004 and
    less than $1 and $27 in 2003) |                                   |      | 4    |                   |   |      | (2         | )  |      |            | 43  |     |   |        | (61 | )  
|                                                                                                                             |                                                                                                                                                                       |                                   |      |      |                   |   |      |            |    |      |            |    
|                                                                                                                             |                                                                                                                                                                       | Other comprehensive income (loss) |      |      | (40               | ) |      |            | 40 |      |            |     | (44 | ) |        |     | 167 | 
|                                                                                                                             |                                                                                                                                                                       |                                   |      |      |                   |   |      |            |    |      |            |    
|Comprehensive income (loss)                                                                                                  |                                                                                                                                                                       | $                                 | (254 | )    |                   | $ | 64   |            |    | $    | (449       | )   |     | $ | (1,476 | )  
|                                                                                                                             |                                                                                                                                                                       |                                   |      |      |                   |   |      |            |    |      |            |    






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EL PASO CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1. Basis of Presentation and Significant Events
Update


Basis of Presentation













Restatements








Overview. Business Combinations Goodwill and Other Intangible Assets








Cumulative Foreign Currency Translation Adjustments
(CTA).
















Goodwill. Business
Combinations, Goodwill and Other
Intangible Assets,





6



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|                                  |                                              |                                              |                   |      |             |       |   |      |       |       |  
|--------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------- | ---- | ----------- | ----- | - | ---- | ----- | ----- | -
|                                  |                                              | For the Nine Months Ended                    |                  
|                                  |                                              | September 30, 2004                           |                  
|                                  |                                              |                                              |                  
|                                  |                                              | As Reported                                  |                   |      | As Restated |      
|                                  |                                              |                                              |                   |      |             |      
|                                  |                                              | (In millions, except per                     |                  
|                                  |                                              | share amounts)                               |                  
|Income Statement:                 |                                              |                                              |                   |      |             |       |   |     
|                                  | Loss on long-lived assets                    |                                              | $                 | 789  |             |       | $ | 805  |      
|                                  | Operating income                             |                                              |                   | 220  |             |       |   | 204  |      
|                                  | Earnings from unconsolidated affiliates      |                                              |                   | 815  |             |       |   | 802  |      
|                                  | Other income, net                            |                                              |                   | 139  |             |       |   | 146  |      
|                                  | Income (loss) before income taxes            |                                              |                   | (130 | )           |       |   | (152 | )    
|                                  | Income taxes                                 |                                              |                   | 124  |             |       |   | 135  |      
|                                  | Income (loss) from continuing operations     |                                              |                   | (254 | )           |       |   | (287 | )    
|                                  | Discontinued operations, net of income taxes |                                              |                   | (150 | )           |       |   | (118 | )    
|                                  | Net income (loss)                            |                                              |                   | (404 | )           |       |   | (405 | )    
|                                  | Basic and diluted income (loss) per share:   |                                              |                   |      |             |       |   |      |      
|                                  |                                              | Loss from continuing operations              |                   | $    | (0.40       | )     |   | $    | (0.45 | )    
|                                  |                                              | Discontinued operations, net of income taxes |                   |      | (0.23       | )     |   |      | (0.18 | )    
|                                  |                                              |                                              |                   |      |             |      
|                                  |                                              |                                              | Net income (loss) |      | $           | (0.63 | ) |      | $     | (0.63 | )
|                                  |                                              |                                              |                   |      |             |      
|Statement of Comprehensive Income |                                              |                                              |                   |      |             |       |   |     
|                                  | Foreign currency translation adjustments     |                                              | $                 | (22  | )           |       | $ | (17  | )    
|                                  | Other comprehensive income                   |                                              |                   | (49  | )           |       |   | (44  | )    







|               |                                                      |                          |   |        |                         |  |   |             |   |  |             |        |   |  |   |        |  
|-------------- | ---------------------------------------------------- | ------------------------ | - | ------ | ----------------------- |  | - | ----------- | - |  | ----------- | ------ | - |  | - | ------ | -
|               |                                                      | As of September 30, 2004 |   |        | As of December 31, 2003 | 
|               |                                                      |                          |   |        |                         | 
|               |                                                      | As Reported              |   |        | As Restated             |  |   | As Reported |   |  | As Restated |       
|               |                                                      |                          |   |        |                         |  |   |             |   |  |             |       
|Balance Sheet: |                                                      |                          |   |        |                         |  |   |             |   |  |             |        |   |  |   |       
|               | Deferred income tax assets                           |                          | $ | 563    |                         |  | $ | 563         |   |  | $           | 592    |   |  | $ | 593    |  
|               | Property, plant and equipment  Power facilities     |                          |   | 1,528  |                         |  |   | 1,544       |   |  |             | 1,660  |   |  |   | 1,660  |  
|               | Accumulated depreciation, depletion and amortization |                          |   | 18,019 |                         |  |   | 18,035      |   |  |             | 18,049 |   |  |   | 18,049 |  
|               | Investments in unconsolidated affiliates             |                          |   | 3,052  |                         |  |   | 2,910       |   |  |             | 3,551  |   |  |   | 3,409  |  
|               | Deferred income tax liabilities, non-current         |                          |   | 1,598  |                         |  |   | 1,580       |   |  |             | 1,571  |   |  |   | 1,558  |  
|               | Accumulated deficit                                  |                          |   | (2,189 | )                       |  |   | (2,267      | ) |  |             | (1,785 | ) |  |   | (1,862 | )
|               | Accumulated other comprehensive income               |                          |   | (38    | )                       |  |   | (84         | ) |  |             | 11     |   |  |   | (40    | )
|               | Total stockholders equity                           |                          |   | 4,032  |                         |  |   | 3,908       |   |  |             | 4,474  |   |  |   | 4,346  |  




7



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##### Table of Contents






Reserve Revisions and Accounting for Certain Derivatives.





Business Update






| |   |                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | completing or announcing sales of assets and investments of
    approximately $3.3 billion (see Note 4);                                                                                                                                                                                                                                                           
|
| |  | retiring, eliminating, or refinancing approximately
    $4.2 billion of debt and other obligations
    ($2.6 billion through September 30, 2004) (see
    Note 11);                                                                                                                                                                                                
|
| |  | finalizing the Western Energy Settlement, which substantially
    resolved our principal exposure relating to the western energy
    crisis and successfully raising funds to satisfy a significant
    portion of our current obligations under that settlement (see
    Note 12); and                                                                            
|
| |  | entering into a new credit agreement in November 2004 to
    refinance our previous revolving credit facility with an
    aggregate of $3 billion in financings consisting of a
    $1.25 billion, five-year term loan; a $1.0 billion,
    three-year revolving credit facility; and a $750 million,
    five-year funded letter of credit facility (see Note 11).

Liquidity Update










8



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##### Table of Contents



2. Significant Accounting Policies






| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for
Stock Issued to Employees, Accounting for Stock-Based Compensation,





|                                                                                                                   |                                |               |      |       |                   |   |    |            |  |   |      |       |   |   |        |       |  
|------------------------------------------------------------------------------------------------------------------ | ------------------------------ | ------------- | ---- | ----- | ----------------- | - | -- | ---------- |  | - | ---- | ----- | - | - | ------ | ----- | -
|                                                                                                                   |                                | Quarter Ended |      |       | Nine Months Ended |  
|                                                                                                                   |                                | September 30, |      |       | September 30,     |  
|                                                                                                                   |                                |               |      |       |                   |  
|                                                                                                                   |                                |               |      | 2004  |                   |   |   
|                                                                                                                   |                                | 2004          |      |       | 2003              |   |    | (Restated) |  |   | 2003 |      
|                                                                                                                   |                                |               |      |       |                   |   |    |            |  |   |      |      
|                                                                                                                   |                                | (In millions) |     
|Net income (loss) as reported                                                                                      |                                | $             | (214 | )     |                   | $ | 24 |            |  | $ | (405 | )     |   | $ | (1,643 | )    
|Add: Stock-based compensation expense in net income (loss), net
    of taxes                                       |                                |               | 4    |       |                   |   | 8  |            |  |   | 11   |       |   |   | 35     |      
|Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards, net of taxes |                                |               | 9    |       |                   |   | 21 |            |  |   | 28   |       |   |   | 73     |      
|                                                                                                                   |                                |               |      |       |                   |   |    |            |  |   |      |      
|Pro forma net income (loss)                                                                                        |                                | $             | (219 | )     |                   | $ | 11 |            |  | $ | (422 | )     |   | $ | (1,681 | )    
|                                                                                                                   |                                |               |      |       |                   |   |    |            |  |   |      |      
|Income (loss) per share:                                                                                           |                                |               |      |       |                   |   |    |            |  |   |      |       |   |   |        |      
|                                                                                                                   | Basic and diluted, as reported |               | $    | (0.33 | )                 |   | $  | 0.04       |  |   | $    | (0.63 | ) |   | $      | (2.76 | )
|                                                                                                                   |                                |               |      |       |                   |   |    |            |  |   |      |      
|                                                                                                                   | Basic and diluted, pro forma   |               | $    | (0.34 | )                 |   | $  | 0.02       |  |   | $    | (0.66 | ) |   | $      | (2.82 | )
|                                                                                                                   |                                |               |      |       |                   |   |    |            |  |   |      |      




Consolidation of
Variable Interest Entities


Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51.


9



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##### Table of Contents





|                                               |  |                     |     |  
|---------------------------------------------- |  | ------------------- | --- | -
|                                               |  | Increase/(Decrease) |    
|                                               |  |                     |    
|                                               |  | (In millions)       |    
|Restricted cash                                |  | $                   | 34  |  
|Accounts and notes receivable from affiliates  |  |                     | (54 | )
|Investments in unconsolidated affiliates       |  |                     | (5  | )
|Property, plant, and equipment, net            |  |                     | 37  |  
|Other current and non-current assets           |  |                     | (15 | )
|Long-term financing obligations                |  |                     | 15  |  
|Other current and non-current liabilities      |  |                     | (4  | )
|Minority interest of consolidated subsidiaries |  |                     | (14 | )









|                                                              |  |               |     |   |      |   |     |  
|------------------------------------------------------------- |  | ------------- | --- | - | ---- | - | --- | -
|                                                              |  | 2004          |     |   | 2003 |  
|                                                              |  |               |     |   |      |  
|                                                              |  | (In millions) |    
|Operating revenues                                            |  | $             | (30 | ) |      | $ | 26  |  
|Current liabilities from price risk management activities     |  |               | (19 | ) |      |   | (28 | )
|Non-current liabilities from price risk management activities |  |               | (30 | ) |      |   | (6  | )

10



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##### Table of Contents





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

Accounting for Asset Retirement Obligations




| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets



|                                  |                         |               |     |       |          |   |     |           |   |   |       |    |   |   |     |      |  
|--------------------------------- | ----------------------- | ------------- | --- | ----- | -------- | - | --- | --------- | - | - | ----- | -- | - | - | --- | ---- | -
|                                  |                         |               |     | Field |          |   |     |           |  
|                                  |                         | Pipelines     |     |       | Services |   |     | Corporate |   |   | Total |   
|                                  |                         |               |     |       |          |   |     |           |   |   |       |   
|                                  |                         | (In millions) |    
|Balances as of January 1, 2004    |                         | $             | 413 |       |          | $ | 480 |           |   | $ | 3     |    |   | $ | 896 |     
|                                  | Impairments of goodwill |               |     |      |          |   |     | (480      | ) |   |       |   |   |   |     | (480 | )
|                                  | Other changes           |               |     |      |          |   |     |          |   |   |       | (3 | ) |   |     | (3   | )
|                                  |                         |               |     |       |          |   |     |           |   |   |       |   
|Balances as of September 30, 2004 |                         | $             | 413 |       |          | $ |    |           |   | $ |      |    |   | $ | 413 |     
|                                  |                         |               |     |       |          |   |     |           |   |   |       |   





| |                                              
| | ---------------------------------------------
| | New Accounting Pronouncements Not Yet Adopted

Accounting for Natural Gas and Oil Producing Activities.


Accounting for Inventory Costs. Inventory Costs, an amendment of
ARB No. 43, Chapter 4.


Accounting for Stock-Based Compensation. Share-Based Payment: an
amendment of SFAS No. 123 and 95.


11



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##### Table of Contents





Accounting for Deferred Taxes on Foreign Earnings. Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004


3. Acquisitions and Consolidations


Chaparral Investors, L.L.C.




Gemstone.


12



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##### Table of Contents



4. Divestitures




| |                                
| | -------------------------------
| | Sales of Assets and Investments



|                                        |                |                                                                                                            |       |       |                          |   |     |       |  |   |       |       |  | 
|--------------------------------------- | -------------- | ---------------------------------------------------------------------------------------------------------- | ----- | ----- | ------------------------ | - | --- | ----- |  | - | ----- | ----- |  | 
|                                        |                | Completed                                                                                                  |       |       | Completed                |   |     |      
|                                        |                | Through                                                                                                    |       |       | After September 30, 2004 |   |     |      
|Significant Assets and Investments Sold |                | September 30, 2004                                                                                         |       |       | or Announced to Date(1)  |   |     | Total | 
|                                        |                |                                                                                                            |       |       |                          |   |     |       | 
|                                        |                | (In millions)                                                                                              |      
|Regulated                               |                |                                                                                                            |       |      
|                                       
|                                        | Pipelines      |                                                                                                            | $     | 54    |                          |   | $   |      |  |   | $     | 54    | 
|                                        |                |  Australia pipelines                                                                                      |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  Aircraft                                                                                                 |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  Interest in gathering systems                                                                            |       |       |                          |   |     |       |  |   |       |       |  | 
|                                       
|Unregulated                             |                |                                                                                                            |       |       |                          |   |     |       |  |   |       |      
|                                       
|                                        | Production     |                                                                                                            |       | 24    |                          |   |     |      |  |   |       | 24    | 
|                                        |                |  Brazilian exploration and production assets                                                              |       |       |                          |   |     |       |  |   |       |       |  | 
|                                       
|                                        | Power          |                                                                                                            |       | 699   |                          |   |     | 184   |  |   |       | 883   | 
|                                        |                |  Utility Contract Funding
    (UCF)(2)                                                                    |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  Mohawk River
    Funding IV(2)                                                                           |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  Bastrop Company equity
    investment(2)                                                                 |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  25 domestic power plants under
    contract(3)                                                           |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  5 other domestic power plants and
    turbines(2)                                                        |       |       |                          |   |     |       |  |   |       |       |  | 
|                                       
|                                        | Field Services |                                                                                                            |       | 1,029 |                          |   |     |      |  |   |       | 1,029 | 
|                                        |                |  General partnership interest, common units and
    Series C units of GulfTerra                           |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  South Texas processing plants                                                                            |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  Dauphin Island and Mobile Bay equity investments                                                         |       |       |                          |   |     |       |  |   |       |       |  | 
|                                       
|Other                                   |                |                                                                                                            |       |       |                          |   |     |       |  |   |       |      
|                                       
|                                        | Corporate      |                                                                                                            |       | 16    |                          |   |     |      |  |   |       | 16    | 
|                                        |                |  Aircraft                                                                                                 |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |                                                                                                            |       |       |                          |   |     |       | 
|                                       
|Total continuing                        |                |                                                                                                            | 1,822 | (4)   |                          |   | 184 |       |  |   | 2,006 |      
|                                       
|Discontinued                            |                |                                                                                                            | 1,293 |       |                          |   | 2   |       |  |   | 1,295 |      
|                                        |                |  Natural gas and oil production properties in Canada
    and other international production
    assets(2) |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |  Aruba and Eagle Point refineries and other petroleum
    assets(2)                                       |       |       |                          |   |     |       |  |   |       |       |  | 
|                                        |                |                                                                                                            |       |       |                          |   |     |       | 
|                                       
|Total                                   |                | $                                                                                                          | 3,115 |       |                          | $ | 186 |       |  | $ | 3,301 |      
|                                        |                |                                                                                                            |       |       |                          |   |     |       | 






|    |                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sales that have not been completed are estimates, subject to
    customary regulatory approvals, final negotiations and other
    conditions.                                                                                                                                                                                                          
|(2) | These sales were completed as of September 30, 2004.                                                                                                                                                                                                                                                                                                   
|(3) | The sales of 21 of these plants were completed as of
    September 30, 2004, and three additional sales were
    completed in the fourth quarter of 2004.                                                                                                                                                                                              
|(4) | Proceeds exclude returns of invested capital and cash
    transferred with the assets sold and include costs incurred in
    preparing assets for disposal. These items decreased our sales
    proceeds by $64 million for the nine months ended
    September 30, 2004. Proceeds also exclude any non-cash
    consideration received in these sales.

13



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|                                        |                |                                                                                                       |       |     |  | 
|--------------------------------------- | -------------- | ----------------------------------------------------------------------------------------------------- | ----- | --- |  | 
|Significant Assets and Investments Sold |                | Proceeds                                                                                              |      
|                                        |                |                                                                                                       |      
|                                        |                | (In millions)                                                                                         |      
|Through September 30, 2003              |                |                                                                                                       |       |    
|                                       
|Regulated                               |                |                                                                                                       |       |    
|                                       
|                                        | Pipelines      |                                                                                                       | $     | 82  | 
|                                        |                |  Panhandle gathering system located in Texas                                                         |       |     |  | 
|                                        |                |  2.1 percent interest in Alliance pipeline and
    related assets                                    |       |     |  | 
|                                        |                |  Helium processing operations in Oklahoma                                                            |       |     |  | 
|                                        |                |  Table Rock sulfur extraction facility                                                               |       |     |  | 
|                                        |                |  Horsham pipeline in Australia                                                                       |       |     |  | 
|                                       
|Unregulated                             |                |                                                                                                       |       |    
|                                       
|                                        | Production     |                                                                                                       |       | 678 | 
|                                        |                |  Natural gas and oil properties in New Mexico, Texas,
    Louisiana, Oklahoma and the Gulf of Mexico |       |     |  | 
|                                        |                |  Drilling rigs                                                                                       |       |     |  | 
|                                       
|                                        | Power          |                                                                                                       |       | 300 | 
|                                        |                |  50 percent interest in CE Generation
    L.L.C. power investment                                    |       |     |  | 
|                                        |                |  Mt. Carmel power plant                                                                              |       |     |  | 
|                                        |                |  Interest in Kladno power project                                                                    |       |     |  | 
|                                        |                |  CAPSA/CAPEX investments in Argentina                                                                |       |     |  | 
|                                        |                |  Mohawk River Funding I, L.L.C.                                                                      |       |     |  | 
|                                       
|                                        | Field Services |                                                                                                       |       | 153 | 
|                                        |                |  Gathering systems located in Wyoming                                                                |       |     |  | 
|                                        |                |  Midstream assets in the north Louisiana and
    Mid-Continent regions                               |       |     |  | 
|                                       
|Other                                   |                |                                                                                                       |       |    
|                                       
|                                        | Corporate      |                                                                                                       |       | 113 | 
|                                        |                |  Aircraft                                                                                            |       |     |  | 
|                                        |                |  Enerplus Global Energy Management Company and its
    financial operations                          |       |     |  | 
|                                        |                |  Encap funds management business and related
    investments                                         |       |     |  | 
|                                        |                |                                                                                                       |      
|Total continuing                        |                |                                                                                                       | 1,326 | (1)
|                                       
|Discontinued                            |                |                                                                                                       | 661   |    
|                                        |                |  Corpus Christi refinery                                                                             |       |     |  | 
|                                        |                |  Florida petroleum terminals and tug and barge
    operations                                        |       |     |  | 
|                                        |                |  Louisiana lease crude business                                                                      |       |     |  | 
|                                        |                |  Coal reserves and properties in West Virginia,
    Virginia and Kentucky                            |       |     |  | 
|                                        |                |  Natural gas and oil production properties in Canada                                                 |       |     |  | 
|                                        |                |  Petroleum asphalt facilities                                                                        |       |     |  | 
|                                        |                |                                                                                                       |      
|Total                                   |                | $                                                                                                     | 1,987 |    
|                                        |                |                                                                                                       |      






|    |                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Proceeds include costs incurred in preparing assets for disposal
    and exclude returns of invested capital and cash transferred
    with the assets sold. These items increased our sales proceeds
    by $56 million for the nine months ended September 30,
    2003.



14



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##### Table of Contents



Accounting for the Impairment or
Disposal of Long-Lived Assets


|                                         |                   |               |     |     |              |   |     |       | 
|---------------------------------------- | ----------------- | ------------- | --- | --- | ------------ | - | --- | ----- | 
|                                         |                   | September 30, |     |     | December 31, |  
|                                         |                   | 2004          |     |     | 2003         |  
|                                         |                   |               |     |     |              |  
|                                         |                   | (In millions) |    
|Assets Held for Sale                    
|Current assets                           |                   | $             | 8   |     |              | $ | 46  |      
|Investments in unconsolidated affiliates |                   |               | 137 |     |              |   | 480 |      
|Property, plant and equipment, net       |                   |               | 99  |     |              |   | 477 |      
|Other assets                             |                   |               | 122 |     |              |   | 136 |      
|                                         |                   |               |     |     |              |  
|                                         | Total assets      |               | $   | 366 |              |   | $   | 1,139 | 
|                                         |                   |               |     |     |              |  
|Current liabilities                      |                   | $             | 2   |     |              | $ | 54  |      
|Long-term debt, less current maturities  |                   |               | 132 |     |              |   | 169 |      
|Other liabilities                        |                   |               |    |     |              |   | 13  |      
|                                         |                   |               |     |     |              |  
|                                         | Total liabilities |               | $   | 134 |              |   | $   | 236   | 
|                                         |                   |               |     |     |              |  



| |                        
| | -----------------------
| | Discontinued Operations




International Natural Gas and Oil Production Operations.





Petroleum Markets.




Coal Mining.


15



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##### Table of Contents








|                                                                |  |               |        |               |            |   |      |        |  |   |       |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------- | ------ | ------------- | ---------- | - | ---- | ------ |  | - | ----- | - |  | - | ------ | -
|                                                                |  |               |        | International |            |   |      |        | 
|                                                                |  |               |        | Natural Gas   |            |   |      |        | 
|                                                                |  |               |        | and Oil       |            |   |      |        | 
|                                                                |  | Petroleum     |        |               | Production |   |      | Coal   |  |   |      
|                                                                |  | Markets       |        |               | Operations |   |      | Mining |  |   | Total |  
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|                                                                |  | (In millions) |       
|Operating Results Data                                          |  |               |        |               |            |   |      |       
|Quarter Ended September 30, 2004                                |  |               |        |               |            |   |      |        |  |   |       |   |  |   |        |  
|Revenues                                                        |  | $             | 44     |               |            | $ | 1    |        |  | $ |      |   |  | $ | 45     |  
|Costs and expenses                                              |  |               | (52    | )             |            |   | (5   | )      |  |   |      |   |  |   | (57    | )
|Gain (loss) on long-lived assets                                |  |               | 1      |               |            |   | (5   | )      |  |   |      |   |  |   | (4     | )
|Other income                                                    |  |               | 14     |               |            |   |     |        |  |   |      |   |  |   | 14     |  
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Income (loss) before income taxes                               |  |               | 7      |               |            |   | (9   | )      |  |   |      |   |  |   | (2     | )
|Income taxes                                                    |  |               | 10     |               |            |   |     |        |  |   |      |   |  |   | 10     |  
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Loss from discontinued operations, net of income taxes          |  | $             | (3     | )             |            | $ | (9   | )      |  | $ |      |   |  | $ | (12    | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Quarter Ended September 30, 2003                                |  |               |        |               |            |   |      |        |  |   |       |   |  |   |        |  
|Revenues                                                        |  | $             | 907    |               |            | $ | 20   |        |  | $ |      |   |  | $ | 927    |  
|Costs and expenses                                              |  |               | (953   | )             |            |   | (57  | )      |  |   | (1    | ) |  |   | (1,011 | )
|Gain (loss) on long-lived assets                                |  |               | 8      |               |            |   | 1    |        |  |   | (8    | ) |  |   | 1      |  
|Other expense                                                   |  |               | (2     | )             |            |   |     |        |  |   |      |   |  |   | (2     | )
|Interest and debt expense                                       |  |               | (4     | )             |            |   | 1    |        |  |   |      |   |  |   | (3     | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Loss before income taxes                                        |  |               | (44    | )             |            |   | (35  | )      |  |   | (9    | ) |  |   | (88    | )
|Income taxes                                                    |  |               | (5     | )             |            |   | (42  | )      |  |   |      |   |  |   | (47    | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Income (loss) from discontinued operations, net of income taxes |  | $             | (39    | )             |            | $ | 7    |        |  | $ | (9    | ) |  | $ | (41    | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Nine Months Ended September 30, 2004
    (Restated)(1)          |  |               |        |               |            |   |      |        |  |   |       |   |  |   |        |  
|Revenues                                                        |  | $             | 737    |               |            | $ | 29   |        |  | $ |      |   |  | $ | 766    |  
|Costs and expenses                                              |  |               | (782   | )             |            |   | (52  | )      |  |   |      |   |  |   | (834   | )
|Loss on long-lived assets                                       |  |               | (37    | )             |            |   | (21  | )      |  |   |      |   |  |   | (58    | )
|Other income                                                    |  |               | 6      |               |            |   |     |        |  |   |      |   |  |   | 6      |  
|Interest and debt expense                                       |  |               | (3     | )             |            |   | 1    |        |  |   |      |   |  |   | (2     | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Loss before income taxes                                        |  |               | (79    | )             |            |   | (43  | )      |  |   |      |   |  |   | (122   | )
|Income taxes                                                    |  |               | 1      |               |            |   | (5   | )      |  |   |      |   |  |   | (4     | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Loss from discontinued operations, net of income taxes          |  | $             | (80    | )             |            | $ | (38  | )      |  | $ |      |   |  | $ | (118   | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Nine Months Ended September 30, 2003                            |  |               |        |               |            |   |      |        |  |   |       |   |  |   |        |  
|Revenues                                                        |  | $             | 4,586  |               |            | $ | 66   |        |  | $ | 27    |   |  | $ | 4,679  |  
|Costs and expenses                                              |  |               | (4,697 | )             |            |   | (104 | )      |  |   | (22   | ) |  |   | (4,823 | )
|Loss on long-lived assets                                       |  |               | (1,278 | )             |            |   | (13  | )      |  |   | (11   | ) |  |   | (1,302 | )
|Other income (expense)                                          |  |               | (16    | )             |            |   |     |        |  |   | 1     |   |  |   | (15    | )
|Interest and debt expense                                       |  |               | (8     | )             |            |   | 2    |        |  |   |      |   |  |   | (6     | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Loss before income taxes                                        |  |               | (1,413 | )             |            |   | (49  | )      |  |   | (5    | ) |  |   | (1,467 | )
|Income taxes                                                    |  |               | (231   | )             |            |   | (42  | )      |  |   | 1     |   |  |   | (272   | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  
|Loss from discontinued operations, net of income taxes          |  | $             | (1,182 | )             |            | $ | (7   | )      |  | $ | (6    | ) |  | $ | (1,195 | )
|                                                                |  |               |        |               |            |   |      |        |  |   |       |  












|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For 2004, amounts related to Canadian Natural Gas and Oil
    Production and Petroleum Markets Operations were restated. See
    Note 1 to the condensed consolidated financial statements
    for a further discussion of the restatements.




16



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|                        |                                        |                                    |                   |               |            |       |  |       |     |     |  |   |     |       | 
|----------------------- | -------------------------------------- | ---------------------------------- | ----------------- | ------------- | ---------- | ----- |  | ----- | --- | --- |  | - | --- | ----- | 
|                        |                                        |                                    |                   | International |            |       | 
|                        |                                        |                                    |                   | Natural Gas   |            |       | 
|                        |                                        |                                    |                   | and Oil       |            |       | 
|                        |                                        | Petroleum                          |                   |               | Production |       |  |      
|                        |                                        | Markets                            |                   |               | Operations |       |  | Total |    
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        |                                        | (In millions)                      |                  
|Financial Position Data |                                        |                                    |                   |               |            |       |  |       |     |     |  |  
|                        | September 30, 2004                     |                                    |                   |               |            |       |  |       |     |     |  |   |    
|                        | Assets of discontinued operations      |                                    |                   |               |            |       |  |       |     |     |  |   |    
|                        |                                        | Accounts and notes receivable      |                   | $             | 49         |       |  | $     | 1   |     |  | $ | 50  |      
|                        |                                        | Inventory                          |                   |               | 8          |       |  |       |    |     |  |   | 8   |      
|                        |                                        | Other current assets               |                   |               | 1          |       |  |       | 1   |     |  |   | 2   |      
|                        |                                        | Property, plant and equipment, net |                   |               | 22         |       |  |       | 6   |     |  |   | 28  |      
|                        |                                        | Other non-current assets           |                   |               | 26         |       |  |       |    |     |  |   | 26  |      
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        |                                        |                                    | Total assets      |               | $          | 106   |  |       | $   | 8   |  |   | $   | 114   | 
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        | Liabilities of discontinued operations |                                    |                   |               |            |       |  |       |     |     |  |   |    
|                        |                                        | Accounts payable                   |                   | $             | 5          |       |  | $     | 1   |     |  | $ | 6   |      
|                        |                                        | Other current liabilities          |                   |               | 5          |       |  |       |    |     |  |   | 5   |      
|                        |                                        | Other non-current liabilities      |                   |               | 4          |       |  |       |    |     |  |   | 4   |      
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        |                                        |                                    | Total liabilities |               | $          | 14    |  |       | $   | 1   |  |   | $   | 15    | 
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        | December 31, 2003                      |                                    |                   |               |            |       |  |       |     |     |  |   |    
|                        | Assets of discontinued operations      |                                    |                   |               |            |       |  |       |     |     |  |   |    
|                        |                                        | Accounts and notes receivable      |                   | $             | 259        |       |  | $     | 22  |     |  | $ | 281 |      
|                        |                                        | Inventory                          |                   |               | 385        |       |  |       | 3   |     |  |   | 388 |      
|                        |                                        | Other current assets               |                   |               | 131        |       |  |       | 8   |     |  |   | 139 |      
|                        |                                        | Property, plant and equipment, net |                   |               | 521        |       |  |       | 399 |     |  |   | 920 |      
|                        |                                        | Other non-current assets           |                   |               | 70         |       |  |       | 6   |     |  |   | 76  |      
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        |                                        |                                    | Total assets      |               | $          | 1,366 |  |       | $   | 438 |  |   | $   | 1,804 | 
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        | Liabilities of discontinued operations |                                    |                   |               |            |       |  |       |     |     |  |   |    
|                        |                                        | Accounts payable                   |                   | $             | 172        |       |  | $     | 39  |     |  | $ | 211 |      
|                        |                                        | Other current liabilities          |                   |               | 86         |       |  |       |    |     |  |   | 86  |      
|                        |                                        | Long-term debt                     |                   |               | 374        |       |  |       |    |     |  |   | 374 |      
|                        |                                        | Other non-current liabilities      |                   |               | 26         |       |  |       | 3   |     |  |   | 29  |      
|                        |                                        |                                    |                   |               |            |       |  |       |    
|                        |                                        |                                    | Total liabilities |               | $          | 658   |  |       | $   | 42  |  |   | $   | 700   | 
|                        |                                        |                                    |                   |               |            |       |  |       |    

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5. Restructuring Costs




|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       |  |   |    |  |  |   |     | 
|-------------------------------------------------- |  | ------------- | - |  | ----------- | --------- | -- | ------- |  | - | ----- |  |  | -------- | - |  | --------- | - | - | ----- |  | - | -- |  |  | - | --- | 
|                                                   |  | Regulated     |   |  | Unregulated |           |    |         |  |  
|                                                   |  |               |   |  |             |           |    |         |  |  
|                                                   |  |               |   |  |             | Marketing |    |         |  |   |       |  | 
|                                                   |  |               |   |  |             | and       |    |         |  |   | Field |  |  |          |   | 
|                                                   |  | Pipelines     |   |  | Production  |           |    | Trading |  |   | Power |  |  | Services |   |  | Corporate |   |   | Total | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 
|                                                   |  | (In millions) |  
|2004                                               |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       |  |   |    |  |  |   |     | 
|Employee severance, retention and transition costs |  | $             | 5 |  |             | $         | 12 |         |  | $ | 2     |  |  | $        | 4 |  |           | $ | 1 |       |  | $ | 11 |  |  | $ | 35  | 
|Office relocation and consolidation                |  |               |  |  |             |           |   |         |  |   |      |  |  |          |  |  |           |   |  |       |  |   | 30 |  |  |   | 30  | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 
|                                                   |  | $             | 5 |  |             | $         | 12 |         |  | $ | 2     |  |  | $        | 4 |  |           | $ | 1 |       |  | $ | 41 |  |  | $ | 65  | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 
|2003                                               |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       |  |   |    |  |  |   |     | 
|Employee severance, retention and transition costs |  | $             | 1 |  |             | $         | 4  |         |  | $ | 10    |  |  | $        | 4 |  |           | $ | 3 |       |  | $ | 40 |  |  | $ | 62  | 
|Contract termination costs                         |  |               |  |  |             |           |   |         |  |   |      |  |  |          |  |  |           |   |  |       |  |   | 44 |  |  |   | 44  | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 
|                                                   |  | $             | 1 |  |             | $         | 4  |         |  | $ | 10    |  |  | $        | 4 |  |           | $ | 3 |       |  | $ | 84 |  |  | $ | 106 | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 





Office Relocation and Consolidation




18



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6. Loss on Long-Lived Assets







|                                 |  |               |     |      |                   |   |    |            |  |   |      |   |  |   |     |  
|-------------------------------- |  | ------------- | --- | ---- | ----------------- | - | -- | ---------- |  | - | ---- | - |  | - | --- | -
|                                 |  | Quarter Ended |     |      | Nine Months Ended |  
|                                 |  | September 30, |     |      | September 30,     |  
|                                 |  |               |     |      |                   |  
|                                 |  |               |     | 2004 |                   |   |   
|                                 |  | 2004          |     |      | 2003              |   |    | (Restated) |  |   | 2003 |  
|                                 |  |               |     |      |                   |   |    |            |  |   |      |  
|                                 |  | (In millions) |    
|Net realized (gain) loss         |  | $             | 6   |      |                   | $ | 10 |            |  | $ | (8   | ) |  | $ | (6  | )
|Goodwill impairments             |  |               | 480 |      |                   |   |   |            |  |   | 480  |   |  |   | 163 |  
|Impairments of long-lived assets |  |               | 64  |      |                   |   | 44 |            |  |   | 333  |   |  |   | 306 |  
|                                 |  |               |     |      |                   |   |    |            |  |   |      |  
|Loss on long-lived assets        |  | $             | 550 |      |                   | $ | 54 |            |  | $ | 805  |   |  | $ | 463 |  
|                                 |  |               |     |      |                   |   |    |            |  |   |      |  




Net Realized (Gain) Loss




Asset and Goodwill Impairments












19



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7. Income Taxes







|                   |  |                             |     |      |                   |   |    |            |  |   |      |    |  |   |      |  
|------------------ |  | --------------------------- | --- | ---- | ----------------- | - | -- | ---------- |  | - | ---- | -- |  | - | ---- | -
|                   |  | Quarter Ended               |     |      | Nine Months Ended |  
|                   |  | September 30,               |     |      | September 30,     |  
|                   |  |                             |     |      |                   |  
|                   |  |                             |     | 2004 |                   |   |   
|                   |  | 2004                        |     |      | 2003              |   |    | (Restated) |  |   | 2003 |   
|                   |  |                             |     |      |                   |   |    |            |  |   |      |   
|                   |  | (In millions, except rates) |    
|Income taxes       |  | $                           | 77  |      |                   | $ | 62 |            |  | $ | 135  |    |  | $ | (451 | )
|Effective tax rate |  |                             | (62 | )%   |                   |   | 49 | %          |  |   | (89  | )% |  |   | 51   | %








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8. Earnings Per Share




9. Price Risk Management Activities




|                         |                                                                |                                                         |   |      |              |  |   |       |       | 
|------------------------ | -------------------------------------------------------------- | ------------------------------------------------------- | - | ---- | ------------ |  | - | ----- | ----- | 
|                         |                                                                | September 30,                                           |   |      | December 31, | 
|                         |                                                                | 2004                                                    |   |      | 2003         | 
|                         |                                                                |                                                         |   |      |              | 
|                         |                                                                | (In millions)                                           |  
|Net assets (liabilities) |                                                                |                                                         |   |      |              |  |   |      
|                         | Derivatives designated as hedges                               |                                                         | $ | (46  | )            |  | $ | (31   | )    
|                         | Derivatives from power contract restructuring activities       |                                                         |   | 905  |              |  |   | 1,925 | (1)  
|                         | Other commodity-based derivative
    contracts(2)              |                                                         |   | (752 | )            |  |   | (488  | )    
|                         |                                                                |                                                         |   |      |              | 
|                         |                                                                | Total commodity-based derivatives                       |   |      | 107          |  |   |       | 1,406 | 
|                         | Interest rate and foreign currency hedging derivatives
    (3) |                                                         |   | 128  |              |  |   | 123   |      
|                         |                                                                |                                                         |   |      |              | 
|                         |                                                                | Net assets from price risk management
    activities(4) |   | $    | 235          |  |   | $     | 1,529 | 
|                         |                                                                |                                                         |   |      |              | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $942 million of derivative contracts sold in
    connection with the sales of UCF and Mohawk River
    Funding IV in 2004.                                                                                                                                                                                                                                                                 
|   
|(2) | In December 2004, we designated other commodity-based derivative
    contracts with a fair value loss of $592 million as hedges
    of our 2005 and 2006 natural gas production, and, as a result,
    we will reclassify this amount to derivatives designated as
    hedges in the fourth quarter of 2004. As of
    September 30, 2004 these contracts had a fair value loss of
    $567 million.
|   
|(3) | During the nine months ended September 30, 2004, we entered
    into new cross currency hedge transactions that convert
    100 million
    of our fixed rate Euro-denominated debt into $121 million
    of floating rate debt.                                                                                                                                                                   
|   
|(4) | Included in both current and non-current assets and liabilities
    on the balance sheet.                                                                                                                                                                                                                                                                                                           

10. Inventory




|                                               |                         |               |     |     |              |   |     |     | 
|---------------------------------------------- | ----------------------- | ------------- | --- | --- | ------------ | - | --- | --- | 
|                                               |                         | September 30, |     |     | December 31, |  
|                                               |                         | 2004          |     |     | 2003         |  
|                                               |                         |               |     |     |              |  
|                                               |                         | (In millions) |    
|Materials and supplies and other               |                         | $             | 132 |     |              | $ | 145 |    
|Natural gas liquids and natural gas in storage |                         |               | 22  |     |              |   | 36  |    
|                                               |                         |               |     |     |              |  
|                                               | Total current inventory |               | $   | 154 |              |   | $   | 181 | 
|                                               |                         |               |     |     |              |  

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11. Debt, Other Financing Obligations and Other Credit
Facilities




|                                                                         |                                        |               |        |       |              |   |        |       | 
|------------------------------------------------------------------------ | -------------------------------------- | ------------- | ------ | ----- | ------------ | - | ------ | ----- | 
|                                                                         |                                        | September 30, |        |       | December 31, |  
|                                                                         |                                        | 2004          |        |       | 2003         |  
|                                                                         |                                        |               |        |       |              |  
|                                                                         |                                        | (In millions) |       
|Current maturities of long-term debt and other financing
    obligations |                                        | $             | 1,506  |       |              | $ | 1,401  |      
|Short-term financing obligations                                         |                                        |               | 48     |       |              |   | 56     |      
|                                                                         |                                        |               |        |       |              |  
|                                                                         | Total short-term financing obligations |               | $      | 1,554 |              |   | $      | 1,457 | 
|                                                                         |                                        |               |        |       |              |  
|Long-term financing obligations                                          |                                        | $             | 17,673 |       |              | $ | 20,275 |      
|                                                                         |                                        |               |        |       |              |  



| |                                
| | -------------------------------
| | Long-Term Financing Obligations



|                                              |                                  |      |                        |               |               |               |       |               |         |  |   |          |  |  |  |      | 
|--------------------------------------------- | -------------------------------- | ---- | ---------------------- | ------------- | ------------- | ------------- | ----- | ------------- | ------- |  | - | -------- |  |  |  | ---- | 
|                                              |                                  |      |                        |               |               |               |       | Net Increase/ |         |  |  
|                                              |                                  |      |                        |               |               |               |       | Reduction     |         |  |  
|Company                                       |                                  | Type |                        | Interest Rate |               | Principal     |       |               | in Debt |  |   | Due Date | 
|                                              |                                  |      |                        |               |               |               |       |               |         |  |   |          | 
|                                              |                                  |      |                        |               |               | (In millions) |       |               |        
|Issuances and other increases                 |                                  |      |                        |               |               |               |       |               |         |  |   |          |  | 
|                                              | Macae                            |      | Non-recourse note      |               | LIBOR + 4.25% |               | $     | 50            |         |  | $ | 50       |  |  |  | 2007 | 
|                                              | Blue Lake Gas
    Storage(1)     |      | Non-recourse term loan |               | LIBOR + 1.2%  |               |       | 14            |         |  |   | 14       |  |  |  | 2006 | 
|                                              |                                  |      |                        |               |               |               |       |               |         |  |   |          | 
|Increases through September 30,
    2004      |                                  |      | 64                     |               |               |               | 64    |               |         |  |   |         
|                                              | El
    Paso(2)                   |      | Notes                  |               | 6.50%         |               |       | 213           |         |  |   | 213      |  |  |  | 2005 | 
|                                              | El
    Paso(3)                   |      | Term loan              |               | LIBOR + 2.75% |               |       | 1,250         |         |  |   | 1,250    |  |  |  | 2009 | 
|                                              |                                  |      |                        |               |               |               |       |               |         |  |   |          | 
|Increases through date of filing              |                                  | $    | 1,527                  |               |               | $             | 1,527 |               |         |  |   |         
|                                              |                                  |      |                        |               |               |               |       |               |        
|Repayments, repurchases and other retirements |                                  |      |                        |               |               |               |       |               |         |  |   |          |  | 
|                                              | El Paso CGP                      |      | Note                   |               | LIBOR + 3.5%  |               | $     | 200           |         |  | $ | 200      |  |  |  |      | 
|                                              | El Paso                          |      | Revolver               |               | LIBOR + 3.5%  |               |       | 850           |         |  |   | 850      |  |  |  |      | 
|                                              | Gemstone                         |      | Notes                  |               | 7.71%         |               |       | 202           |         |  |   | 202      |  |  |  |      | 
|                                              | El Paso CGP                      |      | Note                   |               | 6.2%          |               |       | 190           |         |  |   | 190      |  |  |  |      | 
|                                              | Mohawk River Funding IV
    (4)  |      | Non-recourse note      |               | 7.75%         |               |       | 72            |         |  |   | 72       |  |  |  |      | 
|                                              | Utility Contract Funding
    (4) |      | Non-recourse           |               |               |               |       |               |         |  |   |          |  |  |  |      | 
|                                              |                                  |      | senior notes           |               | 7.944%        |               |       | 815           |         |  |   | 815      |  |  |  |      | 
|                                              | Other                            |      | Long-term debt         |               | Various       |               |       | 263           |         |  |   | 263      |  |  |  |      | 
|                                              |                                  |      |                        |               |               |               |       |               |         |  |   |          | 
|Decreases through September 30,
    2004      |                                  |      | 2,592                  |               |               |               | 2,592 |               |         |  |   |         
|                                             
|                                              | Gemstone                         |      | Notes                  |               | 7.71%         |               |       | 748           |         |  |   | 748      |  |  |  |      | 
|                                              | Lakeside                         |      | Note                   |               | LIBOR + 3.5%  |               |       | 271           |         |  |   | 271      |  |  |  |      | 
|                                              | El Paso CGP                      |      | Notes                  |               | 10.25%        |               |       | 38            |         |  |   | 38       |  |  |  |      | 
|                                              | El
    Paso(2)                   |      | Notes                  |               | 6.50%         |               |       | 213           |         |  |   | 213      |  |  |  |      | 
|                                              | El
    Paso(5)                   |      | Zero coupon debenture  |               |              |               |       | 103           |         |  |   | 104      |  |  |  |      | 
|                                              | El Paso                          |      | Note                   |               | 6.88%         |               |       | 14            |         |  |   | 15       |  |  |  |      | 
|                                              | El Paso CGP                      |      | Note                   |               | 7.5%          |               |       | 55            |         |  |   | 58       |  |  |  |      | 
|                                              | El Paso CGP                      |      | Note                   |               | 6.50%         |               |       | 91            |         |  |   | 94       |  |  |  |      | 
|                                              | El Paso                          |      | Note                   |               | 6.75%         |               |       | 21            |         |  |   | 22       |  |  |  |      | 
|                                              | El Paso                          |      | Medium-term notes      |               | Various       |               |       | 28            |         |  |   | 28       |  |  |  |      | 
|                                              | Other                            |      | Long-term debt         |               | Various       |               |       | 11            |         |  |   | 11       |  |  |  |      | 
|                                              |                                  |      |                        |               |               |               |       |               |         |  |   |          | 
|Decreases through date of filing              |                                  | $    | 4,185                  |               |               | $             | 4,194 |               |         |  |   |         
|                                              |                                  |      |                        |               |               |               |       |               |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This debt was consolidated as a result of adopting FIN
    No. 46 (see Note 2).                                                                                                                                                                                                                                                                                                                                    
|   
|(2) | In the fourth quarter of 2004, we entered into an agreement with
    Enron that liquidated two derivative swap agreements (reflected
    in other current and other non-current liabilities in our
    balance sheet as of September 30, 2004) in exchange for
    approximately $213 million of 6.5% one year notes.
    Subsequent to the closing of our new credit agreement, these
    notes were paid in full.
|   
|(3) | Proceeds from the $1.25 billion term loan under the new
    credit agreement entered into in November 2004.                                                                                                                                                                                                                                                                                                        
|   
|(4) | This debt was eliminated when we sold our interests in Mohawk
    River Funding IV and UCF.                                                                                                                                                                                                                                                                                                                        
|   
|(5) | In December 2004, we repurchased these 4% yield-to-maturity
    zero-coupon debentures. The amount shown as principal is the
    carrying value on the date the debt was retired as compared to
    its maturity value in 2021 of $196 million.                                                                                                                                                                    

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Credit Facilities










| |                      
| | ---------------------
| | Restrictive Covenants





| |     |                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | El Pasos ratio of Debt to Consolidated EBITDA, each
    as defined in the new credit agreement, shall not exceed 6.50 to
    1.0 at any time prior to September 30, 2005, 6.25 to 1.0 at
    any time on or after September 30, 2005 and prior to
    June 30, 2006, and 6.00 to 1.0 at any time on or after
    June 30, 2006 until maturity;
|
| | (b) | El Pasos ratio of Consolidated EBITDA, as defined in
    the new credit agreement, to interest expense plus dividends
    paid shall not be less than 1.60 to 1.0 prior to
    March 31, 2006, 1.75 to 1.0 on or after March 31,
    2006 and prior to March 31, 2007, and 1.80 to 1.0 on
    or after March 31, 2007 until maturity;         
|
| | (c) | EPNG, TGP, ANR, and CIG cannot incur incremental Debt if the
    incurrence of this incremental Debt would cause their Debt to
    Consolidated EBITDA ratio, each as defined in the new credit
    agreement, for that particular company to exceed 5 to 1;                                                                                   

23



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| |     |                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | the proceeds from the issuance of Debt by our pipeline company
    borrowers can only be used for maintenance and expansion capital
    expenditures or investments in other FERC-regulated assets, to
    fund working capital requirements, or to refinance existing
    debt; and
|
| | (e) | the occurrence of an event of default and after the expiration
    of any applicable grace period, with respect to Debt in an
    aggregate principal amount of $200 million or more.                                                                                               





Letters of Credit




12. Commitments and Contingencies




| |                  
| | -----------------
| | Legal Proceedings

Western Energy Settlement.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Subject to the conditions in the settlement; (1) make
    3.29 Bcf/d of primary firm pipeline capacity on our EPNG
    system available to California delivery points during a five
    year period from the date of settlement, but only if shippers
    sign firm contracts for 3.29 Bcf/d of capacity with
    California delivery points; (2) maintain facilities
    sufficient to deliver 3.29 Bcf/d to the California delivery
    points; and (3) not add any firm incremental load to our
    EPNG system that would prevent it from satisfying its obligation
    to provide this capacity;
|
| |  | Construct a new 320 MMcf/d, Line 2000 Power-Up
    expansion project and forego recovery of the cost of service of
    this expansion until EPNGs next rate case before the FERC;                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Clarify the rights of Northern California shippers to recall
    some of EPNGs system capacity (Block II capacity) to
    serve markets in PG&Es service area; and                                                                                                                                                                                                                                                                                                                                                                                                                                 

24



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| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | With limited exceptions, bar any of our affiliated companies
    from obtaining additional firm capacity on our EPNG pipeline
    system during a five year period from the effective date of the
    settlement.







CPUC Complaint Proceeding Docket No. RP00-241-000.


Shareholder Class Action Suits.




25



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ERISA Class Action Suit.


Retiree Medical Benefits Matters. Yolton et al. v. El Paso Corporation and Case
Corporation.


Natural Gas Commodities Litigation.


Grynberg.


26



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Qui Tam


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


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 &
Gas Company


MTBE.


27



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Government Investigations


Power Restructuring.


Wash Trades.


Price Reporting.


Reserve Revisions.


Storage Reporting.


Iraq Oil Sales.


28



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Carlsbad.








Baldonado et. al. v. EPNG Baldonado Diane Heady
et al. v. EPEC and EPNG






29



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| |                      
| | ---------------------
| | Environmental Matters





|              |       |                    |     |     |      |   |     |     | 
|------------- | ----- | ------------------ | --- | --- | ---- | - | --- | --- | 
|              |       | September 30, 2004 |    
|              |       |                    |    
|Sites         |       | Expected           |     |     | High |  
|              |       |                    |     |     |      |  
|              |       | (In millions)      |    
|Operating     |       | $                  | 145 |     |      | $ | 190 |    
|Non-operating |       |                    | 213 |     |      |   | 314 |    
|Superfund     |       |                    | 31  |     |      |   | 46  |    
|              |       |                    |     |     |      |  
|              | Total |                    | $   | 389 |      |   | $   | 550 | 
|              |       |                    |     |     |      |  



|                                                 |  |   |     |  
|------------------------------------------------ |  | - | --- | -
|Balance as of January 1, 2004                    |  | $ | 412 |  
|Additions/adjustments for remediation activities |  |   | 8   |  
|Payments for remediation activities              |  |   | (32 | )
|Other changes, net                               |  |   | 1   |  
|                                                 |  |   |    
|Balance as of September 30, 2004                 |  | $ | 389 |  
|                                                 |  |   |    



Internal PCB Remediation Project.


30



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PCB Cost Recoveries.


CERCLA Matters.




Rates and Regulatory Matters


Proposed Release Regarding Pipeline Integrity Costs.


Inquiry Regarding Income Tax Allowances.


31



---



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Other


Enron Bankruptcy.




Duke Litigation.


Investments in Brazil.




32



---



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33



---



##### Table of Contents



Guarantees




13. Retirement Benefits




|                                                                  |                           |                             |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |     |   |   |    |    |  |   |    |    | 
|----------------------------------------------------------------- | ------------------------- | --------------------------- | --- | ----- | ------------------------------- | - | --- | ---------------- | ----- | -------------- | -------- | - |  | ---- | -- | - | ---- | - | ---- | ---- |  | - | ---- | --- | - | - | -- | -- |  | - | -- | -- | 
|                                                                  |                           | Quarter Ended September 30, |     |       | Nine Months Ended September 30, |  
|                                                                  |                           |                             |     |       |                                 |  
|                                                                  |                           |                             |     | Other |                                 |   |     |                  | Other |               
|                                                                  |                           | Pension                     |     |       | Postretirement                  |   |     |                  |       | Postretirement |         
|                                                                  |                           | Benefits                    |     |       | Benefits                        |   |     | Pension Benefits |       |                | Benefits |  
|                                                                  |                           |                             |     |       |                                 |   |     |                  |       |                |          |  
|                                                                  |                           | 2004                        |     |       | 2003                            |   |     | 2004             |       |                | 2003     |   |  | 2004 |    |   | 2003 |   |      | 2004 |  |   | 2003 |    
|                                                                  |                           |                             |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |    
|                                                                  |                           | (In millions)               |    
|Service cost                                                      |                           | $                           | 8   |       |                                 | $ | 9   |                  |       | $              |         |   |  | $    |   |   |      | $ | 24   |      |  | $ | 27   |     |   | $ |   |    |  | $ |   |   
|Interest cost                                                     |                           |                             | 30  |       |                                 |   | 33  |                  |       |                | 9        |   |  |      | 9  |   |      |   | 91   |      |  |   | 101  |     |   |   | 25 |    |  |   | 27 |   
|Expected return on plan assets                                    |                           |                             | (47 | )     |                                 |   | (57 | )                |       |                | (3       | ) |  |      | (2 | ) |      |   | (142 | )    |  |   | (171 | )   |   |   | (9 | )  |  |   | (6 | ) 
|Amortization of net actuarial loss                                |                           |                             | 12  |       |                                 |   | 1   |                  |       |                | 1        |   |  |      |   |   |      |   | 36   |      |  |   | 3    |     |   |   | 3  |    |  |   |   |   
|Amortization of transition obligation                             |                           |                             |    |       |                                 |   |    |                  |       |                | 2        |   |  |      | 2  |   |      |   |     |      |  |   |     |     |   |   | 6  |    |  |   | 6  |   
|Amortization of prior service
    cost(1)                         |                           |                             | (1  | )     |                                 |   | (1  | )                |       |                |         |   |  |      |   |   |      |   | (3   | )    |  |   | (3   | )   |   |   |   |    |  |   |   |   
|Settlements, curtailment, and special termination
    benefits(2) |                           |                             | (5  | )     |                                 |   |    |                  |       |                |         |   |  |      |   |   |      |   | (5   | )    |  |   |     |     |   |   |   |    |  |   | (6 | ) 
|                                                                  |                           |                             |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |    
|                                                                  | Net benefit cost (income) |                             | $   | (3    | )                               |   | $   | (15              | )     |                | $        | 9 |  |      | $  | 9 |      |   | $    | 1    |  |   | $    | (43 | ) |   | $  | 25 |  |   | $  | 21 | 
|                                                                  |                           |                             |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |    






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As permitted, the amortization of any prior service cost is
    determined using a straight-line amortization of the cost over
    the average remaining service period of employees expected to
    receive benefits under the plan.                                     
|   
|(2) | We recognized curtailments in 2004 and 2003 related to a
    reduction in the number of employees that participate in our
    pension and other postretirement plans, which resulted from our
    various asset sales and employee severance efforts in 2004 and
    2003.





Retirement Savings Plan




34



---



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14. Capital Stock


Common Stock




Dividends




15. Segment Information














35



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|                                                                  |                                          |               |      |      |                   |               |      |            |  |   |        |      |   |   |        |      |  
|----------------------------------------------------------------- | ---------------------------------------- | ------------- | ---- | ---- | ----------------- | ------------- | ---- | ---------- |  | - | ------ | ---- | - | - | ------ | ---- | -
|                                                                  |                                          | Quarter Ended |      |      | Nine Months Ended |              
|                                                                  |                                          | September 30, |      |      | September 30,     |              
|                                                                  |                                          |               |      |      |                   |              
|                                                                  |                                          |               |      | 2004 |                   |               |     
|                                                                  |                                          | 2004          |      |      | 2003              |               |      | (Restated) |  |   | 2003   |     
|                                                                  |                                          |               |      |      |                   |               |      |            |  |   |        |     
|                                                                  |                                          |               |      |      |                   | (In millions) |     
|Total EBIT                                                        |                                          | $             | 277  |      |                   | $             | 609  |            |  | $ | 1,095  |      |   | $ | 507    |     
|Interest and debt expense                                         |                                          |               | (396 | )    |                   |               | (475 | )          |  |   | (1,229 | )    |   |   | (1,352 | )   
|Distributions on preferred interests of consolidated subsidiaries |                                          |               | (6   | )    |                   |               | (7   | )          |  |   | (18    | )    |   |   | (45    | )   
|Income taxes                                                      |                                          |               | (77  | )    |                   |               | (62  | )          |  |   | (135   | )    |   |   | 451    |     
|                                                                  |                                          |               |      |      |                   |               |      |            |  |   |        |     
|                                                                  | Income (loss) from continuing operations |               | $    | (202 | )                 |               | $    | 65         |  |   | $      | (287 | ) |   | $      | (439 | )
|                                                                  |                                          |               |      |      |                   |               |      |            |  |   |        |     






|                                         |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       |  |   |     |   |  |   |       |    
|---------------------------------------- |  | ------------- | --- | - | ----------- | --------- | --- | ------- |  | - | ----- | - |  | -------- | --- | - | ------------ | - | ---- | ----- |  | - | --- | - |  | - | ----- | ---
|                                         |  | Regulated     |     |   | Unregulated |           |     |         |  |  
|                                         |  |               |     |   |             |           |     |         |  |  
|                                         |  |               |     |   |             | Marketing |     |         |  |   |       |   | 
|                                         |  |               |     |   |             | and       |     |         |  |   | Field |   |  |          |     |  
|Quarter Ended September 30,              |  | Pipelines     |     |   | Production  |           |     | Trading |  |   | Power |   |  | Services |     |   | Corporate(1) |   |      | Total | 
|                                         |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|                                         |  | (In millions) |    
|2004                                     |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       |  |   |     |   |  |   |       |    
|Revenues from external customers         |  | $             | 582 |   |             | $         | 92  | (2)     |  | $ | 176   |   |  | $        | 188 |   |              | $ | 370  |       |  | $ | 21  |   |  | $ | 1,429 |    
|Intersegment revenues                    |  |               | 22  |   |             |           | 308 | (2)     |  |   | (296  | ) |  |          | (7  | ) |              |   | 56   |       |  |   | (83 | ) |  |   |      |    
|Operation and maintenance                |  |               | 204 |   |             |           | 96  |         |  |   | 15    |   |  |          | 134 |   |              |   | 19   |       |  |   | 39  |   |  |   | 507   |    
|Depreciation, depletion and amortization |  |               | 104 |   |             |           | 136 |         |  |   | 4     |   |  |          | 14  |   |              |   | 3    |       |  |   | 9   |   |  |   | 270   |    
|(Gain) loss on long-lived assets         |  |               |    |   |             |           |    |         |  |   |      |   |  |          | 45  |   |              |   | 506  |       |  |   | (1  | ) |  |   | 550   |    
|                                        
|Operating income (loss)                  |  | $             | 218 |   |             | $         | 147 |         |  | $ | (139  | ) |  | $        | (48 | ) |              | $ | (477 | )     |  | $ | (56 | ) |  | $ | (355  | )  
|Earnings from unconsolidated affiliates  |  |               | 43  |   |             |           | 1   |         |  |   |      |   |  |          | 25  |   |              |   | 548  |       |  |   |    |   |  |   | 617   |    
|Other income                             |  |               | 7   |   |             |           | 2   |         |  |   | 1     |   |  |          | 18  |   |              |   | 2    |       |  |   | 6   |   |  |   | 36    |    
|Other expense                            |  |               |    |   |             |           |    |         |  |   |      |   |  |          | (2  | ) |              |   | (12  | )     |  |   | (7  | ) |  |   | (21   | )  
|                                         |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|EBIT                                     |  | $             | 268 |   |             | $         | 150 |         |  | $ | (138  | ) |  | $        | (7  | ) |              | $ | 61   |       |  | $ | (57 | ) |  | $ | 277   |    
|                                         |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|2003                                     |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       |  |   |     |   |  |   |       |    
|Revenues from external customers         |  | $             | 572 |   |             | $         | (5  | )(2)    |  | $ | 476   |   |  | $        | 353 |   |              | $ | 229  |       |  | $ | 29  |   |  | $ | 1,654 |    
|Intersegment revenues                    |  |               | 26  |   |             |           | 457 | (2)     |  |   | (394  | ) |  |          | (30 | ) |              |   | 97   |       |  |   | (96 | ) |  |   | 60    | (3)
|Operation and maintenance                |  |               | 157 |   |             |           | 96  |         |  |   | 38    |   |  |          | 146 |   |              |   | 30   |       |  |   | (14 | ) |  |   | 453   |    
|Depreciation, depletion and amortization |  |               | 95  |   |             |           | 136 |         |  |   | 9     |   |  |          | 23  |   |              |   | 7    |       |  |   | 13  |   |  |   | 283   |    
|(Gain) loss on long-lived assets         |  |               | (1  | ) |             |           | 10  |         |  |   |      |   |  |          | 41  |   |              |   | 2    |       |  |   | 2   |   |  |   | 54    |    
|                                        
|Operating income (loss)                  |  | $             | 267 |   |             | $         | 183 |         |  | $ | 35    |   |  | $        | 26  |   |              | $ | (8   | )     |  | $ | (22 | ) |  | $ | 481   |    
|Earnings from unconsolidated affiliates  |  |               | 28  |   |             |           | 1   |         |  |   |      |   |  |          | 9   |   |              |   | 41   |       |  |   |    |   |  |   | 79    |    
|Other income                             |  |               | 6   |   |             |           | 1   |         |  |   | (6    | ) |  |          | 35  |   |              |   |     |       |  |   | 13  |   |  |   | 49    |    
|Other expense                            |  |               |    |   |             |           |    |         |  |   | (1    | ) |  |          | (3  | ) |              |   | (1   | )     |  |   | 5   |   |  |   |      |    
|                                         |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|EBIT                                     |  | $             | 301 |   |             | $         | 185 |         |  | $ | 28    |   |  | $        | 67  |   |              | $ | 32   |       |  | $ | (4  | ) |  | $ | 609   |    
|                                         |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes our corporate and telecommunications activities and
    eliminations of intercompany transactions. Our intersegment
    revenues, along with our intersegment operating expenses, were
    incurred in the normal course of business between our operating
    segments. We record an intersegment revenue elimination, which
    is the only elimination included in the Corporate
    column, to remove intersegment transactions.
|   
|(2) | Revenues from external customers include gains and losses
    related to our hedging of price risk associated with our natural
    gas and oil production. Intersegment revenues represent sales to
    our Marketing and Trading segment, which is responsible for
    marketing our production.                                                                                                                                              
|   
|(3) | Relates to intercompany activities between our continuing
    operations and our discontinued operations.                                                                                                                                                                                                                                                                                                                                      

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|                                                 |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            |  |   |      |   |  |   |       |    
|------------------------------------------------ |  | ------------- | ----- | - | ----------- | --------- | ----- | ---------- | ----- | - | ---------- | ----- |  | -------- | ---- | - | ------------ | - | ----- | ---------- |  | - | ---- | - |  | - | ----- | ---
|                                                 |  | Regulated     |       |   | Unregulated |           |       |            |       |  
|                                                 |  |               |       |   |             |           |       |            |       |  
|                                                 |  |               |       |   |             | Marketing |       |            |       |   |            |       | 
|                                                 |  |               |       |   |             | and       |       |            |       |   |            |       | 
|                                                 |  |               |       |   |             | Trading   |       |            | Power |   |            | Field |  |          |      |   | Total        |  
|Nine Months Ended September 30,                  |  | Pipelines     |       |   | Production  |           |       | (Restated) |       |   | (Restated) |       |  | Services |      |   | Corporate(1) |   |       | (Restated) | 
|                                                 |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            | 
|                                                 |  | (In millions) |      
|2004                                             |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            |  |   |      |   |  |   |       |    
|Revenues from external customers                 |  | $             | 1,875 |   |             | $         | 369   | (2)        |       | $ | 544        |       |  | $        | 539  |   |              | $ | 1,090 |            |  | $ | 93   |   |  | $ | 4,510 |    
|Intersegment revenues                            |  |               | 67    |   |             |           | 907   | (2)        |       |   | (964       | )     |  |          | 85   |   |              |   | 151   |            |  |   | (246 | ) |  |   |      |    
|Operation and maintenance                        |  |               | 556   |   |             |           | 258   |            |       |   | 38         |       |  |          | 328  |   |              |   | 70    |            |  |   | 31   |   |  |   | 1,281 |    
|Depreciation, depletion and amortization         |  |               | 305   |   |             |           | 407   |            |       |   | 10         |       |  |          | 42   |   |              |   | 10    |            |  |   | 34   |   |  |   | 808   |    
|(Gain) loss on long-lived assets                 |  |               | (1    | ) |             |           |      |            |       |   |           |       |  |          | 301  |   |              |   | 514   |            |  |   | (9   | ) |  |   | 805   |    
|                                                
|Operating income (loss)                          |  | $             | 826   |   |             | $         | 552   |            |       | $ | (468       | )     |  | $        | (196 | ) |              | $ | (460  | )          |  | $ | (50  | ) |  | $ | 204   |    
|Earnings from unconsolidated affiliates          |  |               | 117   |   |             |           | 4     |            |       |   |           |       |  |          | 65   |   |              |   | 616   |            |  |   |     |   |  |   | 802   |    
|Other income                                     |  |               | 21    |   |             |           | 2     |            |       |   | 14         |       |  |          | 65   |   |              |   | 2     |            |  |   | 42   |   |  |   | 146   |    
|Other expense                                    |  |               | (2    | ) |             |           |      |            |       |   |           |       |  |          | (8   | ) |              |   | (34   | )          |  |   | (13  | ) |  |   | (57   | )  
|                                                 |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            | 
|EBIT                                             |  | $             | 962   |   |             | $         | 558   |            |       | $ | (454       | )     |  | $        | (74  | ) |              | $ | 124   |            |  | $ | (21  | ) |  | $ | 1,095 |    
|                                                 |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            | 
|2003                                             |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            |  |   |      |   |  |   |       |    
|Revenues from external customers                 |  | $             | 1,882 |   |             | $         | 145   | (2)        |       | $ | 1,129      |       |  | $        | 781  |   |              | $ | 885   |            |  | $ | 97   |   |  | $ | 4,919 |    
|Intersegment revenues                            |  |               | 89    |   |             |           | 1,610 | (2)        |       |   | (1,711     | )     |  |          | 127  |   |              |   | 377   |            |  |   | (300 | ) |  |   | 192   | (3)
|Operation and maintenance                        |  |               | 658   |   |             |           | 272   |            |       |   | 107        |       |  |          | 457  |   |              |   | 100   |            |  |   | 40   |   |  |   | 1,634 |    
|Depreciation, depletion and amortization         |  |               | 291   |   |             |           | 435   |            |       |   | 22         |       |  |          | 70   |   |              |   | 25    |            |  |   | 54   |   |  |   | 897   |    
|(Gain) loss on long-lived assets                 |  |               | (9    | ) |             |           | 5     |            |       |   | (3         | )     |  |          | 36   |   |              |   | (3    | )          |  |   | 437  |   |  |   | 463   |    
|                                                
|Operating income (loss)                          |  | $             | 763   |   |             | $         | 928   |            |       | $ | (712       | )     |  | $        | 89   |   |              | $ | (23   | )          |  | $ | (572 | ) |  | $ | 473   |    
|Earnings (losses) from unconsolidated affiliates |  |               | 96    |   |             |           | 11    |            |       |   |           |       |  |          | (94  | ) |              |   | 28    |            |  |   | (10  | ) |  |   | 31    |    
|Other income                                     |  |               | 21    |   |             |           | 4     |            |       |   | 9          |       |  |          | 70   |   |              |   |      |            |  |   | 28   |   |  |   | 132   |    
|Other expense                                    |  |               | (5    | ) |             |           |      |            |       |   | (1         | )     |  |          | (9   | ) |              |   | (2    | )          |  |   | (112 | ) |  |   | (129  | )  
|                                                 |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            | 
|EBIT                                             |  | $             | 875   |   |             | $         | 943   |            |       | $ | (704       | )     |  | $        | 56   |   |              | $ | 3     |            |  | $ | (666 | ) |  | $ | 507   |    
|                                                 |  |               |       |   |             |           |       |            |       |   |            |       |  |          |      |   |              |   |       |            | 









|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes our corporate and telecommunications activities and
    eliminations of intercompany transactions. Our intersegment
    revenues, along with our intersegment operating expenses, were
    incurred in the normal course of business between our operating
    segments. We record an intersegment revenue elimination, which
    is the only elimination included in the Corporate
    column, to remove intersegment transactions.
|   
|(2) | Revenues from external customers include gains and losses
    related to our hedging of price risk associated with our natural
    gas and oil production. Intersegment revenues represent sales to
    our Marketing and Trading segment, which is responsible for
    marketing our production.                                                                                                                                              
|   
|(3) | Relates to intercompany activities between our continuing
    operations and our discontinued operations.                                                                                                                                                                                                                                                                                                                                      






|                        |                       |                           |       |        |              |  |       |        |        | 
|----------------------- | --------------------- | ------------------------- | ----- | ------ | ------------ |  | ----- | ------ | ------ | 
|                        |                       | September 30,             |       |        | December 31, | 
|                        |                       | 2004                      |       |        | 2003         | 
|                        |                       | (Restated)                |       |        | (Restated)   | 
|                        |                       |                           |       |        |              | 
|                        |                       | (In millions)             |      
|Regulated               |                       |                           |       |        |              |  |       |       
|                        | Pipelines             |                           | $     | 15,800 |              |  | $     | 15,686 |       
|Unregulated             |                       |                           |       |        |              |  |       |       
|                        | Production            |                           |       | 4,057  |              |  |       | 3,767  |       
|                        | Marketing and Trading |                           |       | 1,987  |              |  |       | 2,666  |       
|                        | Power                 |                           |       | 4,490  |              |  |       | 6,999  |       
|                        | Field Services        |                           |       | 688    |              |  |       | 1,990  |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total segment assets      |       |        | 27,022       |  |       |        | 31,108 | 
|Corporate               |                       |                           | 4,517 |        |              |  | 4,031 |       
|Discontinued operations |                       |                           | 114   |        |              |  | 1,804 |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total consolidated assets |       | $      | 31,653       |  |       | $      | 36,943 | 
|                        |                       |                           |       |        |              | 




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|    |                                                                            
|--- | ---------------------------------------------------------------------------
|16. | Investments in Unconsolidated Affiliates and Related Party
    Transactions



|                        |                                   |               |   |       |                   |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |       | 
|----------------------- | --------------------------------- | ------------- | - | ----- | ----------------- |  | ----- | ----- |  |  | ----------- | -- |  | ----- | - | --- | --------- |  | - | ------ |  |  | ----- | --- |  | ----------- | - | --- | ----- |  | - | -- |  |  | - | ----- |  |  | - | ----- | 
|                        |                                   | Quarter Ended |   |       | Nine Months Ended | 
|                        |                                   | September 30, |   |       | September 30,     | 
|                        |                                   |               |   |       |                   | 
|                        |                                   |               |   | Great |                   |  | Other |       |  |  |             |    |  | Great |   |     | Other     |  |   |       
|                        |                                   | GulfTerra     |   |       | Citrus            |  |       | Lakes |  |  | Investments |    |  | Total |   |     | GulfTerra |  |   | Citrus |  |  | Lakes |     |  | Investments |   |     | Total | 
|                        |                                   |               |   |       |                   |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       | 
|                        |                                   | (In millions) |  
|2004                    |                                   |               |   |       |                   |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|Operating results data: |                                   |               |   |       |                   |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|                        | Operating revenues                |               | $ | 141   |                   |  | $     | 64    |  |  | $           | 31 |  |       | $ | 353 |           |  | $ | 589    |  |  | $     | 406 |  |             | $ | 178 |       |  | $ | 99 |  |  | $ | 1,117 |  |  | $ | 1,800 | 
|                        | Operating expenses                |               |   | 93    |                   |  |       | 21    |  |  |             | 15 |  |       |   | 275 |           |  |   | 404    |  |  |       | 259 |  |             |   | 69  |       |  |   | 41 |  |  |   | 839   |  |  |   | 1,208 | 
|                        | Income from continuing operations |               |   | 30    |                   |  |       | 18    |  |  |             | 9  |  |       |   | 46  |           |  |   | 103    |  |  |       | 90  |  |             |   | 44  |       |  |   | 33 |  |  |   | 153   |  |  |   | 320   | 
|                        | Net
    income(1)                 |               |   | 30    |                   |  |       | 18    |  |  |             | 9  |  |       |   | 46  |           |  |   | 103    |  |  |       | 90  |  |             |   | 46  |       |  |   | 33 |  |  |   | 153   |  |  |   | 322   | 
|2003                    |                                   |               |   |       |                   |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|Operating results data: |                                   |               |   |       |                   |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|                        | Operating revenues                |               | $ | 169   |                   |  | $     | 59    |  |  | $           | 31 |  |       | $ | 458 |           |  | $ | 717    |  |  | $     | 556 |  |             | $ | 170 |       |  | $ | 96 |  |  | $ | 1,518 |  |  | $ | 2,340 | 
|                        | Operating expenses                |               |   | 111   |                   |  |       | 28    |  |  |             | 15 |  |       |   | 349 |           |  |   | 503    |  |  |       | 401 |  |             |   | 73  |       |  |   | 43 |  |  |   | 1,062 |  |  |   | 1,579 | 
|                        | Income from continuing operations |               |   | 39    |                   |  |       | 14    |  |  |             | 7  |  |       |   | 57  |           |  |   | 117    |  |  |       | 96  |  |             |   | 29  |       |  |   | 27 |  |  |   | 267   |  |  |   | 419   | 
|                        | Net
    income(1)                 |               |   | 39    |                   |  |       | 14    |  |  |             | 7  |  |       |   | 57  |           |  |   | 117    |  |  |       | 96  |  |             |   | 29  |       |  |   | 27 |  |  |   | 267   |  |  |   | 419   | 






|    |                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes net income of $3 million and $1 million for
    the quarters ended September 30, 2004 and 2003, and
    $24 million and $6 million for the nine months ended
    September 30, 2004 and 2003, related to our proportionate
    share of affiliates in which we hold a greater than
    50 percent interest.

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|                                                               |                                               |               |     |      |                   |   |     |            |   |   |      |     |   |   |     |      |  
|-------------------------------------------------------------- | --------------------------------------------- | ------------- | --- | ---- | ----------------- | - | --- | ---------- | - | - | ---- | --- | - | - | --- | ---- | -
|                                                               |                                               | Quarter Ended |     |      | Nine Months Ended |  
|                                                               |                                               | September 30, |     |      | September 30,     |  
|                                                               |                                               |               |     |      |                   |  
|                                                               |                                               |               |     | 2004 |                   |   |    
|                                                               |                                               | 2004          |     |      | 2003              |   |     | (Restated) |   |   | 2003 |    
|                                                               |                                               |               |     |      |                   |   |     |            |   |   |      |    
|                                                               |                                               | (In millions) |    
|Proportional share of income of investees                      |                                               | $             | 103 |      |                   | $ | 117 |            |   | $ | 322  |     |   | $ | 419 |     
|Impairment charges and gains and losses on sale of investments |                                               |               |     |      |                   |   |     |            |   |   |      |     |   |   |     |     
|                                                               | Gain on sale of GulfTerra interests           |               |     | 511  |                   |   |     |           |   |   |      | 511 |   |   |     |     |  
|                                                               | Chaparral
    impairment(1)                   |               |     |     |                   |   |     |           |   |   |      |    |   |   |     | (207 | )
|                                                               | Milford power facility
    impairment(2)      |               |     |     |                   |   |     | (2         | ) |   |      | (2  | ) |   |     | (88  | )
|                                                               | Dauphin Island/Mobile Bay
    impairment(3)   |               |     |     |                   |   |     |           |   |   |      |    |   |   |     | (80  | )
|                                                               | Power plants held for sale
    impairments(3) |               |     | (15  | )                 |   |     |           |   |   |      | (50 | ) |   |     |     |  
|                                                               | Linden Venture
    impairment(4)              |               |     |     |                   |   |     | (22        | ) |   |      |    |   |   |     | (22  | )
|                                                               | Gain on sales of CAPSA/CAPEX                  |               |     |     |                   |   |     |           |   |   |      |    |   |   |     | 24   |  
|                                                               | Other gains (losses)                          |               |     | 10   |                   |   |     | (1         | ) |   |      | 5   |   |   |     | (14  | )
|Gain on issuance of GulfTerra common units                     |                                               |               | 1   |      |                   |   | 3   |            |   |   | 4    |     |   |   | 15  |     
|Other                                                          |                                               |               | 7   |      |                   |   | (16 | )          |   |   | 12   |     |   |   | (16 | )   
|                                                               |                                               |               |     |      |                   |   |     |            |   |   |      |    
|Total earnings from unconsolidated affiliates                  |                                               | $             | 617 |      |                   | $ | 79  |            |   | $ | 802  |     |   | $ | 31  |     
|                                                               |                                               |               |     |      |                   |   |     |            |   |   |      |    









|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This impairment resulted from other than temporary declines in
    the investments fair value based on developments in our
    power business and the power industry (see Note 3).
|   
|(2) | This impairment resulted from a write-off of notes receivable
    and accruals on contracts due to ongoing difficulty at the
    project level.                                    
|   
|(3) | These impairments resulted from the anticipated sales of these
    investments, which were substantially completed in the third
    quarter of 2004.                               
|   
|(4) | This impairment resulted from the anticipated loss from the sale
    of East Coast Power, L.L.C., which was completed in the fourth
    quarter of 2003.                           



Related Party
Transactions




|                                     |  |               |    |             |               |   |    |      |  |   |      |  |  |   |     | 
|------------------------------------ |  | ------------- | -- | ----------- | ------------- | - | -- | ---- |  | - | ---- |  |  | - | --- | 
|                                     |  |               |    | Nine Months |              
|                                     |  | Quarter Ended |    |             | Ended         |  
|                                     |  | September 30, |    |             | September 30, |  
|                                     |  |               |    |             |               |  
|                                     |  | 2004          |    |             | 2003          |   |    | 2004 |  |   | 2003 | 
|                                     |  |               |    |             |               |   |    |      |  |   |      | 
|                                     |  | (In millions) |   
|Operating revenue                    |  | $             | 75 |             |               | $ | 86 |      |  | $ | 236  |  |  | $ | 213 | 
|Other revenue  management fees      |  |               | (2 | )           |               |   | 5  |      |  |   | 3    |  |  |   | 11  | 
|Cost of sales                        |  |               | 31 |             |               |   | 26 |      |  |   | 91   |  |  |   | 85  | 
|Reimbursement for operating expenses |  |               | 27 |             |               |   | 34 |      |  |   | 93   |  |  |   | 102 | 
|Other income                         |  |               | 1  |             |               |   | 3  |      |  |   | 6    |  |  |   | 8   | 
|Interest income                      |  |               | 2  |             |               |   | 3  |      |  |   | 6    |  |  |   | 9   | 
|Interest expense                     |  |               |   |             |               |   |   |      |  |   |     |  |  |   | 3   | 

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GulfTerra.








|                                       |                       |               |    |    |               |   |    |      |  |   |      |    |  |   |    |    | 
|-------------------------------------- | --------------------- | ------------- | -- | -- | ------------- | - | -- | ---- |  | - | ---- | -- |  | - | -- | -- | 
|                                       |                       | Quarter       |    |    | Nine Months   |  
|                                       |                       | Ended         |    |    | Ended         |  
|                                       |                       | September 30, |    |    | September 30, |  
|                                       |                       |               |    |    |               |  
|                                       |                       | 2004          |    |    | 2003          |   |    | 2004 |  |   | 2003 |   
|                                       |                       |               |    |    |               |   |    |      |  |   |      |   
|                                       |                       | (In millions) |   
|Revenues received from GulfTerra       |                       |               |    |    |               |   |    |      |  |   |      |    |  |   |    |   
|                                       | Marketing and Trading |               | $  | 4  |               |   | $  | 6    |  |   | $    | 19 |  |   | $  | 22 | 
|                                       | Field Services        |               |    |   |               |   |    |     |  |   |      | 1  |  |   |    | 5  | 
|                                       |                       |               |    |    |               |   |    |      |  |   |      |   
|                                       |                       | $             | 4  |    |               | $ | 6  |      |  | $ | 20   |    |  | $ | 27 |   
|                                       |                       |               |    |    |               |   |    |      |  |   |      |   
|Expenses paid to GulfTerra             |                       |               |    |    |               |   |    |      |  |   |      |    |  |   |    |   
|                                       | Field Services        |               | $  | 25 |               |   | $  | 14   |  |   | $    | 77 |  |   | $  | 56 | 
|                                       | Marketing and Trading |               |    | 8  |               |   |    | 8    |  |   |      | 25 |  |   |    | 27 | 
|                                       | Production            |               |    | 3  |               |   |    | 3    |  |   |      | 7  |  |   |    | 7  | 
|                                       |                       |               |    |    |               |   |    |      |  |   |      |   
|                                       |                       | $             | 36 |    |               | $ | 25 |      |  | $ | 109  |    |  | $ | 90 |   
|                                       |                       |               |    |    |               |   |    |      |  |   |      |   
|Reimbursements received from GulfTerra |                       |               |    |    |               |   |    |      |  |   |      |    |  |   |    |   
|                                       | Field Services        |               | $  | 24 |               |   | $  | 22   |  |   | $    | 69 |  |   | $  | 68 | 
|                                       |                       |               |    |    |               |   |    |      |  |   |      |   



40



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












Overview


Business Update






| |   |                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | completing or announcing sales of assets and investments of
    approximately $3.3 billion (see Item 1, Financial
    Statements, Note 4);                                                                                                                                                                                                                                                         
|
| |  | retiring, eliminating, or refinancing approximately
    $4.2 billion of maturing debt and other obligations
    ($2.6 billion through September 30, 2004) (see
    Item 1, Financial Statements, Note 11);                                                                                                                                                                                         
|
| |  | finalizing the Western Energy Settlement, which substantially
    resolved our principal exposure relating to the western energy
    crisis and successfully raising funds to satisfy a significant
    portion of our current obligations under that settlement (see
    Item 1, Financial Statements, Note 12); and                                                                              
|
| |  | entering into a new credit agreement in November 2004 to
    refinance our previous revolving credit facility with an
    aggregate of $3 billion in financings consisting of a
    $1.25 billion, five-year term loan; a $1.0 billion
    three-year revolving credit facility; and a five-year,
    $750 million funded letter of credit facility (see
    Item 1, Financial Statements Note 11).

Liquidity Update






41



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Capital Structure






|                                                               |                                                                        |   |        |        | 
|-------------------------------------------------------------- | ---------------------------------------------------------------------- | - | ------ | ------ | 
|Short-term financing obligations, including current maturities |                                                                        | $ | 1,457  |       
|Long-term financing obligations                                |                                                                        |   | 20,275 |       
|Securities of subsidiaries                                     |                                                                        |   | 447    |       
|                                                               |                                                                        |   |       
|                                                               | Total debt and securities of subsidiaries as of
    December 31, 2003  |   |        | 22,179 | 
|                                                               |                                                                        |   |       
|Principal amounts borrowed and other increases                 |                                                                        |   | 64     |       
|Repayments/retirements of
    principal(1)                     |                                                                        |   | (1,705 | )     
|Sales of
    entities(2)                                       |                                                                        |   | (887   | )     
|Other                                                          |                                                                        |   | (58    | )     
|                                                               |                                                                        |   |       
|                                                               | Total debt and securities of subsidiaries as of
    September 30, 2004 |   | $      | 19,593 | 
|                                                               |                                                                        |   |       






|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount excludes $370 million of repayments of long-term
    debt related to our Aruba refinery classified as part of our
    discontinued operations prior to the sale of this facility in
    early 2004.
|   
|(2) | This debt was eliminated when we sold our interests in Mohawk
    River Funding IV and Utility Contract Funding.                                                                                          



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Capital Resources and Liquidity


Overview of Cash Flow Activities for the Nine Months Ended
September 30, 2004 and 2003







|                                                |                                                                            |                                                 |       |        |      |  |        |       |       | 
|----------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------- | ----- | ------ | ---- |  | ------ | ----- | ----- | 
|                                                |                                                                            | 2004                                            |       |        |     
|                                                |                                                                            | (Restated)                                      |       |        | 2003 | 
|                                                |                                                                            |                                                 |       |        |      | 
|                                                |                                                                            | (In millions)                                   |      
|Cash flows from continuing operating activities |                                                                            |                                                 |       |        |      |  |        |      
|                                                | Net loss before discontinued operations                                    |                                                 | $     | (287   | )    |  | $      | (448  | )    
|                                                | Non-cash income adjustments                                                |                                                 |       | 1,279  |      |  |        | 1,523 |      
|                                                | Changes in assets and liabilities                                          |                                                 |       | (384   | )    |  |        | 633   |      
|                                                |                                                                            |                                                 |       |        |      | 
|                                                |                                                                            | Cash flows from continuing operating activities |       |        | 608  |  |        |       | 1,708 | 
|Cash flows from continuing investing activities |                                                                            |                                                 | 1,017 |        |      |  | (1,768 | )    
|Cash flows from continuing financing activities |                                                                            |                                                 | (725  | )      |      |  | 112    |      
|                                                |                                                                            |                                                 |       |        |      | 
|                                                | Change in cash and cash equivalents related to continuing
    operations   |                                                 |       | 900    |      |  |        | 52    |      
|                                                |                                                                            |                                                 |       |        |      | 
|Discontinued operations                         |                                                                            |                                                 |       |        |      |  |        |      
|                                                | Cash flows from operating activities                                       |                                                 |       | 191    |      |  |        | 58    |      
|                                                | Cash flows from investing activities                                       |                                                 |       | 1,140  |      |  |        | 297   |      
|                                                | Cash flows from financing activities                                       |                                                 |       | (1,331 | )    |  |        | (355  | )    
|                                                |                                                                            |                                                 |       |        |      | 
|                                                | Change in cash and cash equivalents related to discontinued
    operations |                                                 |       |       |      |  |        |      |      
|                                                |                                                                            |                                                 |       |        |      | 
|                                                |                                                                            | Total change in cash and cash equivalents       |       | $      | 900  |  |        | $     | 52    | 
|                                                |                                                                            |                                                 |       |        |      | 






|                                         |                                                      |                                                     |                      |      |      |     | 
|---------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | -------------------- | ---- | ---- | --- | 
|Cash inflows from continuing operations  |                                                      |                                                     |                      |     
|                                         | Cash flows from operating activities                 |                                                     | $                    | 0.6  |     
|                                         | Net proceeds from the sale of assets and investments |                                                     |                      | 1.8  |     
|                                         | Net change in restricted
    cash(1)                 |                                                     |                      | 0.5  |     
|                                         | Cash provided from discontinued operations           |                                                     |                      | 1.0  |     
|                                         |                                                      |                                                     |                     
|                                         |                                                      | Total cash inflows from continuing operations       |                      |      | 3.9  |    
|                                         |                                                      |                                                     |                     
|Cash outflows from continuing operations |                                                      |                                                     |                      |     
|                                         | Additions to property, plant and equipment           |                                                     |                      | (1.3 | )   
|                                         | Payments to retire long-term debt                    |                                                     |                      | (1.7 | )   
|                                         |                                                      |                                                     |                     
|                                         |                                                      | Total cash outflows from continuing operations      |                      |      | (3.0 | )  
|                                         |                                                      |                                                     |                     
|Cash flows from discontinued operations  |                                                      |                                                     |                      |     
|                                         | Cash from operations                                 |                                                     |                      | 0.2  |     
|                                         | Net proceeds from sale of assets                     |                                                     |                      | 1.2  |     
|                                         | Payments to retire long-term debt                    |                                                     |                      | (0.4 | )   
|                                         | Cash provided to continuing operations               |                                                     |                      | (1.0 | )   
|                                         |                                                      |                                                     |                     
|                                         |                                                      | Total net cash inflows from discontinued operations |                      |      |     |    
|                                         |                                                      |                                                     |                     
|                                         |                                                      |                                                     | Net increase in cash |      | $    | 0.9 | 
|                                         |                                                      |                                                     |                     






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Amounts consist primarily of the release of escrowed funds
    related to the Western Energy Settlement.



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Cash From Continuing
Operating Activities




Cash From Continuing
Investing Activities




|                                                                 |                                       |   |      |     | 
|---------------------------------------------------------------- | ------------------------------------- | - | ---- | --- | 
|Production exploration, development and acquisition expenditures |                                       | $ | (0.6 | )  
|Pipeline expansion, maintenance and integrity projects           |                                       |   | (0.7 | )  
|Restricted cash
    activity(1)                                  |                                       |   | 0.5  |    
|Proceeds from the sale of assets and investments                 |                                       |   | 1.8  |    
|                                                                 |                                       |   |     
|                                                                 | Total continuing investing activities |   | $    | 1.0 | 
|                                                                 |                                       |   |     






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Amounts consist primarily of the release of escrowed funds
    related to the Western Energy Settlement.



Cash From Continuing
Financing Activities






| |                                  
| | ---------------------------------
| | Cash from Discontinued Operations



44



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Commodity-based Derivative Contracts




|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |     |        |      |  
|----------------------------------------------------------- | --------------------------------- | -------------------------------------- | ---------------------------------------------- | ---- | -------- | ---- | --- | -------- | ---- | ---- | -------- | --- | ---- | -------- | --- | --- | ----- | --- | - | -- | --- | -- | --- | --- | ------ | ---- | -
|                                                            |                                   | Maturity                               |                                                |      | Maturity |      |     | Maturity |      |      | Maturity |     |      | Maturity |     |     | Total |    
|                                                            |                                   | Less Than                              |                                                |      | 1 to 3   |      |     | 4 to 5   |      |      | 6 to 10  |     |      | Beyond   |     |     | Fair  |    
|Source of Fair Value                                        |                                   | 1 year                                 |                                                |      | Years    |      |     | Years    |      |      | Years    |     |      | 10 Years |     |     | Value |    
|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|                                                            |                                   | (In millions)                          |                                               
|Derivatives designated as hedges                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |    
|                                                            | Assets                            |                                        | $                                              | 15   |          |      | $   | 13       |      |      | $        |    |      |          | $   |    |       |     | $ |   |     |    | $   | 28  |       
|                                                            | Liabilities                       |                                        |                                                | (23  | )        |      |     | (25      | )    |      |          | (15 | )    |          |     | (11 | )     |     |   |   |     |    |     | (74 | )     
|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|                                                            |                                   | Total derivatives designated as hedges |                                                |      | (8       | )    |     |          | (12  | )    |          |     | (15  | )        |     |     | (11   | )   |   |    |    |    |     |     | (46    | )   
|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|Assets from power contract restructuring
    derivatives(1) |                                   |                                        | 130                                            |      |          |      | 266 |          |      |      | 210      |     |      |          | 299 |     |       |     |  |    |     |    | 905 |    
|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|Other commodity-based derivatives                           |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |    
|                                                            | Exchange-traded
    positions(2)  |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |     |       
|                                                            |                                   | Assets                                 |                                                |      |         |      |     |          | 117  |      |          |     | 79   |          |     |     | 3     |     |   |    |    |    |     |     | 199    |     
|                                                            |                                   | Liabilities                            |                                                |      | (79      | )    |     |          | (2   | )    |          |     |     |          |     |     |      |     |   |    |    |    |     |     | (81    | )   
|                                                            | Non-exchange-traded positions     |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |     |       
|                                                            |                                   | Assets                                 |                                                |      | 225      |      |     |          | 302  |      |          |     | 133  |          |     |     | 166   |     |   |    | 44  |    |     |     | 870    |     
|                                                            |                                   | Liabilities(1)                         |                                                |      | (542     | )    |     |          | (722 | )    |          |     | (217 | )        |     |     | (212  | )   |   |    | (47 | )  |     |     | (1,740 | )   
|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|                                                            |                                   |                                        | Total other commodity-based
    derivatives(3) |      |          | (396 | )   |          |      | (305 | )        |     |      | (5       | )   |     |       | (43 | ) |    |     | (3 | )   |     |        | (752 | )
|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|                                                            | Total commodity-based derivatives |                                        | $                                              | (274 | )        |      | $   | (51      | )    |      | $        | 190 |      |          | $   | 245 |       |     | $ | (3 | )   |    | $   | 107 |       
|                                                            |                                   |                                        |                                                |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $251 million of intercompany derivatives that
    eliminate in consolidation and had no impact on our consolidated
    assets and liabilities from price risk management activities for
    the nine months ended September 30, 2004.                                                                                                                                                 
|   
|(2) | Exchange-traded positions are traded on active exchanges such as
    the New York Mercantile Exchange, the International Petroleum
    Exchange and the London Clearinghouse.                                                                                                                                                                                                                  
|   
|(3) | In December 2004, we designated other commodity-based derivative
    contracts with a fair value loss of $592 million as hedges
    of our 2005 and 2006 natural gas production and, as a result, we
    will reclassify this amount to derivatives designated as hedges
    in the fourth quarter of 2004. As of September 30, 2004
    these contracts had a fair value loss of $567 million.



|                                                          |                                                      |                                                       |     |             |               |   |       |             |        |       |             |      |      |   |       |      |        |  
|--------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------------- | --- | ----------- | ------------- | - | ----- | ----------- | ------ | ----- | ----------- | ---- | ---- | - | ----- | ---- | ------ | -
|                                                          |                                                      |                                                       |     | Derivatives |               |   |       |             |       
|                                                          |                                                      |                                                       |     | from Power  |               |   | Other |             |        | Total |            
|                                                          |                                                      | Derivatives                                           |     |             | Contract      |   |       | Commodity-  |        |       | Commodity-  |     
|                                                          |                                                      | Designated                                            |     |             | Restructuring |   |       | Based       |        |       | Based       |     
|                                                          |                                                      | as Hedges                                             |     |             | Activities    |   |       | Derivatives |        |       | Derivatives |     
|                                                          |                                                      |                                                       |     |             |               |   |       |             |        |       |             |     
|                                                          |                                                      | (In millions)                                         |    
|Fair value of contracts outstanding at January 1, 2004    |                                                      | $                                                     | (31 | )           |               | $ | 1,925 |             |        | $     | (488        | )    |      | $ | 1,406 |     
|                                                          |                                                      |                                                       |     |             |               |   |       |             |        |       |             |     
|                                                          | Fair value of contract settlements during the period |                                                       |     | 39          |               |   |       | (1,099      | )(1)   |       |             | 183  |      |   |       | (877 | )     
|                                                          | Change in fair value of contracts                    |                                                       |     | (54         | )             |   |       | 79          |        |       |             | (444 | )(2) |   |       | (419 | )     
|                                                          | Option premiums received, net                        |                                                       |     |            |               |   |       |            |        |       |             | (3   | )    |   |       | (3   | )     
|                                                          |                                                      |                                                       |     |             |               |   |       |             |        |       |             |     
|                                                          |                                                      | Net change in contracts outstanding during the period |     |             | (15           | ) |       |             | (1,020 | )     |             |      | (264 | ) |       |      | (1,299 | )
|                                                          |                                                      |                                                       |     |             |               |   |       |             |        |       |             |     
|Fair value of contracts outstanding at September 30, 2004 |                                                      | $                                                     | (46 | )           |               | $ | 905   |             |        | $     | (752        | )    |      | $ | 107   |     
|                                                          |                                                      |                                                       |     |             |               |   |       |             |        |       |             |     

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|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $861 million and $75 million of derivative
    contracts sold in connection with the sales of Utility Contract
    Funding and Mohawk River Funding IV in 2004. See
    Item I, Financial Statements, Notes 4 and 6 for
    additional information on these sales.
|   
|(2) | In the second quarter of 2004, we reclassified a
    $69 million liability from our Western Energy Settlement
    obligation to our price risk management activities.                                                                                                      





Segment Results






46



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|                                                                  |                                          |                                              |      |                   |               |  |      |            |     |  |        |      |       |  |        |        |       | 
|----------------------------------------------------------------- | ---------------------------------------- | -------------------------------------------- | ---- | ----------------- | ------------- |  | ---- | ---------- | --- |  | ------ | ---- | ----- |  | ------ | ------ | ----- | 
|                                                                  |                                          |                                              |      | Nine Months Ended |              
|                                                                  |                                          | Quarter Ended                                |      |                   | September 30, | 
|                                                                  |                                          | September 30,                                |      |                   |               | 
|                                                                  |                                          |                                              |      |                   | 2004          |  |      |           
|                                                                  |                                          | 2004                                         |      |                   | 2003          |  |      | (Restated) |     |  | 2003   |     
|                                                                  |                                          |                                              |      |                   |               |  |      |            |     |  |        |     
|                                                                  |                                          | (In millions)                                |     
|Regulated Businesses                                              |                                          |                                              |      |                   |               |  |      |            |     |  |        |      |       |  |        |       
|                                                                  | Pipelines                                |                                              | $    | 268               |               |  | $    | 301        |     |  | $      | 962  |       |  | $      | 875    |      
|Unregulated Businesses                                            |                                          |                                              |      |                   |               |  |      |            |     |  |        |      |       |  |        |       
|                                                                  | Production                               |                                              |      | 150               |               |  |      | 185        |     |  |        | 558  |       |  |        | 943    |      
|                                                                  | Marketing and Trading                    |                                              |      | (138              | )             |  |      | 28         |     |  |        | (454 | )     |  |        | (704   | )    
|                                                                  | Power                                    |                                              |      | (7                | )             |  |      | 67         |     |  |        | (74  | )     |  |        | 56     |      
|                                                                  | Field Services                           |                                              |      | 61                |               |  |      | 32         |     |  |        | 124  |       |  |        | 3      |      
|                                                                  |                                          |                                              |      |                   |               |  |      |            |     |  |        |     
|                                                                  |                                          | Segment EBIT                                 |      |                   | 334           |  |      |            | 613 |  |        |      | 1,116 |  |        |        | 1,173 | 
|Corporate                                                         |                                          |                                              | (57  | )                 |               |  | (4   | )          |     |  | (21    | )    |       |  | (666   | )     
|                                                                  |                                          |                                              |      |                   |               |  |      |            |     |  |        |     
|                                                                  |                                          | Consolidated EBIT from continuing operations |      |                   | 277           |  |      |            | 609 |  |        |      | 1,095 |  |        |        | 507   | 
|Interest and debt expense                                         |                                          |                                              | (396 | )                 |               |  | (475 | )          |     |  | (1,229 | )    |       |  | (1,352 | )     
|Distributions on preferred interests of consolidated subsidiaries |                                          |                                              | (6   | )                 |               |  | (7   | )          |     |  | (18    | )    |       |  | (45    | )     
|Income taxes                                                      |                                          |                                              | (77  | )                 |               |  | (62  | )          |     |  | (135   | )    |       |  | 451    |       
|                                                                  |                                          |                                              |      |                   |               |  |      |            |     |  |        |     
|                                                                  | Income (loss) from continuing operations |                                              |      | (202              | )             |  |      | 65         |     |  |        | (287 | )     |  |        | (439   | )    
|Discontinued operations, net of income taxes                      |                                          |                                              | (12  | )                 |               |  | (41  | )          |     |  | (118   | )    |       |  | (1,195 | )     
|Cumulative effect of accounting changes, net of income taxes      |                                          |                                              |     |                   |               |  |     |            |     |  |       |      |       |  | (9     | )     
|                                                                  |                                          |                                              |      |                   |               |  |      |            |     |  |        |     
|                                                                  | Net income (loss)                        |                                              | $    | (214              | )             |  | $    | 24         |     |  | $      | (405 | )     |  | $      | (1,643 | )    
|                                                                  |                                          |                                              |      |                   |               |  |      |            |     |  |        |     












|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The restatement of our 2004 financial statements affected the
    amount of losses on long-lived assets, earnings from
    unconsolidated affiliates and other income for certain foreign
    operations in our Power and Marketing and Trading segments and
    discontinued foreign operations, as well as the related taxes on
    these assets and investments. See Item 1, Financial
    Statements and Supplementary Data, Note 1 for a further
    discussion of the restatement and the manner in which our
    segments and other operations were affected.




Overview of Results of Operations












|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pipelines             |  | Our Pipelines segment generated EBIT of $962 million, which
    was generally consistent with our expectations for the period.                                                                                                                                                                                                                                                                                                    
|                     
|Production            |  | Our Production segment generated EBIT of $558 million,
    which was above our expectations for the period. Higher than
    expected commodity prices and lower than expected depreciation
    costs due to the impact of the reserve and hedge restatements in
    periods prior to 2004 on our full cost pool assets, more than
    offset lower than expected production volumes and higher than
    expected production costs.
|                     
|                     
|Marketing and Trading |  | Our Marketing and Trading segment generated an EBIT loss of
    $454 million, which was a greater loss than our
    expectations. The performance was driven primarily by
    mark-to-market losses in our natural gas portfolio due to
    natural gas price increases in the period. Our natural gas
    portfolio exposure was also                                                                                            
|                     

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  | impacted by the hedge restatement in periods prior to 2004,
    resulting in a mark-to-market position that generates losses if
    natural gas prices increase.                                                                                                                                                                                                                                                                                                                                                                    
|              
|              
|Power          |  | Our Power segment generated an EBIT loss of $74 million,
    which was below our expectations for the period, primarily due
    to asset impairments and other charges, net of realized gains
    and losses, of $383 million. These impairments and charges
    were primarily related to events at two power plants in Brazil
    in 2004 related to difficulties in extending their power sales
    agreements that expire in 2005 and 2006, and due to certain of
    our domestic operations which were sold or are being sold.
|              
|              
|Field Services |  | Our Field Services segment generated EBIT of $124 million,
    which was consistent with our expectations for the period and
    impacted by the significant asset sales activity in the segment
    in 2003.                                                                                                                                                                                                                                                                                                                       





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|                                                             |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |   |     |       |   |   |      |      |  
|------------------------------------------------------------ | ----- | ------------------ | ---- | --------- | ---------- | - | ----- | ------- | - | ----- | ---------- | --- | - | -------- | ---- | ---- | --------- | - | --- | ----- | - | - | ---- | ---- | -
|                                                             |       | Operating Segments |      |           |           
|                                                             |       |                    |      |           |           
|                                                             |       |                    |      | Marketing |            |   |       |         |  
|                                                             |       |                    |      | and       |            |   | Power |         |   | Field |            |     |  
|                                                             |       | Pipelines          |      |           | Production |   |       | Trading |   |       | (Restated) |     |   | Services |      |      | Corporate |  
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |  
|                                                             |       | (In millions)      |     
|Nine Months Ended September 30,                              |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |   |     |       |   |   |      |     
|2004                                                         |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |   |     |       |   |   |      |     
|Asset and investment impairments, net of gain (loss) on sale |       | $                  | 4    |           |            | $ |      |         |   | $     |           |     |   | $        | (351 | )    |           | $ | (3  | ) (1) |   | $ | 9    |     
|Restructuring charges                                        |       |                    | (5   | )         |            |   | (12   | )       |   |       | (2         | )   |   |          | (4   | )    |           |   | (1  | )     |   |   | (41  | )   
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |  
|                                                             | Total |                    | $    | (1        | )          |   | $     | (12     | ) |       | $          | (2  | ) |          | $    | (355 | )         |   | $   | (4    | ) |   | $    | (32  | )
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |  
|2003                                                         |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |   |     |       |   |   |      |     
|Asset and investment impairments, net of gain (loss) on sale |       | $                  | 9    |           |            | $ | (5    | )       |   | $     | 3          |     |   | $        | (335 | )    |           | $ | (76 | )     |   | $ | (446 | )   
|Restructuring charges                                        |       |                    | (1   | )         |            |   | (4    | )       |   |       | (10        | )   |   |          | (4   | )    |           |   | (3  | )     |   |   | (84  | )   
|Western Energy
    Settlement(2)                             |       |                    | (138 | )         |            |   |      |         |   |       | (17        | )   |   |          |     |      |           |   |    |       |   |   | (3   | )   
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |  
|                                                             | Total |                    | $    | (130      | )          |   | $     | (9      | ) |       | $          | (24 | ) |          | $    | (339 | )         |   | $   | (79   | ) |   | $    | (533 | )
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |     |   |          |      |      |           |  









|    |                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a net gain of $500 million on the sale for our
    GulfTerra interests and other assets to Enterprise and a related
    goodwill impairment of $480 million in the third quarter of
    2004. See Item 1, Financial Statements, Notes 2, 6
    and 16 for a further discussion of these sales, gains and
    impairments.
|   
|(2) | Includes $55 million of accretion expense and other charges
    and is included in operations and maintenance expense in our
    consolidated statements of income.                                                                                                                                                               



Regulated Businesses  Pipelines Segment




|                                   |                  |                                      |        |     |                   |   |        |      |  |   |        |     |  |   |        |     | 
|---------------------------------- | ---------------- | ------------------------------------ | ------ | --- | ----------------- | - | ------ | ---- |  | - | ------ | --- |  | - | ------ | --- | 
|                                   |                  | Quarter Ended                        |        |     | Nine Months Ended |  
|                                   |                  | September 30,                        |        |     | September 30,     |  
|                                   |                  |                                      |        |     |                   |  
|Pipelines Segment Results          |                  | 2004                                 |        |     | 2003              |   |        | 2004 |  |   | 2003   |    
|                                   |                  |                                      |        |     |                   |   |        |      |  |   |        |    
|                                   |                  | (In millions, except volume amounts) |       
|Operating revenues                 |                  | $                                    | 604    |     |                   | $ | 598    |      |  | $ | 1,942  |     |  | $ | 1,971  |    
|Operating expenses                 |                  |                                      | (386   | )   |                   |   | (331   | )    |  |   | (1,116 | )   |  |   | (1,208 | )  
|                                   |                  |                                      |        |     |                   |   |        |      |  |   |        |    
|                                   | Operating income |                                      |        | 218 |                   |   |        | 267  |  |   |        | 826 |  |   |        | 763 | 
|Other income                       |                  |                                      | 50     |     |                   |   | 34     |      |  |   | 136    |     |  |   | 112    |    
|                                   |                  |                                      |        |     |                   |   |        |      |  |   |        |    
|                                   | EBIT             |                                      | $      | 268 |                   |   | $      | 301  |  |   | $      | 962 |  |   | $      | 875 | 
|                                   |                  |                                      |        |     |                   |   |        |      |  |   |        |    
|Throughput volumes
    (BBtu/d)(1) |                  |                                      | 19,480 |     |                   |   | 18,786 |      |  |   | 20,637 |     |  |   | 20,430 |    
|                                   |                  |                                      |        |     |                   |   |        |      |  |   |        |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Throughput volumes exclude volumes related to our equity
    investments in the Portland Natural Gas Transmission System and
    EPIC Energy Australia Trust which were sold in the fourth
    quarter of 2003 and second quarter of 2004. In addition, volumes
    exclude intrasegment activities. Throughput volumes includes
    volumes related to our Mexico investments which were transferred
    from our Power segment effective January 1, 2004.

49



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| |                         
| | ------------------------
| | Operating Results (EBIT)





|                                                     |       |                             |     |   |                                 |   |     |       |   |   |      |    |  |         |     |     |         |   |     |       |   |   |      |    |  |   |    |    |  |   |     |    | 
|---------------------------------------------------- | ----- | --------------------------- | --- | - | ------------------------------- | - | --- | ----- | - | - | ---- | -- |  | ------- | --- | --- | ------- | - | --- | ----- | - | - | ---- | -- |  | - | -- | -- |  | - | --- | -- | 
|                                                     |       | Quarter Ended September 30, |     |   | Nine Months Ended September 30, |  
|                                                     |       |                             |     |   |                                 |  
|                                                     |       | Revenue                     |     |   | Expense                         |   |     | Other |   |   | EBIT |    |  | Revenue |     |     | Expense |   |     | Other |   |   | EBIT |   
|                                                     |       |                             |     |   |                                 |   |     |       |   |   |      |    |  |         |     |     |         |   |     |       |   |   |      |   
|                                                     |       | Favorable/(Unfavorable)     |     |   | Favorable/(Unfavorable)         |  
|                                                     |       | (In millions)               |     |   | (In millions)                   |  
|Contract modifications /terminations                 |       | $                           | (14 | ) |                                 | $ | 10  |       |   | $ |     |    |  | $       | (4  | )   |         | $ | (86 | )     |   | $ | 37   |    |  | $ |   |    |  | $ | (49 | ) 
|Fuel recoveries, net of gas used/system supply costs |       |                             | 20  |   |                                 |   | (12 | )     |   |   |     |    |  |         | 8   |     |         |   | 29  |       |   |   | (9   | )  |  |   |   |    |  |   | 20  |   
|Mainline expansions                                  |       |                             | 8   |   |                                 |   | (2  | )     |   |   | (1   | )  |  |         | 5   |     |         |   | 27  |       |   |   | (5   | )  |  |   | (4 | )  |  |   | 18  |   
|Western Energy Settlement in 2003                    |       |                             |    |   |                                 |   | (20 | )     |   |   |     |    |  |         | (20 | )   |         |   |    |       |   |   | 138  |    |  |   |   |    |  |   | 138 |   
|Higher operation and maintenance
    costs(1)        |       |                             |    |   |                                 |   | (20 | )     |   |   |     |    |  |         | (20 | )   |         |   |    |       |   |   | (35  | )  |  |   |   |    |  |   | (35 | ) 
|Change to regulated depreciation method              |       |                             |    |   |                                 |   | (2  | )     |   |   |     |    |  |         | (2  | )   |         |   |    |       |   |   | (7   | )  |  |   |   |    |  |   | (7  | ) 
|Equity earnings from Citrus                          |       |                             |    |   |                                 |   |    |       |   |   | 6    |    |  |         | 6   |     |         |   |    |       |   |   |     |    |  |   | 12 |    |  |   | 12  |   
|Mexico investments                                   |       |                             | 2   |   |                                 |   | (1  | )     |   |   | 4    |    |  |         | 5   |     |         |   | 7   |       |   |   | (4   | )  |  |   | 12 |    |  |   | 15  |   
|Other(2)                                             |       |                             | (10 | ) |                                 |   | (8  | )     |   |   | 7    |    |  |         | (11 | )   |         |   | (6  | )     |   |   | (23  | )  |  |   | 4  |    |  |   | (25 | ) 
|                                                     |       |                             |     |   |                                 |   |     |       |   |   |      |    |  |         |     |     |         |   |     |       |   |   |      |   
|                                                     | Total |                             | $   | 6 |                                 |   | $   | (55   | ) |   | $    | 16 |  |         | $   | (33 | )       |   | $   | (29   | ) |   | $    | 92 |  |   | $  | 24 |  |   | $   | 87 | 
|                                                     |       |                             |     |   |                                 |   |     |       |   |   |      |    |  |         |     |     |         |   |     |       |   |   |      |   






|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(1) | Consists of costs of operations, electric and power purchase
    costs, overhead allocation and environmental costs.
|   
|(2) | Consists of individually insignificant items across several of
    our pipeline systems.                            









50



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##### Table of Contents







Unregulated Businesses  Production Segment






Production and Capital
Expenditures








Production Hedging




51



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##### Table of Contents





Natural Gas


|                |  |                |        |        |          |   |      |               |        |  |              |  |  |        |      |  |        |  |        |        |  |   |        |        |  |        |        |  |        |   |      |  |  |  |         |  |  |   |      | 
|--------------- |  | -------------- | ------ | ------ | -------- | - | ---- | ------------- | ------ |  | ------------ |  |  | ------ | ---- |  | ------ |  | ------ | ------ |  | - | ------ | ------ |  | ------ | ------ |  | ------ | - | ---- |  |  |  | ------- |  |  | - | ---- | 
|                |  | Quarters Ended |        |        |          |   |     
|                |  |                |        |        |          |   |     
|                |  | March 31,      |        |        | June 30, |   |      | September 30, |        |  | December 31, |  |  | Total  |     
|                |  |                |        |        |          |   |      |               |        |  |              |  |  |        |     
|                |  |                |        | Hedged |          |   |      |               | Hedged |  |              |  |  | Hedged |      |  |        |  | Hedged |        |  |   |        | Hedged | 
|                |  | Volume         |        |        | Price    |   |      | Volume        |        |  | Price        |  |  | Volume |      |  | Price  |  |        | Volume |  |   | Price  |        |  | Volume |        |  | Price  |  
|                |  | (Bbtu)         |        |        | /MMbtu   |   |      | (Bbtu)        |        |  | /MMbtu       |  |  | (Bbtu) |      |  | /MMbtu |  |        | (Bbtu) |  |   | /MMbtu |        |  | (Bbtu) |        |  | /MMbtu |  
|                |  |                |        |        |          |   |      |               |        |  |              |  |  |        |      |  |        |  |        |        |  |   |        |        |  |        |        |  |        |  
|2005            |  |                | 33,019 |        |          | $ | 6.75 |               |        |  | 33,037       |  |  | $      | 6.75 |  |        |  | 33,055 |        |  | $ | 6.75   |        |  |        | 33,055 |  |        | $ | 6.75 |  |  |  | 132,166 |  |  | $ | 6.75 | 
|2006            |  |                | 21,349 |        |          | $ | 6.34 |               |        |  | 21,367       |  |  | $      | 6.34 |  |        |  | 21,385 |        |  | $ | 6.34   |        |  |        | 21,385 |  |        | $ | 6.34 |  |  |  | 85,486  |  |  | $ | 6.34 | 
|2007            |  |                | 1,579  |        |          | $ | 3.79 |               |        |  | 1,447        |  |  | $      | 3.64 |  |        |  | 1,155  |        |  | $ | 3.35   |        |  |        | 1,155  |  |        | $ | 3.35 |  |  |  | 5,336   |  |  | $ | 3.56 | 
|2008 and beyond |  |                |        |        |          |   |      |               |        |  |              |  |  |        |      |  |        |  |        |        |  |   |        |        |  |        |        |  |        |   |      |  |  |  | 20,620  |  |  | $ | 3.67 | 

Oil


|     |  |                |    |        |          |   |       |               |        |  |              |  |  |         |       |  |        |  |        |         |  |   |        |        |  |         |    |  |        |   |       |  |  |  |     |  |  |   |       | 
|---- |  | -------------- | -- | ------ | -------- | - | ----- | ------------- | ------ |  | ------------ |  |  | ------- | ----- |  | ------ |  | ------ | ------- |  | - | ------ | ------ |  | ------- | -- |  | ------ | - | ----- |  |  |  | --- |  |  | - | ----- | 
|     |  | Quarters Ended |    |        |          |   |      
|     |  |                |    |        |          |   |      
|     |  | March 31,      |    |        | June 30, |   |       | September 30, |        |  | December 31, |  |  | Total   |      
|     |  |                |    |        |          |   |       |               |        |  |              |  |  |         |      
|     |  |                |    | Hedged |          |   |       |               | Hedged |  |              |  |  | Hedged  |       |  |        |  | Hedged |         |  |   |        | Hedged | 
|     |  | Volume         |    |        | Price    |   |       | Volume        |        |  | Price        |  |  | Volume  |       |  | Price  |  |        | Volume  |  |   | Price  |        |  | Volume  |    |  | Price  |  
|     |  | (MBbls)        |    |        | (/Bbl)   |   |       | (MBbls)       |        |  | (/Bbl)       |  |  | (MBbls) |       |  | (/Bbl) |  |        | (MBbls) |  |   | (/Bbl) |        |  | (MBbls) |    |  | (/Bbl) |  
|     |  |                |    |        |          |   |       |               |        |  |              |  |  |         |       |  |        |  |        |         |  |   |        |        |  |         |    |  |        |  
|2005 |  |                | 94 |        |          | $ | 35.15 |               |        |  | 96           |  |  | $       | 35.15 |  |        |  | 96     |         |  | $ | 35.15  |        |  |         | 97 |  |        | $ | 35.15 |  |  |  | 383 |  |  | $ | 35.15 | 
|2006 |  |                | 94 |        |          | $ | 35.15 |               |        |  | 96           |  |  | $       | 35.15 |  |        |  | 96     |         |  | $ | 35.15  |        |  |         | 97 |  |        | $ | 35.15 |  |  |  | 383 |  |  | $ | 35.15 | 
|2007 |  |                | 47 |        |          | $ | 35.15 |               |        |  | 48           |  |  | $       | 35.15 |  |        |  | 48     |         |  | $ | 35.15  |        |  |         | 49 |  |        | $ | 35.15 |  |  |  | 192 |  |  | $ | 35.15 | 





| |                  
| | -----------------
| | Operating Results



|                                            |                             |                                          |     |     |                   |  |     |      |     |  |      |       |       |  |     |       |       | 
|------------------------------------------- | --------------------------- | ---------------------------------------- | --- | --- | ----------------- |  | --- | ---- | --- |  | ---- | ----- | ----- |  | --- | ----- | ----- | 
|                                            |                             | Quarter Ended                            |     |     | Nine Months Ended | 
|                                            |                             | September 30,                            |     |     | September 30,     | 
|                                            |                             |                                          |     |     |                   | 
|Production Segment Results                  |                             | 2004                                     |     |     | 2003              |  |     | 2004 |     |  | 2003 |      
|                                            |                             |                                          |     |     |                   |  |     |      |     |  |      |      
|                                            |                             | (In millions, except volumes and prices) |    
|Operating revenues:                         |                             |                                          |     |     |                   |  |     |      |     |  |      |       |       |  |     |      
|                                            | Natural gas                 |                                          | $   | 325 |                   |  | $   | 385  |     |  | $    | 1,056 |       |  | $   | 1,511 |      
|                                            | Oil, condensate and liquids |                                          |     | 75  |                   |  |     | 70   |     |  |      | 218   |       |  |     | 239   |      
|                                            | Other                       |                                          |     |    |                   |  |     | (3   | )   |  |      | 2     |       |  |     | 5     |      
|                                            |                             |                                          |     |     |                   |  |     |      |     |  |      |      
|                                            |                             | Total operating revenues                 |     |     | 400               |  |     |      | 452 |  |      |       | 1,276 |  |     |       | 1,755 | 
|Transportation and net product
    costs(1) |                             |                                          | (13 | )   |                   |  | (17 | )    |     |  | (40  | )     |       |  | (67 | )    
|                                            |                             |                                          |     |     |                   |  |     |      |     |  |      |      
|                                            |                             | Total operating margin                   |     |     | 387               |  |     |      | 435 |  |      |       | 1,236 |  |     |       | 1,688 | 

52



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|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |      |         |      |      |      |         |      |  
|---------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------- | ------------------------------- | ---- | ----------------- | ---- | ---- | ---- | ------ | ---- | ---- | ---- | ------- | ---- | ---- | ---- | ------- | ---- | -
|                                                     |                                               | Quarter Ended                                           |                                 |      | Nine Months Ended |     
|                                                     |                                               | September 30,                                           |                                 |      | September 30,     |     
|                                                     |                                               |                                                         |                                 |      |                   |     
|Production Segment Results                           |                                               | 2004                                                    |                                 |      | 2003              |      |      | 2004 |        |      | 2003 |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               | (In millions, except volumes and prices)                |                                
|Operating expenses:                                  |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |      |         |      |      |     
|                                                     | Depreciation, depletion and amortization      |                                                         |                                 | (136 | )                 |      |      | (136 | )      |      |      | (407 | )       |      |      | (435 | )      
|                                                     | Production
    costs(2)                       |                                                         |                                 | (58  | )                 |      |      | (55  | )      |      |      | (144 | )       |      |      | (169 | )      
|                                                     | Ceiling test and other
    charges(3)         |                                                         |                                 | (1   | )                 |      |      | (15  | )      |      |      | (12  | )       |      |      | (14  | )      
|                                                     | General and administrative expenses           |                                                         |                                 | (47  | )                 |      |      | (44  | )      |      |      | (120 | )       |      |      | (135 | )      
|                                                     | Taxes, other than production and income taxes |                                                         |                                 | 2    |                   |      |      | (2   | )      |      |      | (1   | )       |      |      | (7   | )      
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               |                                                         | Total operating
    expenses(1) |      |                   | (240 | )    |      |        | (252 | )    |      |         | (684 | )    |      |         | (760 | )
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     | Operating income                              |                                                         |                                 | 147  |                   |      |      | 183  |        |      |      | 552  |         |      |      | 928  |        
|Other income                                         |                                               |                                                         | 3                               |      |                   |      | 2    |      |        |      | 6    |      |         |      | 15   |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     | EBIT                                          |                                                         | $                               | 150  |                   |      | $    | 185  |        |      | $    | 558  |         |      | $    | 943  |        
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|Volumes, prices and costs per unit:                  |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |      |         |      |      |     
|                                                     | Natural gas                                   |                                                         |                                 |      |                   |      |      |      |        |      |      |      |         |      |      |      |        
|                                                     |                                               | Volumes (MMcf)                                          |                                 |      | 59,282            |      |      |      | 76,646 |      |      |      | 186,516 |      |      |      | 267,763 |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices including hedges
    ($/Mcf)(4) |                                 | $    | 5.48              |      |      | $    | 5.02   |      |      | $    | 5.66    |      |      | $    | 5.64    |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices excluding hedges
    ($/Mcf)(4) |                                 | $    | 5.53              |      |      | $    | 5.08   |      |      | $    | 5.73    |      |      | $    | 5.77    |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               | Average transportation costs ($/Mcf)                    |                                 | $    | 0.18              |      |      | $    | 0.15   |      |      | $    | 0.16    |      |      | $    | 0.19    |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     | Oil, condensate and liquids                   |                                                         |                                 |      |                   |      |      |      |        |      |      |      |         |      |      |      |        
|                                                     |                                               | Volumes (MBbls)                                         |                                 |      | 2,013             |      |      |      | 2,851  |      |      |      | 6,660   |      |      |      | 9,020   |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices including hedges
    ($/Bbl)(4) |                                 | $    | 37.32             |      |      | $    | 24.84  |      |      | $    | 32.81   |      |      | $    | 26.55   |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices excluding hedges
    ($/Bbl)(4) |                                 | $    | 37.44             |      |      | $    | 25.45  |      |      | $    | 32.85   |      |      | $    | 27.28   |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               | Average transportation and net product costs ($/Bbl)    |                                 | $    | 1.00              |      |      | $    | 1.13   |      |      | $    | 1.24    |      |      | $    | 1.03    |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|Production costs ($/Mcfe)                            |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |      |         |      |      |     
|                                                     |                                               | Average lease operating costs                           |                                 | $    | 0.67              |      |      | $    | 0.50   |      |      | $    | 0.55    |      |      | $    | 0.40    |     
|                                                     |                                               | Average production taxes                                |                                 |      | 0.14              |      |      |      | 0.09   |      |      |      | 0.09    |      |      |      | 0.13    |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|                                                     |                                               |                                                         | Total production
    cost(1)    |      | $                 | 0.81 |      |      | $      | 0.59 |      |      | $       | 0.64 |      |      | $       | 0.53 |  
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|Average general and administrative expenses ($/Mcfe) |                                               | $                                                       | 0.65                            |      |                   | $    | 0.47 |      |        | $    | 0.53 |      |         | $    | 0.42 |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     
|Unit of production depletion cost ($/Mcfe)           |                                               | $                                                       | 1.75                            |      |                   | $    | 1.35 |      |        | $    | 1.66 |      |         | $    | 1.27 |     
|                                                     |                                               |                                                         |                                 |      |                   |      |      |      |        |      |      |     






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Transportation and net product costs are included in operating
    expenses on our consolidated statements of income.      
|   
|(2) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).
|   
|(3) | Includes ceiling test charges, restructuring charges, asset
    impairments and gains on asset sales.                      
|   
|(4) | Prices are stated before transportation costs.                                                                             

Quarter Ended
September 30, 2004 Compared to Quarter Ended
September 30, 2003




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Operating Revenues.


|                                     |                                  |               |    |  |         |   |      |        |  |   |       |  |  |   |     |     |  
|------------------------------------ | -------------------------------- | ------------- | -- |  | ------- | - | ---- | ------ |  | - | ----- |  |  | - | --- | --- | -
|                                     |                                  | Variance      |   
|                                     |                                  |               |   
|Production Revenue Variance Analysis |                                  | Prices        |    |  | Volumes |   |      | Hedges |  |   | Total | 
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|                                     |                                  | (In millions) |   
|Natural gas                          |                                  | $             | 27 |  |         | $ | (88  | )      |  | $ | 1     |  |  | $ | (60 | )  
|Oil, condensate and liquids          |                                  |               | 24 |  |         |   | (21  | )      |  |   | 2     |  |  |   | 5   |    
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|                                     |                                  | $             | 51 |  |         | $ | (109 | )      |  | $ | 3     |  |  |   | (55 | )  
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|Other                                |                                  |               |    |  |         |   |      |        |  |   |       |  |  |   | 3   |    
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|                                     | Total operating revenue variance |               |    |  |         |   |      |        |  |   |       |  |  |   | $   | (52 | )
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 





Operating Expenses.








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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2004 Compared to Nine
    Months Ended September 30, 2003



Operating Revenues.


|                                     |                                  |               |    |   |         |   |      |        |  |   |       |  |  |   |      |      |  
|------------------------------------ | -------------------------------- | ------------- | -- | - | ------- | - | ---- | ------ |  | - | ----- |  |  | - | ---- | ---- | -
|                                     |                                  | Variance      |   
|                                     |                                  |               |   
|Production Revenue Variance Analysis |                                  | Prices        |    |   | Volumes |   |      | Hedges |  |   | Total | 
|                                     |                                  |               |    |   |         |   |      |        |  |   |       | 
|                                     |                                  | (In millions) |   
|Natural gas                          |                                  | $             | (8 | ) |         | $ | (469 | )      |  | $ | 22    |  |  | $ | (455 | )   
|Oil, condensate and liquids          |                                  |               | 37 |   |         |   | (64  | )      |  |   | 6     |  |  |   | (21  | )   
|                                     |                                  |               |    |   |         |   |      |        |  |   |       | 
|                                     |                                  | $             | 29 |   |         | $ | (533 | )      |  | $ | 28    |  |  |   | (476 | )   
|                                     |                                  |               |    |   |         |   |      |        |  |   |       | 
|Other                                |                                  |               |    |   |         |   |      |        |  |   |       |  |  |   | (3   | )   
|                                     |                                  |               |    |   |         |   |      |        |  |   |       | 
|                                     | Total operating revenue variance |               |    |   |         |   |      |        |  |   |       |  |  |   | $    | (479 | )
|                                     |                                  |               |    |   |         |   |      |        |  |   |       | 



Operating Expenses.








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Unregulated Business  Marketing and Trading
Segment










Marketing
and Trading Segment Results





|                       |                         |               |      |      |                   |   |     |            |  |   |      |      |   |   |      |      |  
|---------------------- | ----------------------- | ------------- | ---- | ---- | ----------------- | - | --- | ---------- |  | - | ---- | ---- | - | - | ---- | ---- | -
|                       |                         | Quarter Ended |      |      | Nine Months Ended |  
|                       |                         | September 30, |      |      | September 30,     |  
|                       |                         |               |      |      |                   |  
|                       |                         |               |      | 2004 |                   |   |    
|                       |                         | 2004          |      |      | 2003              |   |     | (Restated) |  |   | 2003 |     
|                       |                         |               |      |      |                   |   |     |            |  |   |      |     
|                       |                         | (In millions) |     
|Gross
    margin(1)    |                         | $             | (120 | )    |                   | $ | 82  |            |  | $ | (420 | )    |   | $ | (583 | )   
|Operating expenses     |                         |               | (19  | )    |                   |   | (47 | )          |  |   | (48  | )    |   |   | (129 | )   
|                       |                         |               |      |      |                   |   |     |            |  |   |      |     
|                       | Operating income (loss) |               |      | (139 | )                 |   |     | 35         |  |   |      | (468 | ) |   |      | (712 | )
|Other income (expense) |                         |               | 1    |      |                   |   | (7  | )          |  |   | 14   |      |   |   | 8    |     
|                       |                         |               |      |      |                   |   |     |            |  |   |      |     
|                       | EBIT                    |               | $    | (138 | )                 |   | $   | 28         |  |   | $    | (454 | ) |   | $    | (704 | )
|                       |                         |               |      |      |                   |   |     |            |  |   |      |     









|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin consists of revenues from commodity trading and
    origination activities less the costs of commodities sold,
    including changes in the fair value of our derivative contracts.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Quarter Ended September 30, 2004 Compared to Quarter
    Ended September 30, 2003



56



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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2004 Compared to Nine
    Months Ended September 30, 2003





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Unregulated Businesses  Power Segment







|                       |                                                |               |      |      |                   |   |      |            |   |   |      |      |   |   |      |      |  
|---------------------- | ---------------------------------------------- | ------------- | ---- | ---- | ----------------- | - | ---- | ---------- | - | - | ---- | ---- | - | - | ---- | ---- | -
|                       |                                                | Quarter Ended |      |      | Nine Months Ended |  
|                       |                                                | September 30, |      |      | September 30,     |  
|                       |                                                |               |      |      |                   |  
|                       |                                                |               |      | 2004 |                   |   |     
|Power Segment Results  |                                                | 2004          |      |      | 2003              |   |      | (Restated) |   |   | 2003 |     
|                       |                                                |               |      |      |                   |   |      |            |   |   |      |     
|                       |                                                | (In millions) |     
|Gross
    margin(1)    |                                                | $             | 155  |      |                   | $ | 246  |            |   | $ | 509  |      |   | $ | 680  |     
|Operating expenses     |                                                |               | (203 | )    |                   |   | (220 | )          |   |   | (705 | )    |   |   | (591 | )   
|                       |                                                |               |      |      |                   |   |      |            |   |   |      |     
|                       | Operating income (loss)                        |               |      | (48  | )                 |   |      | 26         |   |   |      | (196 | ) |   |      | 89   |  
|Other income (expense) |                                                |               | 41   |      |                   |   | 41   |            |   |   | 122  |      |   |   | (33  | )   
|                       |                                                |               |      |      |                   |   |      |            |   |   |      |     
|                       | EBIT                                           |               | $    | (7   | )                 |   | $    | 67         |   |   | $    | (74  | ) |   | $    | 56   |  
|                       |                                                |               |      |      |                   |   |      |            |   |   |      |     
|Domestic Power         |                                                |               |      |      |                   |   |      |            |   |   |      |      |   |   |      |     
|                       | Domestic power plant operations                |               |      | (55  | )                 |   |      | (10        | ) |   |      | (47  | ) |   |      | (221 | )
|                       | Domestic power contract restructuring business |               |      | 22   |                   |   |      | 38         |   |   |      | (18  | ) |   |      | 119  |  
|International Power    |                                                |               |      |      |                   |   |      |            |   |   |      |      |   |   |      |     
|                       | Brazilian power operations                     |               |      | 25   |                   |   |      | 61         |   |   |      | (20  | ) |   |      | 134  |  
|                       | Other international power operations           |               |      | 17   |                   |   |      | 17         |   |   |      | 48   |   |   |      | 84   |  
|Other(2)               |                                                |               | (16  | )    |                   |   | (39  | )          |   |   | (37  | )    |   |   | (60  | )   
|                       |                                                |               |      |      |                   |   |      |            |   |   |      |     
|                       | EBIT                                           |               | $    | (7   | )                 |   | $    | 67         |   |   | $    | (74  | ) |   | $    | 56   |  
|                       |                                                |               |      |      |                   |   |      |            |   |   |      |     









|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin consists of revenues from our power plants and the
    initial net gains and losses incurred in connection with the
    restructuring of power contracts, as well as the subsequent
    revenues, cost of electricity purchases and changes in fair
    value of those contracts. The cost of fuel used in the power
    generation process is included in operating expenses.                                                                                                                                                         
|   
|(2) | Our other power operations consist of the indirect expenses and
    general and administrative costs associated with our domestic
    and international operations, including legal, finance and
    engineering costs, and the costs of carrying our power turbine
    inventory. Direct general and administrative expenses of our
    domestic and international operations are included in EBIT of
    those operations. In the third quarter of 2003, we also recorded
    a $22 million impairment of a power turbine in these
    operations.

Domestic Power Plant
Operations






| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Quarter Ended September 30, 2004 Compared to Quarter
    Ended September 30, 2003



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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2004 Compared to Nine
    Months Ended September 30, 2003





| |                                               
| | ----------------------------------------------
| | Domestic Power Contract Restructuring Business



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Quarter Ended September 30, 2004 Compared to Quarter
    Ended September 30, 2003





| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2004 Compared to Nine
    Months Ended September 30, 2003





| |                                     
| | ------------------------------------
| | International Power Plant Operations



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Quarter Ended September 30, 2004 Compared to Quarter
    Ended September 30, 2003

Brazil.


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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2004 Compared to Nine
    Months Ended September 30, 2003

Brazil.















Other International.







Unregulated Businesses  Field Services Segment






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|                                                               |  |               |    |  |                   |   |    |            |  |   |          |  |  |   |     | 
|-------------------------------------------------------------- |  | ------------- | -- |  | ----------------- | - | -- | ---------- |  | - | -------- |  |  | - | --- | 
|                                                               |  | Quarter Ended |    |  | Nine Months Ended |  
|                                                               |  | September 30, |    |  | September 30,     |  
|                                                               |  |               |    |  |                   |  
|                                                               |  | Earnings      |    |  | Cash              |   |    | Earnings   |  |   | Cash     | 
|                                                               |  | Recognized    |    |  | Received          |   |    | Recognized |  |   | Received | 
|                                                               |  |               |    |  |                   |   |    |            |  |   |          | 
|                                                               |  | (In millions) |   
|General partners share of distributions                       |  | $             | 22 |  |                   | $ | 22 |            |  | $ | 64       |  |  | $ | 65  | 
|Proportionate share of income available to common unit holders |  |               | 4  |  |                   |   | 7  |            |  |   | 12       |  |  |   | 21  | 
|Series C units                                                 |  |               | 4  |  |                   |   | 8  |            |  |   | 14       |  |  |   | 24  | 
|Gains on issuance by GulfTerra of its common units             |  |               | 1  |  |                   |   |   |            |  |   | 4        |  |  |   |    | 
|                                                               |  |               |    |  |                   |   |    |            |  |   |          | 
|                                                               |  | $             | 31 |  |                   | $ | 37 |            |  | $ | 94       |  |  | $ | 110 | 
|                                                               |  |               |    |  |                   |   |    |            |  |   |          | 



|                                              |                |                                          |      |             |               |   |     |      |       |   |      |      |       |   |      |     |       | 
|--------------------------------------------- | -------------- | ---------------------------------------- | ---- | ----------- | ------------- | - | --- | ---- | ----- | - | ---- | ---- | ----- | - | ---- | --- | ----- | 
|                                              |                |                                          |      | Nine Months |              
|                                              |                | Quarter Ended                            |      |             | Ended         |  
|                                              |                | September 30,                            |      |             | September 30, |  
|                                              |                |                                          |      |             |               |  
|Field Services Segment Results                |                | 2004                                     |      |             | 2003          |   |     | 2004 |       |   | 2003 |     
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     
|                                              |                | (In millions, except volumes and prices) |     
|Processing and gathering gross
    margins(1) |                | $                                        | 53   |             |               | $ | 33  |      |       | $ | 142  |      |       | $ | 109  |    
|Operating expenses                            |                |                                          | (530 | )           |               |   | (41 | )    |       |   | (602 | )    |       |   | (132 | )  
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     
|                                              | Operating loss |                                          |      | (477        | )             |   |     | (8   | )     |   |      | (460 | )     |   |      | (23 | )    
|Other income                                  |                |                                          | 538  |             |               |   | 40  |      |       |   | 584  |      |       |   | 26   |    
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     
|                                              | EBIT           |                                          | $    | 61          |               |   | $   | 32   |       |   | $    | 124  |       |   | $    | 3   |      
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     
|Volumes and Prices:                           |                |                                          |      |             |               |   |     |      |       |   |      |      |       |   |      |    
|                                              | Processing     |                                          |      |             |               |   |     |      |       |   |      |      |       |   |      |     |      
|                                              |                | Volumes (inlet BBtu/d)                   |      |             | 3,182         |   |     |      | 3,017 |   |      |      | 3,187 |   |      |     | 3,174 | 
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     
|                                              |                | Prices ($/MMBtu)                         |      | $           | 0.16          |   |     | $    | 0.10  |   |      | $    | 0.14  |   |      | $   | 0.10  | 
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     
|                                              | Gathering      |                                          |      |             |               |   |     |      |       |   |      |      |       |   |      |     |      
|                                              |                | Volumes (BBtu/d)                         |      |             | 223           |   |     |      | 190   |   |      |      | 220   |   |      |     | 402   | 
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     
|                                              |                | Prices ($/MMBtu)                         |      | $           | 0.09          |   |     | $    | 0.15  |   |      | $    | 0.10  |   |      | $   | 0.19  | 
|                                              |                |                                          |      |             |               |   |     |      |       |   |      |     






|    |                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margins consist of operating revenues less cost of
    products sold. We believe this measurement is more meaningful
    for understanding and analyzing our operating results because
    commodity costs play such a significant role in the
    determination of profit from our midstream activities.

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|                                                     |                              |                             |   |    |                                 |   |      |        |   |   |        |     |   |        |    |     |           |   |   |        |   |   |        |      |   |   |     |     |   |   |    |     |  
|---------------------------------------------------- | ---------------------------- | --------------------------- | - | -- | ------------------------------- | - | ---- | ------ | - | - | ------ | --- | - | ------ | -- | --- | --------- | - | - | ------ | - | - | ------ | ---- | - | - | --- | --- | - | - | -- | --- | -
|                                                     |                              | Quarter Ended September 30, |   |    | Nine Months Ended September 30, |  
|                                                     |                              |                             |   |    |                                 |  
|                                                     |                              | Gross                       |   |    | Operating                       |   |      | Other  |   |   | EBIT   |     |   | Gross  |    |     | Operating |   |   | Other  |   |   | EBIT   |     
|                                                     |                              | Margin                      |   |    | Expense                         |   |      | Income |   |   | Impact |     |   | Margin |    |     | Expense   |   |   | Income |   |   | Impact |     
|                                                     |                              |                             |   |    |                                 |   |      |        |   |   |        |     |   |        |    |     |           |   |   |        |   |   |        |     
|                                                     |                              | Favorable (Unfavorable)     |   |    | Favorable (Unfavorable)         |  
|                                                     |                              | (In millions)               |   |    | (In millions)                   |  
|Enterprise/GulfTerra merger and related transactions |                              | $                           |  |    |                                 | $ | (491 | )      |   | $ | 511    |     |   | $      | 20 |     |           | $ |  |        |   | $ | (491   | )    |   | $ | 511 |     |   | $ | 20 |    
|Other Divestitures                                   |                              |                             |   |    |                                 |   |      |        |   |   |        |     |   |        |    |     |           |   |   |        |   |   |        |      |   |   |     |     |   |   |    |    
|                                                     | Impact of reduced operations |                             |   | (1 | )                               |   |      | 11     |   |   |        |    |   |        |    | 10  |           |   |   | (21    | ) |   |        | 39   |   |   |     |    |   |   |    | 18  |  
|                                                     | Impairments                  |                             |   |   |                                 |   |      | (13    | ) |   |        |    |   |        |    | (13 | )         |   |   |       |   |   |        | (13  | ) |   |     | 80  |   |   |    | 67  |  
|Other GulfTerra Related Items                        |                              |                             |   |    |                                 |   |      |        |   |   |        |     |   |        |    |     |           |   |   |        |   |   |        |      |   |   |     |     |   |   |    |    
|                                                     | Minority interest            |                             |   |   |                                 |   |      |       |   |   |        | (11 | ) |        |    | (11 | )         |   |   |       |   |   |        |     |   |   |     | (32 | ) |   |    | (32 | )
|                                                     | Equity earnings              |                             |   |   |                                 |   |      |       |   |   |        | (8  | ) |        |    | (8  | )         |   |   |       |   |   |        |     |   |   |     | (6  | ) |   |    | (6  | )
|Higher NGL Prices                                    |                              |                             |   |    |                                 |   |      |        |   |   |        |     |   |        |    |     |           |   |   |        |   |   |        |      |   |   |     |     |   |   |    |    
|                                                     | Processing                   |                             |   | 15 |                                 |   |      |       |   |   |        |    |   |        |    | 15  |           |   |   | 39     |   |   |        |     |   |   |     |    |   |   |    | 39  |  
|                                                     | Javelina equity investment   |                             |   |   |                                 |   |      |       |   |   |        | 5   |   |        |    | 5   |           |   |   |       |   |   |        |     |   |   |     | 13  |   |   |    | 13  |  
|Lower fuel and transportation costs                  |                              |                             |  |    |                                 |   |     |        |   |   |       |     |   |        |   |     |           |   | 9 |        |   |   |       |      |   |   |    |     |   |   | 9  |    
|Other                                                |                              |                             | 6 |    |                                 |   | 4    |        |   |   | 1      |     |   |        | 11 |     |           |   | 6 |        |   |   | (5     | )    |   |   | (8  | )   |   |   | (7 | )  
|                                                     |                              |                             |   |    |                                 |   |      |        |   |   |        |     |   |        |    |     |           |   |   |        |   |   |        |     
|                                                     | Total                        |                             | $ | 20 |                                 |   | $    | (489   | ) |   | $      | 498 |   |        | $  | 29  |           |   | $ | 33     |   |   | $      | (470 | ) |   | $   | 558 |   |   | $  | 121 |  
|                                                     |                              |                             |   |    |                                 |   |      |        |   |   |        |     |   |        |    |     |           |   |   |        |   |   |        |     







Corporate, Net




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|                                                                         |                                   |                     |     |          |               |   |     |     | 
|------------------------------------------------------------------------ | --------------------------------- | ------------------- | --- | -------- | ------------- | - | --- | --- | 
|                                                                         |                                   |                     |     | Increase |              
|                                                                         |                                   | Increase            |     |          | (decrease) in |  
|                                                                         |                                   | (decrease) in       |     |          | EBIT for nine |  
|                                                                         |                                   | EBIT for quarter    |     |          | months ended  |  
|                                                                         |                                   | ended September 30, |     |          | September 30, |  
|                                                                         |                                   | 2004 compared       |     |          | 2004 compared |  
|                                                                         |                                   | to 2003             |     |          | to 2003       |  
|                                                                         |                                   |                     |     |          |               |  
|                                                                         |                                   | (In millions)       |    
|Impairments on the assets in our telecommunications business in
    2003 |                                   | $                   |    |          |               | $ | 412 |    
|Foreign currency losses on Euro-denominated debt                         |                                   |                     | (13 | )        |               |   | 83  |    
|Impairments and contract terminations in our LNG business                |                                   |                     | 5   |          |               |   | 90  |    
|Losses on early extinguishment of debt                                   |                                   |                     |    |          |               |   | 37  |    
|Employee severance, retention and transition costs                       |                                   |                     | 6   |          |               |   | 35  |    
|Lease relocation charges in 2004                                         |                                   |                     | (29 | )        |               |   | (30 | )  
|Other                                                                    |                                   |                     | (22 | )        |               |   | 18  |    
|                                                                         |                                   |                     |     |          |               |  
|                                                                         | Total increase (decrease) in EBIT |                     | $   | (53      | )             |   | $   | 645 | 
|                                                                         |                                   |                     |     |          |               |  



Interest and Debt Expense




|                                             |                                 |               |     |     |                   |   |     |      |  |   |       |       |  |   |       |       | 
|-------------------------------------------- | ------------------------------- | ------------- | --- | --- | ----------------- | - | --- | ---- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                             |                                 | Quarter Ended |     |     | Nine Months Ended |  
|                                             |                                 | September 30, |     |     | September 30,     |  
|                                             |                                 |               |     |     |                   |  
|                                             |                                 | 2004          |     |     | 2003              |   |     | 2004 |  |   | 2003  |      
|                                             |                                 |               |     |     |                   |   |     |      |  |   |       |      
|                                             |                                 | (In millions) |    
|Long-term debt, including current maturities |                                 | $             | 368 |     |                   | $ | 431 |      |  | $ | 1,148 |       |  | $ | 1,217 |      
|Revolving credit facilities                  |                                 |               | 30  |     |                   |   | 36  |      |  |   | 85    |       |  |   | 91    |      
|Other interest                               |                                 |               | 8   |     |                   |   | 15  |      |  |   | 25    |       |  |   | 61    |      
|Capitalized interest                         |                                 |               | (10 | )   |                   |   | (7  | )    |  |   | (29   | )     |  |   | (17   | )    
|                                             |                                 |               |     |     |                   |   |     |      |  |   |       |      
|                                             | Total interest and debt expense |               | $   | 396 |                   |   | $   | 475  |  |   | $     | 1,229 |  |   | $     | 1,352 | 
|                                             |                                 |               |     |     |                   |   |     |      |  |   |       |      



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Distributions on Preferred Interests of Consolidated
Subsidiaries




Income Taxes







|                   |  |                                 |     |      |                   |   |    |            |  |   |      |    |  |   |      |  
|------------------ |  | ------------------------------- | --- | ---- | ----------------- | - | -- | ---------- |  | - | ---- | -- |  | - | ---- | -
|                   |  | Quarter Ended                   |     |      | Nine Months Ended |  
|                   |  | September 30,                   |     |      | September 30,     |  
|                   |  |                                 |     |      |                   |  
|                   |  |                                 |     | 2004 |                   |   |   
|                   |  | 2004                            |     |      | 2003              |   |    | (Restated) |  |   | 2003 |   
|                   |  |                                 |     |      |                   |   |    |            |  |   |      |   
|                   |  | (In millions, except for rates) |    
|Income taxes       |  | $                               | 77  |      |                   | $ | 62 |            |  | $ | 135  |    |  | $ | (451 | )
|Effective tax rate |  |                                 | (62 | )%   |                   |   | 49 | %          |  |   | (89  | )% |  |   | 51   | %








| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | state income taxes, net of federal income tax benefits;                                                  
|
| |  | foreign income taxed at different rates, including impairments
    of certain of our foreign investments;
|
| |  | earnings from unconsolidated affiliates where we anticipate
    receiving dividends; and                 
|
| |  | non-deductible dividends on the preferred stock of subsidiaries.                                         





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Discontinued Operations


















Commitments and Contingencies




65



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CAUTIONARY STATEMENT REGARDING


FORWARD-LOOKING STATEMENTS






| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | earnings per share;                                                                                 
|
| |  | capital and other expenditures;                                                                     
|
| |  | dividends;                                                                                          
|
| |  | financing plans;                                                                                    
|
| |  | capital structure;                                                                                  
|
| |  | liquidity and cash flow;                                                                            
|
| |  | pending legal proceedings, claims and governmental proceedings,
    including environmental matters;
|
| |  | future economic performance;                                                                        
|
| |  | operating income;                                                                                   
|
| |  | managements plans; and                                                                             
|
| |  | goals and objectives for future operations.                                                         



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|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk





Market Risk




Interest Rate Risk




67



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|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

An Audit of Internal Control Over Financial Reporting
Performed in Conjunction with an Audit of Financial
Statements.


















68



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69



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PART II  OTHER INFORMATION





Item 1. Legal Proceedings







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







Item 3. Defaults Upon Senior Securities







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







Item 5. Other Information




Policy on Poison Pill Plans




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | The company does not currently have in place any stockholders
    rights plan (also known as a poison pill), and the
    Board currently has no plans to adopt such a plan. However, if
    the Board is presented with a set of facts and circumstances
    which leads it to conclude that adopting a rights plan would be
    in the best interests of stockholders, the Board will seek prior
    stockholder approval unless the Board, in exercising its
    fiduciary responsibilities under the circumstances, determines
    by vote of a majority of the independent directors that such
    submission would not be in the best interests of the
    companys stockholders in the circumstances. If the Board
    were ever to adopt a rights plan without prior stockholder
    approval, it will be presented to the stockholders for
    ratification within one year or expire within one year, without
    being renewed or replaced. Further, if the Board adopts a rights
    plan and the companys stockholders do not approve such
    rights plan, it will terminate. | 



2005 Annual Meeting of Stockholders




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Supplemental Benefits Plan




Officer Indemnification Agreements









Item 6. Exhibits










|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | --- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |            
|Number  |    |     | Description
|        |    |     |            
|        | 10 | .PP |             | Swap Settlement Agreement dated effective as of August 16,
    2004, among the Company, El Paso Merchant Energy, L.P.,
    East Coast Power Holding Company L.L.C. and ECTMI Trutta
    Holdings LP (Exhibit 10.A to our Form 8-K filed
    October 15, 2004.                                                                                                                                                                                                              
|        | 10 | .QQ |             | 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).

71



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|        |      |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ---- | --- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |     |            
|Number  |      |     | Description
|        |      |     |            
|        | 10   | .RR |             | Amended and Restated Security Agreement dated as of
    November 23, 2004, made by 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).
|        | 10   | .SS |             | Amended and Restated Subsidiary Guarantee Agreement dated as of
    November 23, 2004, made by each of the Subsidiary
    Guarantors, as defined therein, in favor of JPMorgan Chase Bank,
    N.A., as collateral agent (Exhibit 10.C to our Form 8-K
    filed November 29, 2004).                                                                                                                                                                                                                                                   
|        | 10   | .TT |             | Amended and Restated Parent Guarantee Agreement dated as of
    November 23, 2004, made by El Paso Corporation, in
    favor of JPMorgan Chase Bank, N.A., as Collateral Agent
    (Exhibit 10.D to our Form 8-K filed November 29, 2004).                                                                                                                                                                                                                                                                                             
|        | **10 | .UU |             | Amendment No. 3 effective December 17, 2004 to the
    Supplemental Benefits Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | **10 | .VV |             | Letter Agreement dated July 16, 2004 between El Paso
    Corporation and D. Dwight Scott.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | **10 | .WW |             | Form of Indemnification Agreement executed by El Paso for
    the benefit of each officer listed in Schedule A thereto,
    effective December 17, 2004.                                                                                                                                                                                                                                                                                                                                                                               
|        | **10 | .XX |             | Indemnification Agreement executed by El Paso for the
    benefit of Douglas L. Foshee, effective December 17,
    2004.                                                                                                                                                                                                                                                                                                                                                                                                               
|        | *31  | .A  |             | Certification of Chief Executive Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | *31  | .B  |             | Certification of Chief Financial Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | *32  | .A  |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                    
|        | *32  | .B  |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                    








| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We hereby undertake, pursuant to Regulation S-K,
    Item 601(b), paragraph (4)(iii), to furnish to the
    U.S. Securities and Exchange Commission, upon request, all
    constituent instruments defining the rights of holders of our
    long-term debt not filed herewith for the reason that the total
    amount of securities authorized under any of such instruments
    does not exceed 10 percent of our total consolidated assets.

72



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SIGNATURES












| |  |                    
| |  | -------------------
| |  | EL PASO CORPORATION









| |                              
| | -----------------------------
| | /s/ D. Dwight Scott          
| |                              
| | D. Dwight Scott              
| | Executive Vice President and 
| | Chief Financial Officer      
| | (Principal Financial Officer)









| |                                     
| | ------------------------------------
| | /s/ Jeffrey I. Beason               
| |                                     
| | Jeffrey I. Beason                   
| | Senior Vice President and Controller
| | (Principal Accounting Officer)      

73



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##### Table of Contents



EXHIBIT INDEX













|        |      |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ---- | --- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |     |            
|Number  |      |     | Description
|        |      |     |            
|        | 10   | .PP |             | Swap Settlement Agreement dated effective as of August 16,
    2004, among the Company, El Paso Merchant Energy, L.P.,
    East Coast Power Holding Company L.L.C. and ECTMI Trutta
    Holdings LP (Exhibit 10.A to our Form 8-K filed
    October 15, 2004.                                                                                                                                                                                                                                                                          
|        | 10   | .QQ |             | 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).                                                            
|        | 10   | .RR |             | Amended and Restated Security Agreement dated as of
    November 23, 2004, made by 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).
|        | 10   | .SS |             | Amended and Restated Subsidiary Guarantee Agreement dated as of
    November 23, 2004, made by each of the Subsidiary
    Guarantors, as defined therein, in favor of JPMorgan Chase Bank,
    N.A., as collateral agent (Exhibit 10.C to our Form 8-K
    filed November 29, 2004).                                                                                                                                                                                                                                                   
|        | 10   | .TT |             | Amended and Restated Parent Guarantee Agreement dated as of
    November 23, 2004, made by El Paso Corporation, in
    favor of JPMorgan Chase Bank, N.A., as Collateral Agent
    (Exhibit 10.D to our Form 8-K filed November 29, 2004).                                                                                                                                                                                                                                                                                             
|        | **10 | .UU |             | Amendment No. 3 effective December 17, 2004 to the
    Supplemental Benefits Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | **10 | .VV |             | Letter Agreement dated July 16, 2004 between El Paso
    Corporation and D. Dwight Scott.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | **10 | .WW |             | Form of Indemnification Agreement executed by El Paso for
    the benefit of each officer listed in Schedule A thereto,
    effective December 17, 2004.                                                                                                                                                                                                                                                                                                                                                                               
|        | **10 | .XX |             | Indemnification Agreement executed by El Paso for the
    benefit of Douglas L. Foshee, effective December 17,
    2004.                                                                                                                                                                                                                                                                                                                                                                                                               
|        | *31  | .A  |             | Certification of Chief Executive Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | *31  | .B  |             | Certification of Chief Financial Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | *32  | .A  |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                    
|        | *32  | .B  |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.