<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
                                   FORM 10-K
(MARK ONE)
 
       [X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                               SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
 
                                       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 1-9864
 
                         EL PASO TENNESSEE PIPELINE CO.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                 <C>
                     DELAWARE                                           76-0233548
         (STATE OR OTHER JURISDICTION OF                             (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)
 
             EL PASO ENERGY BUILDING
                  1001 LOUISIANA
                  HOUSTON, TEXAS                                          77002
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                           (ZIP CODE)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 757-2131
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                                NAME OF EACH EXCHANGE
                    TITLE OF EACH CLASS                          ON WHICH REGISTERED
                    -------------------                         ---------------------
<S>                                                            <C>
8 1/4% Cumulative Junior Preferred Stock, Series A..........   New York Stock Exchange
</TABLE>
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
 
     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  NO [ ]
 
     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K.  [ ]
 
     STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF THE SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.
 
<TABLE>
<CAPTION>
                                                                  MARKET VALUE
         CLASS OF VOTING STOCK AND NUMBER OF SHARES                   HELD
          HELD BY NON-AFFILIATES AT MARCH 7, 1997               BY NON-AFFILIATES
          ---------------------------------------               -----------------
<S>                                                             <C>
8 1/4% Cumulative Junior Preferred Stock, Series A,
  6,000,000 shares                                                $319,500,000*
</TABLE>
 
---------------
 
*  Based upon the closing price on the Composite Tape for the 8 1/4% Cumulative
   Junior Preferred Stock, Series A, on March 7, 1997.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: El Paso Tennessee Pipeline Co.'s definitive Proxy Statement for
the 1997 Annual Meeting of Stockholders, to be filed not later than 120 days
after the end of the fiscal year covered by this report, is incorporated by
reference into Part III.
 
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<PAGE>   2
 
                         EL PASO TENNESSEE PIPELINE CO.
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                    CAPTION                             PAGE
                                    -------                             ----
<S>       <C>                                                           <C>
Glossary..............................................................   ii
 
                                     PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................    6
Item 3.   Legal Proceedings...........................................    7
Item 4.   Submission of Matters to a Vote of Security Holders.........    8
 
                                    PART II
Item 5.   Market for Registrant's Common Equity and Related
            Stockholder Matters.......................................    9
Item 6.   Selected Financial Data.....................................   10
Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.................................   11
Item 8.   Financial Statements and Supplementary Data.................   22
Item 9.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure..................................   51
 
                                    PART III
Item 10.  Directors and Executive Officers of the Registrant..........   51
Item 11.  Executive Compensation......................................   51
Item 12.  Security Ownership of Certain Beneficial Owners and
            Management................................................   51
Item 13.  Certain Relationships and Related Transactions..............   51
 
                                    PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
            8-K.......................................................   51
          Signatures..................................................   55
</TABLE>
 
                                        i
<PAGE>   3
 
                                    GLOSSARY
 
     The following abbreviations, acronyms, or defined terms used in this Form
10-K are defined below:
 
<TABLE>
<CAPTION>
                                                                DEFINITION
                                                                ----------
<S>                                 <C>
ALJ...............................  Administrative Law Judge
Bcf(/d)...........................  Billion cubic feet (per day)
Company...........................  EPTPC and those subsidiaries owned directly or indirectly by EPTPC
                                    subsequent to the Distributions and Merger
Court of Appeals..................  United States Court of Appeals for the District of Columbia Circuit
Dakota............................  Dakota Gasification Company
East Tennessee....................  East Tennessee Natural Gas Company, a wholly owned subsidiary of
                                    TGP
EPA...............................  United States Environmental Protection Agency
EPG...............................  El Paso Natural Gas Company, unless the context otherwise requires
EPTPC.............................  El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), an indirect
                                    subsidiary of EPG
FERC..............................  the Federal Energy Regulatory Commission
GSR...............................  Gas supply realignment
ICA...............................  ICA Energy, Inc.
Iroquois..........................  Iroquois Gas Transmission System, L.P.
IRS...............................  Internal Revenue Service
Kern River........................  Kern River Gas Transmission Company
Midwestern........................  Midwestern Gas Transmission Company, a wholly owned indirect
                                    subsidiary of TGP
MMcf(/d)..........................  Million cubic feet (per day)
MMdth(/d).........................  Million decatherms (per day)
MW(s).............................  Megawatt(s)
Old Tenneco.......................  Tenneco Inc. (renamed El Paso Tennessee Pipeline Co.), prior to the
                                    Distributions and Merger
PASA..............................  Pipeline Authority of South Australia
PCB(s)............................  Polychlorinated biphenyl(s)
PRP(s)............................  Potentially Responsible Party(ies)
SEC...............................  Securities and Exchange Commission
Series A Preferred Stock..........  8 1/4% Cumulative Junior Preferred Stock, Series A of EPTPC
SFAS..............................  Statement of Financial Accounting Standards
Tenneco Ventures..................  Tenneco Ventures Corporation and Tenneco Gas Production
                                    Corporation, collectively
TGP...............................  Tennessee Gas Pipeline Company, a wholly owned subsidiary of EPTPC
TransTexas........................  TransTexas Gas Corporation
</TABLE>
 
                                       ii
<PAGE>   4
 
                                     PART I
 
ITEM 1. BUSINESS
 
                                    GENERAL
 
     In 1987, Tenneco Inc. was incorporated in Delaware and acquired all of the
outstanding shares of TGP. In the Merger discussed below (i) the name Tenneco
Inc. was changed to EPTPC and (ii) EPTPC became an indirect subsidiary of EPG.
EPTPC is a holding company. The major businesses of the Company consist of the
interstate transportation of natural gas, which generally is subject to
regulation by the FERC, as well as certain other non-regulated business
operations, such as gas marketing, intrastate pipeline operations, international
pipelines and power generation operations and domestic power generation
operations. Prior to the Distributions and Merger described below, the Company
also was engaged in the manufacture and sale of automotive exhaust system parts
and ride control products; the manufacture and sale of packaging materials,
cartons, containers and specialty packaging products for consumer and commercial
markets; and the construction and repair of ships.
 
                               ACQUISITION BY EPG
 
     On December 12, 1996, an indirect subsidiary of EPG merged into Old Tenneco
(the "Merger"), resulting in Old Tenneco becoming an indirect subsidiary of EPG.
The Merger was effected in accordance with the Amended and Restated Agreement
and Plan of Merger dated as of June 19, 1996
(the "Merger Agreement"). In the Merger, Old Tenneco changed its name to EPTPC.
Prior to the Merger, Old Tenneco and its subsidiaries effected various
intercompany transfers and distributions which restructured, divided and
separated their businesses, assets and liabilities so that all the assets,
liabilities and operations related to their automotive parts, packaging and
administrative services businesses (collectively, the "Industrial Business") and
their shipbuilding business (the "Shipbuilding Business") were spun-off to Old
Tenneco's then existing common stockholders (the "Distributions"). The entity
consisting of the Industrial Business was subsequently renamed Tenneco Inc.
("New Tenneco") and the entity consisting of the Shipbuilding Business was
subsequently renamed Newport News Shipbuilding Inc. ("Newport News"). Following
the Distributions, the remaining operations of the Company consisted primarily
of those operations related to the transmission and marketing of natural gas and
the discontinued operations of Old Tenneco. In preparation for the Merger and
Distributions, Old Tenneco initiated a realignment of the Company's indebtedness
(the "Debt Realignment"). As part of the Debt Realignment, Old Tenneco initiated
tender offers for certain issues of debt of Old Tenneco and certain of its
subsidiaries and certain other debt issues which were exchanged into New Tenneco
debt, defeased, or otherwise retired. Upon completion of the Debt Realignment
transactions, the Company is only responsible for its remaining debt which was
not tendered, exchanged, defeased or otherwise retired. As a result of the
Merger, EPG owns 100 percent of the common stock of EPTPC, representing at the
effective time of the Merger approximately 75 percent of the equity value of
EPTPC; the balance of the equity value of EPTPC is held by the holders of its
Series A Preferred Stock which was issued in a registered public offering in
November 1996 and remains outstanding. For a further discussion, see Note 1 of
Item 8, Financial Statements and Supplementary Data.
 
                              REGULATED OPERATIONS
 
     The regulated operations of the Company include the interstate pipeline
systems of TGP, Midwestern and East Tennessee, as well as certain joint
ventures, which are primarily engaged in the transportation and storage of
natural gas for producers, marketers, end-users and other gas transmission and
distribution companies. TGP's multiple-line system begins in the gas-producing
regions of Texas and Louisiana, including the continental shelf of the Gulf of
Mexico, and extends into the northeastern section of the U.S., including the New
York City and Boston metropolitan areas. Midwestern's pipeline system extends
from Portland, Tennessee, to Chicago, and principally serves the Chicago
metropolitan area. East Tennessee's pipeline system serves the states of
Tennessee, Virginia and Georgia and connects with TGP's pipeline system in
Springfield and Lobelville, Tennessee. Net revenues from the interstate gas
sales and transportation operations of the
 
                                        1
<PAGE>   5
 
Company accounted for approximately 32 percent, 40 percent, and 39 percent of
total revenues of the Company for 1996, 1995, and 1994, respectively.
 
     The interstate gas transmission systems of the Company include
approximately 16,300 miles of pipeline, gathering lines and sales laterals (with
14,800 miles operated by TGP, 400 miles operated by Midwestern and 1,100 miles
operated by East Tennessee), together with related facilities that include 90
compressor stations with an aggregate of approximately 1.5 million horsepower.
The Company also has interests in or contractual rights to six underground and
above-ground gas storage facilities to permit increased deliveries of gas during
peak demand periods. The total design delivery capacity of the Company's
interstate systems as of December 31, 1996, was approximately 4,900 MMcf/d,
giving effect for deliveries into Midwestern and East Tennessee, and
approximately 5,800 MMcf/d at peak demand, giving effect for gas withdrawn from
storage.
 
     The following table sets forth the volumes of gas sold and transported by
the interstate pipeline systems of EPTPC for the periods shown.
 
<TABLE>
<CAPTION>
                                                               MMDTH
                                                      -----------------------
                                                      1996     1995     1994
                                                      -----    -----    -----
<S>                                                   <C>      <C>      <C>
Sales*..............................................     77       95      131
Transportation*.....................................  2,348    2,139    2,184
                                                      -----    -----    -----
          Total.....................................  2,425    2,234    2,315
                                                      =====    =====    =====
</TABLE>
 
---------------
 
* Sales and transportation volumes include all natural gas sold or transported
  by the Company's interstate pipeline systems (including the proportionate
  share of transportation volumes of the joint ventures in which the Company had
  interests) and have not been adjusted to reflect the sale of (i) a 50 percent
  interest in Kern River in December 1995, and (ii) a 13.2 percent general
  partnership interest in Iroquois in June 1996. Kern River owns a 904-mile
  pipeline system extending from Wyoming to California. Iroquois owns a 370-mile
  pipeline extending from the Canadian border at Waddington, New York, to Long
  Island, New York. Of the total transportation volumes shown, Kern River
  transported approximately 136 MMdth and 130 MMdth during 1995 and 1994,
  respectively. Iroquois transported approximately 20 MMdth, 45 MMdth and 32
  MMdth during 1996, 1995 and 1994, respectively.
 
  Regulatory Environment
 
     The Company's interstate system is subject to the jurisdiction of FERC in
accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of
1978.
 
     In the mid-1980s, FERC began a series of actions which ultimately had the
effect of substantially removing interstate pipelines from the gas purchase and
resale business and confining their role to transportation of gas owned by
others. In Order No. 436, issued in 1985, FERC began this transition by
requiring interstate pipelines to provide non-discriminatory access to their
facilities for all transporters of natural gas. This requirement enabled
consumers to purchase their own gas and have it transported on the interstate
pipeline system, rather than purchase gas from the pipelines. The transition was
completed with Order No. 636, issued in 1992, in which FERC required all
interstate pipelines to "unbundle" their sales and transportation services so
that the transportation services they provided to third parties would be
"comparable" to the transportation services accorded to gas owned by the
pipelines. FERC's stated purpose was to ensure that the pipelines' monopoly over
the transportation of natural gas did not distort the gas producer sales market,
which had by then been essentially deregulated.
 
     One of the obstacles to this transition was the existence of long-term gas
purchase contracts between pipelines and producers which required the pipelines
to take or pay for a significant percentage of the gas which the producer was
capable of delivering. While FERC did not deal with this issue initially, it
eventually adopted rate recovery procedures which facilitated negotiations
between pipelines and producers to address take-or-pay issues. In Order No. 636,
FERC provided that pipelines could recover 100 percent of the costs prudently
incurred to terminate their gas purchase obligations. In July 1996, the Court of
Appeals issued its decision upholding, in large part, Order No. 636, and
remanded to FERC several issues for further
 
                                        2
<PAGE>   6
 
explanation, including further explanation of FERC's decision to allow pipelines
to recover 100 percent of GSR costs and FERC's requirement that pipelines
allocate 10 percent of GSR costs to interruptible transportation customers. In
February 1997, FERC reaffirmed its decision to allow pipelines to recover 100
percent of GSR costs. In addition, FERC modified the requirement that pipelines
allocate 10 percent of GSR costs to interruptible customers to permit pipelines
to propose an allocation of any percentage of such costs to their interruptible
customers. For a further discussion of GSR issues related to TGP, see Item 3,
Legal Proceedings, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Note 5 of Item 8, Financial Statements
and Supplementary Data.
 
     In December 1994, TGP filed for a general rate increase (the "1995 Rate
Case"). In January 1995, FERC accepted the filing, suspended its effectiveness
for the maximum period of five months pursuant to normal regulatory process, and
set the matter for hearing. On July 1, 1995, TGP began collecting rates, subject
to refund, reflecting an $87 million increase in TGP's annual revenue
requirement. A Stipulation and Agreement (the "Stipulation") was filed with an
ALJ in this proceeding in April 1996. The Stipulation resolves the rates that
are the subject of the 1995 Rate Case, including a structural rate design change
that results in a larger proportion of TGP's transportation revenues being
dependent upon throughput. Under the Stipulation, TGP is required to refund,
upon final approval of the Stipulation, the difference between the revenues
collected under the July 1, 1995 motion rates and the revenues that would have
been collected pursuant to the rates underlying the Stipulation. In October
1996, FERC approved the Stipulation with certain modifications and
clarifications which are not material. In January 1997, FERC issued an order
denying requests for rehearing of the October 1996 order. One party to the rate
proceeding, a competitor of TGP, filed with the Court of Appeals in February
1997, a Petition for Review of the FERC orders approving the Stipulation.
 
     For a discussion of recent FERC proceedings relating to the recovery by TGP
of certain environmental costs as a component of the rates charged by its
interstate pipeline operations, see Note 5 of Item 8, Financial Statements and
Supplementary Data.
 
  Markets and Competition
 
     The Company's interstate pipeline operations face varying degrees of
competition from alternative energy sources, such as electricity, coal, and oil.
The potential consequences of the proposed restructuring of the electric power
industry are currently unclear. It may benefit the natural gas industry by
creating more demand for gas turbine generated electric power, or it may hamper
demand by allowing more effective use of surplus electric capacity through
increased wheeling as a result of open access. At this time, the Company is not
projecting a significant increase in gas demand as a result of such
restructuring.
 
     Customers of the interstate pipeline operations of the Company include
natural gas producers, marketers and end-users, as well as other gas
transmission and distribution companies. Substantially all of the revenues of
these operations are generated under long-term gas transmission contracts.
Contracts representing approximately 70 percent of the Company's firm
transportation capacity will be expiring over the next four years, principally
in the year 2000. Although the Company cannot predict how much capacity will be
resubscribed, a majority of the expiring contracts cover service to Northeastern
U.S. markets, where there is currently little excess capacity. Several projects,
however, have been proposed to deliver incremental volumes to this area. While
the Company intends to pursue the renegotiation, extension and/or replacement of
these contracts, there can be no assurance as to whether the Company will be
able to extend or replace these contracts (or a substantial portion thereof) or
that the terms of any renegotiated contracts will be as favorable to the Company
as the existing contracts. Accordingly, the Company presently is unable to
ascertain whether or not the expiration and renegotiation, extension and/or
replacement of these transportation contracts will have a materially adverse
effect on the Company's financial position or results of operations.
 
     In a number of key markets, the Company faces competitive pressure from
other major pipeline systems, enabling local distribution companies and
end-users to choose a supplier or switch suppliers based on the short-term price
of gas and the cost of transportation. Competition between pipelines is
particularly intense in the Company's supply area, Louisiana and Texas. In some
instances, the Company has had to discount its
 
                                        3
<PAGE>   7
 
transportation rates in order to maintain market share. The renegotiation of the
Company's expiring contracts may be impacted by the foregoing competitive
factors.
 
                            NON-REGULATED OPERATIONS
 
  Field and Merchant Services
 
     Certain subsidiaries of EPTPC are engaged in the businesses of marketing
natural gas and owning and operating approximately 1,300 miles of gathering and
intrastate pipelines that serve the Texas Gulf Coast and West Texas markets.
 
     The interstate marketing operations buy, sell and contract for the
transportation of up to 1.2 Bcf/d of natural gas from approximately 300
suppliers, through 40 pipelines to about 500 customers, marketers and end-users.
The Company offers a portfolio of products and services that are intended to
help distributors, end-users and producers manage their gas sales and purchasing
processes. The Company also owns and manages gas gathering systems and natural
gas processing plants in Pennsylvania, Texas, Louisiana and Tennessee.
Additionally, the Company owns and operates, either directly or through joint
ventures, approximately 1,300 miles of intrastate pipelines and gathering lines
in the Texas Gulf Coast and West Texas markets. In addition to offering
transportation capacity, these intrastate pipeline and gathering operations
manage buying, selling and transportation services of up to 1.4 Bcf/d of natural
gas for approximately 135 suppliers and 140 customers and shippers. The
intrastate pipeline operations also provide swing storage services and access to
major intrastate and interstate pipelines in Texas.
 
     The following table sets forth the volumes of gas sold and transported by
the Company's marketing and intrastate pipeline subsidiaries for the periods
indicated:
 
<TABLE>
<CAPTION>
                                                                  MMDTH
                                                           -------------------
                                                           1996   1995   1994
                                                           ----   ----   -----
<S>                                                        <C>    <C>    <C>
Sales....................................................   680    642     739
Transportation...........................................   281    230     274
                                                            ---    ---   -----
          Total..........................................   961    872   1,013
                                                            ===    ===   =====
</TABLE>
 
     In February 1994, the Company sold a 20 percent interest in its marketing
and intrastate pipeline subsidiary to Ruhrgas Aktiengesellschaft, Germany's
largest natural gas company. In anticipation of the Merger, the Company
repurchased this 20 percent interest in September 1996.
 
  International and Other Energy-Related Business
 
     The Company has recently undertaken various activities to extend its
traditional activities in North American pipelines to international pipeline,
power and energy-related projects, with a current focus on activities in Latin
America, Southeast Asia, Australia and Europe. Set forth below are brief
descriptions of the projects that are operational or are in various stages of
development.
 
     Australia Project. In 1995, a subsidiary of the Company was selected to
construct, own and operate a 470-mile natural gas pipeline in Queensland,
Australia. Construction of the pipeline was completed in December 1996 at a
total cost of $170 million. Additionally, in June 1995 the Company acquired the
natural gas pipeline assets of PASA, which includes a 488-mile pipeline, for
$225 million. In December 1996, the Company received approximately $400 million
through debt financing and the subsequent sale of 70 percent of its ownership
interest in these projects.
 
     Indonesia Project. The Company has a 50 percent ownership interest in a
producing gas field (having reserves of approximately 500 Bcf) and a 47.5
percent ownership interest in a 135 MW power generating plant under construction
in South Sulawesi, Indonesia. The $225 million project has been financed with
approximately $179 million in debt. The electricity from the power generating
plant will be sold to the national electric utility pursuant to a long-term
contract. The Company has obtained political risk insurance for its equity
investment.
 
                                        4
<PAGE>   8
 
     Hungary Project. In September 1996, a subsidiary of the Company was
selected to acquire a 50 percent controlling interest in an operating 70 MW
power plant located in Dunaujvaros, Hungary. The electricity generated at this
plant is consumed by Dunaferr, the largest steel mill in Hungary. Excess power
is sold pursuant to long-term contracts to the Hungarian national electric
utility. Subject to satisfaction of certain conditions, the acquisition is
scheduled to be finalized in the first quarter of 1997. The assets will be
acquired for approximately $25 million and no financing will be involved. The
Company is seeking political risk insurance from the Overseas Private Investment
Corporation for its equity investment. The acquisition agreement requires the
Company to study and, if deemed economically feasible, to expand the electric
generating plant. The feasibility study is underway.
 
     Other Projects. The Company has a 17.5 percent interest in a 240 MW power
plant in Springfield, Massachusetts, and a 50 percent interest in two additional
cogeneration projects in Florida which have a combined capacity of 220 MWs.
 
  Other
 
     As a result of the Merger, the Company holds certain limited assets and is
responsible for certain liabilities, which the Company estimates to be
approximately $600 million, of existing and discontinued operations and
businesses.
 
     Tenneco Credit Corporation (now renamed El Paso Energy Credit Corporation),
an indirect subsidiary of the Company, purchases interest-bearing and
noninterest-bearing trade receivables from the Company's operating subsidiaries.
Through June 1994, it also purchased retail receivables generated primarily by
retail sales of products by Case Corporation. As part of the intercompany
transfers preceding the Merger and Distributions, these Case Corporation retail
receivables and all of the interest and obligations associated with receivables
relating to the Industrial Business were transferred to New Tenneco.
 
                                 ENVIRONMENTAL
 
     The Company is subject to extensive federal, state, and local laws and
regulations governing environmental quality and pollution control. These laws
and regulations require the Company to remove or remedy the effect on the
environment of the disposal or release of specified substances at ongoing and
former operating sites. As of December 31, 1996, the Company had a reserve of
approximately $187 million for the following environmental contingencies which
the Company anticipates incurring through 2002: (i) expected remediation costs
and associated onsite, offsite and groundwater technical studies of
approximately $134 million; and (ii) other costs of approximately $53 million.
For a further discussion of specific environmental matters, see Item 3, Legal
Proceedings, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, and Note 5 of Item 8, Financial Statements and
Supplementary Data.
 
     In addition, the Company estimates that it will make capital expenditures
for environmental matters of approximately $5 million in 1997 and that capital
expenditures for environmental matters will range from approximately $40 million
to $80 million in the aggregate for the years 1998 through 2007. These
expenditures primarily relate to compliance with air regulations and control of
water discharges.
 
                                   EMPLOYEES
 
     The Company had approximately 2,800 full-time employees on December 31,
1996. Subsequent to the Merger, the Company implemented a program to streamline
operations and reduce operating costs. Since December 31, 1996, the Company has
reduced its workforce by 340 employees. The Company has no collective bargaining
arrangements.
 
                                        5
<PAGE>   9
 
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The executive officers of EPTPC at March 7, 1997 were as follows:
 
<TABLE>
<CAPTION>
                 NAME                                            OFFICE                          AGE
                 ----                                            ------                          ---
<S>                                      <C>                                                     <C>
William A. Wise........................  Chairman of the Board, President and Chief Executive    51
                                         Officer
H. Brent Austin........................  Senior Vice President and Chief Financial Officer       42
Joel Richards III......................  Senior Vice President                                   50
Britton White, Jr......................  Senior Vice President and General Counsel               53
</TABLE>
 
     Mr. Wise became the Chairman of the Board, President and Chief Executive
Officer of EPTPC upon consummation of the Merger. Mr. Wise has been Chairman of
the Board of EPG since January 1994 and Chief Executive Officer since January
1990. He was President of EPG from April 1989 to April 1996. From March 1987
until April 1989, Mr. Wise was an Executive Vice President of EPG. From January
1984 to February 1987, he was a Senior Vice President of EPG. Mr. Wise is a
member of the Board of Directors of Battle Mountain Gold Company.
 
     Mr. Austin became Senior Vice President and Chief Financial Officer of
EPTPC upon consummation of the Merger. Mr. Austin has been Executive Vice
President of EPG since May 1995. He has been Chief Financial Officer of EPG
since April 1992. He was Senior Vice President of EPG from April 1992 to April
1995. He was Vice President, Planning and Treasurer of Burlington Resources,
Inc. from November 1990 to March 1992 and Assistant Vice President, Planning of
Burlington Resources, Inc. from January 1989 to October 1990.
 
     Mr. Richards became Senior Vice President of EPTPC upon consummation of the
Merger. Mr. Richards has been Executive Vice President of EPG since December
1996. From January 1991 until December 1996, he was Senior Vice President of
EPG. He was Vice President from June 1990 to December 1990. He was Senior Vice
President, Finance and Human Resources of Meridian Minerals Company, a wholly
owned subsidiary of Burlington Resources, Inc., from October 1988 to June 1990.
 
     Mr. White became Senior Vice President and General Counsel of EPTPC upon
consummation of the Merger. Mr. White has been Executive Vice President of EPG
since December 1996 and General Counsel of EPG from March 1991. He was Senior
Vice President and General Counsel of EPG from March 1991 until December 1996.
From March 1991 to April 1992, he was also Corporate Secretary of EPG. For more
than five years prior to that time, Mr. White was a partner in the law firm of
Holland & Hart.
 
     On the date of the Merger, all the previous executive officers of Old
Tenneco resigned.
 
     Executive officers hold offices until their successors are elected and
qualified, subject to their earlier removal.
 
ITEM 2. PROPERTIES
 
     A description of the Company's properties is included in Item 1, Business,
and is incorporated by reference herein.
 
     The Company is of the opinion that it has generally satisfactory title to
the properties owned and used in its businesses, subject to the liens for
current taxes, liens incident to minor encumbrances, and easements and
restrictions that do not materially detract from the value of such property or
the interests therein or the use of such properties in its businesses. In
addition, the Company's physical properties are adequate and suitable for the
conduct of its business in the future.
 
                                        6
<PAGE>   10
 
ITEM 3. LEGAL PROCEEDINGS
 
     In July 1996, TGP was served with a complaint in the matter of Jack J.
Grynberg v. Alaska Pipeline Co., et al., filed in the U.S. District Court for
the District of Columbia. The plaintiff filed this action under the False Claims
Act against most interstate pipelines and others alleging that the defendants
mismeasured natural gas produced from federal and Indian lands, which deprived
the United States of royalties otherwise due it. Among other things, the
plaintiff seeks to recover unspecified treble damages on behalf of the United
States. The plaintiff is also seeking to recover his finder's fee and attorneys'
fees. All defendants, most of whom are pursuing a combined defense, have filed
responsive motions. The plaintiff responded to those motions in January 1997.
Oral arguments are set for March 1997. TGP believes that there are valid
jurisdictional and procedural defenses to the plaintiff's complaint; however,
even if the plaintiff is ultimately entitled to pursue his claims, TGP believes
that it has substantive defenses, including that TGP's
measurement practices are consistent with industry practice and all applicable
standards, regulations, contracts, and tariffs and that TGP should not be liable
in any event. Based on information available at this time, TGP does not believe
that the ultimate resolution of this matter will have a materially adverse
effect on the Company's financial position or results of operations.
 
     On August 1, 1995, the Texas Supreme Court affirmed a ruling of the Texas
Court of Appeals favorable to TGP involving a gas purchase contract and
indicated that it would remand the case to the trial court. On April 18, 1996,
however, the Texas Supreme Court withdrew its initial opinion and issued an
opinion reversing the Court of Appeals opinion. In June 1996, TGP filed a motion
for rehearing with the Texas Supreme Court which was denied in August 1996. In
December 1996, TGP entered into settlement agreements with each of the parties
to this gas purchase contract. As a result of these settlements, the gas
purchase contract is now terminated. TGP paid a total of $74 million to
terminate this contract. In addition, all related litigation was terminated.
During the course of this action, TGP either paid, or provided for the payment
of, amounts it believes were appropriate to cover the resolution of its contract
reformation litigation, including providing a bond in the amount of $206
million. On September 30, 1996, TGP paid approximately $193 million to the
producers and the producers agreed to release all but approximately $2 million
of the bonded amount. On November 1, 1996, a final order was issued which
assessed only $456,000 of the $2 million to TGP and TGP was released from the
remaining bond amount. TGP has filed with FERC to recover these payments from
its customers.
 
     On October 14, 1993, TGP was sued in the State District Court of Ector
County, Texas, by ICA and TransTexas. In that suit, ICA and TransTexas contended
that TGP had an obligation to purchase gas production which TransTexas
unilaterally attempted to add to the reserves originally dedicated to a 1979 gas
contract. An amendment to the pleading sought $1.5 billion from TGP for alleged
damages caused by TGP's refusal to purchase gas produced from the TransTexas
leases covering the new production and lands. In June 1996, TGP reached a
settlement with ICA and TransTexas for $125 million wherein ICA and TransTexas
agreed to terminate their contract rights, released TGP from liability under the
contract, and indemnified TGP against future claims, including royalty owner
claims. TGP has filed with FERC to recover from its customers amounts previously
paid to TransTexas above the market price as well as the $125 million settlement
payment. In connection with that litigation, certain royalty interest owners
filed a claim against TGP alleging that they are sellers entitled to tender gas
to TGP under the settled contract. This claim fell under the indemnification
provisions of TGP's settlement with ICA and TransTexas, requiring ICA and
TransTexas to defend and indemnify TGP. This royalty owner litigation was
settled in December 1996 at no cost to TGP. The royalty owners' claims against
TGP have been dismissed.
 
     TGP is a party in proceedings involving federal and state authorities
regarding the past use by TGP of a lubricant containing PCBs in its starting air
systems. TGP has executed a consent order with the EPA governing the remediation
of certain of its compressor stations and is working with the Pennsylvania and
New York environmental agencies to specify the remediation requirements at the
Pennsylvania and New York stations. Remediation activities in Pennsylvania are
essentially complete; in addition, pursuant to the Consent Order dated August 1,
1995, between TGP and the Pennsylvania Department of Environmental Protection,
TGP funded an environmentally beneficial project for $450,000 in April 1996 and
paid a $500,000 civil penalty in September 1996. Remediation and
characterization work at the compressor stations under its consent order
 
                                        7
<PAGE>   11
 
with the EPA and the jurisdiction of the New York Department of Environmental
Conservation is ongoing. Management believes that the ultimate resolution of
these matters will not have a materially adverse effect on the Company's
financial position or results of operations.
 
     In Commonwealth of Kentucky, Natural Resources and Environmental Protection
Cabinet v. Tennessee Gas Pipeline Company (Franklin County Circuit Court, Docket
No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency alleged
that TGP discharged pollutants into the waters of the state without a permit and
disposed of PCBs without a permit. The agency sought an injunction against
future discharges, sought an order to remediate or remove PCBs, and sought a
civil penalty. TGP has entered into agreed orders with the agency to resolve
many of the issues raised in the original allegations, has received water
discharge permits for its Kentucky stations from the agency, and continues to
work to resolve the remaining issues. Management believes that the resolution of
this issue will not have a materially adverse effect on the Company's financial
position or results of operations.
 
     The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management currently does not expect these
matters to have a materially adverse effect on the Company's financial position
or results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     Old Tenneco held a special meeting of stockholders on December 10, 1996.
The single proposal presented for a vote (the "Proposal") was (i) to approve and
adopt the Distribution Agreement dated as of
November 1, 1996, among Old Tenneco, New Tenneco and Newport News pursuant to
which the Distributions were effected; (ii) to approve and adopt the Merger
Agreement and the transactions contemplated thereby; (iii) to approve and adopt
the transactions contemplated by the Distribution Agreement; and (iv) to approve
an amendment to EPTPC's Certificate of Incorporation to eliminate the rights,
powers and preferences of EPTPC's junior preferred stock specified therein. The
results of the vote taken at this meeting were as follows:
 
<TABLE>
<CAPTION>
                                                     FOR          AGAINST      ABSTAIN
                                                 -----------     ---------     --------
<S>                                              <C>             <C>           <C>
Approval:
  Common Stock.................................  135,487,107     2,610,725     621,045
  $7.40 Preferred..............................      214,306         1,632       1,584
  $4.50 Preferred..............................      803,723            --          --
</TABLE>
 
     There were no broker non-votes with respect to the Proposal.
 
                                        8
<PAGE>   12
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS
 
     Following the consummation of the Merger, a subsidiary of EPG became the
sole holder of EPTPC's common stock, par value $.01 per share (the "Common
Stock"). The Common Stock was delisted from the New York Stock Exchange, and
there is no longer a trading market for such securities.
 
     The declaration of dividends on EPTPC capital stock is at the discretion of
its Board of Directors. The Board of Directors has not adopted a dividend policy
as such; subject to legal and contractual restrictions, its decisions regarding
dividends are based on all considerations that in its business judgment are
relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated developments
concerning EPTPC's business and operations. For additional information
concerning the payment of dividends by EPTPC, see Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
 
     EPTPC's cash flow and the consequent ability of EPTPC to pay any dividends
on its Common Stock is substantially dependent upon EPTPC's earnings and cash
flow available after its debt service and the availability of such earnings to
EPTPC by way of dividends, distributions, loans and other advances. The
instruments setting forth the rights of the holders of the Series A Preferred
Stock contain provisions restricting EPTPC's right to pay dividends and make
other distributions on the Common Stock.
 
     Under applicable corporate law, dividends may be paid by EPTPC out of
"surplus" (as defined under the law), or, if there is not a surplus, out of net
profits for the year in which the dividends are declared or the preceding fiscal
year. At December 31, 1996, EPTPC had surplus of approximately $1.2 billion for
the payment of dividends, and EPTPC will also be able to pay dividends out of
any net profits for the current and prior fiscal year.
 
                                        9
<PAGE>   13
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The consolidated and combined selected financial data as of December 31,
1996, 1995, and 1994 and for the years ended December 31, 1996, 1995, 1994, and
1993 were derived from the audited consolidated and combined financial
statements of the Company. The combined selected financial data as of
December 31, 1993 and 1992 and for the year ended December 31, 1992 are
unaudited and were derived from the accounting records of Old Tenneco. In the
opinion of EPTPC's management, the combined selected financial data of the
Company as of December 31, 1993 and 1992 and for the year ended December 31,
1992 include all adjusting entries (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
balance sheet of EPTPC and consolidated subsidiaries as of December 31, 1996,
contained herein reflects the purchase price recorded by EPG effective as of
December 31, 1996 and is referred to herein as "Post-Acquisition Consolidated".
The combined statements of income, cash flows and changes in consolidated
stockholders' equity and combined equity for periods prior to December 31, 1996
are referred to as "Pre-Acquisition Combined". As a result of the change in the
basis of accounting from historical cost to reflect EPG's purchase cost, the
combined financial statements for Pre-Acquisition periods are not comparable to
the consolidated balance sheet for the Post-Acquisition period. This information
should be read in conjunction with Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, and Item 8, Financial
Statements and Supplementary Data.
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                              -------------------------------------------------
                                                  1996        1995     1994     1993     1992
                                              ------------   ------   ------   ------   -------
(IN MILLIONS)                                              PRE-ACQUISITION COMBINED
                                              -------------------------------------------------
<S>                                           <C>            <C>      <C>      <C>      <C>
Operating Results Data(a):
  Operating revenues........................     $2,735      $1,975   $2,421   $2,862   $ 2,225
  Extraordinary loss, net of income
     tax(b).................................       (234)         --       --      (25)       (9)
  Cumulative effect of changes in accounting
     principles, net of income tax..........         --          --       --       --      (332)(c)
  Net income (loss).........................       (105)        157      153      163      (161)
</TABLE>
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                              -------------------------------------------------
                                                  1996        1995     1994     1993     1992
                                              ------------   ------   ------   ------   -------
                                                 POST-
                                              ACQUISITION
                                              CONSOLIDATED        PRE-ACQUISITION COMBINED
               (IN MILLIONS)                  ------------   ----------------------------------
<S>                                           <C>            <C>      <C>      <C>      <C>
Financial Position Data(a):
  Total assets..............................     $5,755      $5,792   $5,730   $4,290   $ 4,054
  Long-term debt(d).........................      1,150       1,811    2,242    2,019     2,282
  Stockholders' or combined equity(d).......      1,234         687      382     (652)   (1,503)
</TABLE>
 
---------------
 
(a) During 1996, subsequent to the Merger, EPTPC sold 70 percent of its interest
    in the Company's two Australian pipelines and completed the sale of its oil
    and gas exploration, production and financing unit, Tenneco Ventures. During
    1995, 1994 and 1993, EPTPC completed several acquisitions and dispositions,
    the most significant of which was the acquisition of the natural gas
    pipeline assets of PASA in 1995 and the disposition of its 50 percent
    interest in Kern River in 1995.
 
(b) Reflects extraordinary losses as a result of the retirement of long-term
    debt in the debt realignment preceding the Merger during 1996, an
    extraordinary loss as a result of the prepayment of long-term debt during
    1993 and an extraordinary loss as a result of the defeasance of high
    interest bearing long-term debt during 1992.
 
(c) In 1992, the Company adopted SFAS No. 106, Employers' Accounting for
    Postretirement Benefits Other Than Pensions, and SFAS No. 109, Accounting
    for Income Taxes.
 
(d) Amounts for the pre-acquisition periods are net of allocations from Old
    Tenneco to the Industrial Business and Shipbuilding Business. The allocation
    is based on the portion of Old Tenneco's investment in the Industrial
    Business and Shipbuilding Business that is deemed to be debt, generally
    based on the ratio of the Industrial Business' and Shipbuilding Business'
    net assets to Old Tenneco's consolidated net assets plus debt. Old Tenneco's
    historical practice has been to incur indebtedness for its consolidated
    group at the parent company level or at a limited number of subsidiaries,
    rather than at the operating company level, and to centrally manage various
    cash functions. Management believes that the historical allocation of
    corporate debt and interest expense is reasonable; however, it is not
    necessarily indicative of EPTPC's debt and interest expense which may be
    incurred in the future. See Note 15 of Item 8, Financial Statements and
    Supplementary Data.
 
                                       10
<PAGE>   14
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
                               MERGER TRANSACTION
 
     On December 12, 1996, Old Tenneco and an indirect subsidiary of EPG
completed the Merger and Old Tenneco became an indirect subsidiary of EPG. The
Merger was effected in accordance with the Merger Agreement. In the Merger, Old
Tenneco changed its name to EPTPC. Prior to the Merger, Old Tenneco and its
subsidiaries effected various intercompany transfers and distributions which
restructured, divided and separated their businesses, assets and liabilities so
that all the assets, liabilities and operations related to the Industrial
Business and the Shipbuilding Business were spun-off to Old Tenneco's then
existing common stockholders in the Distributions. The entity consisting of the
Industrial Business was subsequently renamed Tenneco Inc. (referred to herein as
"New Tenneco") and the entity consisting of the Shipbuilding Business was
subsequently renamed Newport News. Following the Distributions, the remaining
operations of the Company consisted primarily of those operations related to the
transmission and marketing of natural gas and the discontinued operations of Old
Tenneco. In preparation for the Merger and Distributions, Old Tenneco initiated
the Debt Realignment. As part of the Debt Realignment, Old Tenneco initiated
tender offers for certain issues of debt of Old Tenneco and certain of its
subsidiaries and certain other debt issues which were exchanged into New Tenneco
debt, defeased, or otherwise retired. Upon completion of the Debt Realignment
transactions, the Company is only responsible for its remaining debt which was
not tendered, exchanged, defeased or otherwise retired. As a result of the
Merger, EPG owns 100 percent of the common stock of EPTPC, representing at the
effective time of the Merger approximately 75 percent of the equity value of
EPTPC; the balance of the equity value of EPTPC is held by the holders of its
Series A Preferred Stock that was issued in a registered public offering in
November 1996 and remains outstanding. For a further discussion, see Note 1 of
Item 8, Financial Statements and Supplementary Data.
 
                             RESULTS OF OPERATIONS
 
     Results of operations comparisons have been conformed to the
reclassification of the Combined Statements of Income.
 
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
  Operating Revenues
 
     The Company's operating revenues in 1996 increased by 38 percent over the
operating revenues in 1995. Revenues from the energy-related operations of the
Company that are subject to regulation by FERC (generally referred to herein as
its "regulated" operations) increased to $861 million, or 13 percent. Of the
increase, $55 million was primarily due to benefits derived from a new rate
structure implemented on July 1, 1995 and $34 million was due to regulatory
adjustments that had no operating income impact. Revenues from the
energy-related operations of the Company that are not generally subject to
regulation by FERC (generally referred to herein as its "non-regulated"
operations) increased 60 percent to $1.8 billion, primarily due to higher
natural gas prices and volumes. Additionally, the acquisition of the assets of
PASA in June 1995 and new processing and gathering projects increased revenues
by $44 million. Revenues in 1996 from other operations were $29 million compared
with $59 million in the prior year due to lower interest revenue from the
continuing liquidation of Case Corporation receivables.
 
  Operating Income
 
     Operating income from regulated operations increased to $250 million or 40
percent in 1996 due to benefits derived from the new rate structure and
increased transportation volumes. Additionally, approximately $42 million of
environmental costs were reflected in 1995 and offset by insurance recoveries as
a result of the environmental settlement. These insurance recoveries were
included in other income as discussed
 
                                       11
<PAGE>   15
 
below. Offsetting this increase were transition costs recognized in 1996 related
to the Merger and higher operating costs.
 
     Non-regulated operating losses were $6 million in 1996 compared with income
of $3 million in 1995. 1996 increases included higher volumes and prices from
Tenneco Ventures' oil and gas production of $11 million and the acquisition of
PASA in June 1995 which contributed $10 million. Tenneco Ventures and 70 percent
of the Company's interest in the Australian pipelines were sold in December 1996
subsequent to the Merger. These increases were offset primarily by lower margins
from marketing activities.
 
     Operating losses from other operations of the Company increased to $62
million or 26 percent in 1996 primarily due to lower interest revenue from the
continuing liquidation of Case Corporation receivables. In anticipation of the
Merger, Old Tenneco sold all of the Case Corporation retail receivables to New
Tenneco for an amount equal to their book value. Accordingly, income from these
receivables will not be recognized in future periods.
 
  Other (Income) and Expense
 
     Other expense increased to $19 million in 1996. The increase resulted from
a $30 million gain recognized in 1995 from the sale of Kern River, the absence
of earnings due to the sale of Kern River which contributed $33 million in 1995,
higher interest expense in 1996 of $20 million due to higher levels of debt, and
insurance recoveries in 1995 related to environmental costs, as discussed above.
Offsetting these items were $15 million in legal settlements and the recognition
of a $32 million deferred gain on the sale of certain investments. Additionally,
1995 included a $30 million reserve for estimated regulatory and legal
settlement costs and a $25 million reserve for the liquidation of surplus real
estate holdings.
 
     Prior to the Merger, Old Tenneco's historical practice has been to incur
indebtedness for its consolidated group at the parent company level or at a
limited number of subsidiaries, rather than at an operating company level, and
to centrally manage various cash functions. Consequently, the corporate debt of
Old Tenneco and its related interest expense have been allocated to Old
Tenneco's automotive, packaging and shipbuilding businesses ("Old Tenneco's
former non-energy operations") based upon the portion of Old Tenneco's
investment in Old Tenneco's former non-energy operations which was deemed to be
debt, generally based upon the ratio of Old Tenneco's former non-energy
operations' net assets to Old Tenneco's consolidated net assets plus debt.
Interest expense was allocated at a rate equivalent to the weighted average cost
of all corporate debt, which was 8.2 percent, 7.7 percent and 8.3 percent for
1996, 1995 and 1994, respectively. Total pre-tax interest expense allocated to
Old Tenneco's former non-energy operations in 1996, 1995 and 1994 was $211
million, $180 million and $120 million, respectively. Old Tenneco's former
non-energy operations have also been allocated tax benefits approximating 35
percent of the allocated pre-tax interest expense. Although interest expense and
the related tax effects have been allocated to Old Tenneco's former non-energy
operations for financial reporting on a historical basis, Old Tenneco's former
non-energy operations have not been billed for these amounts. The changes in
allocated corporate debt and the after-tax allocated interest expense have been
included as a component of the combined equity of the Company. Although
management believes that the historical allocation of corporate debt and
interest is reasonable, it is not necessarily indicative of the debt and
interest expense of the Company subsequent to the Merger or the debt that it may
incur in the future.
 
  Income Tax Expense (Benefit)
 
     Income tax expense for 1996 was $34 million compared to an $11 million
income tax benefit for 1995. The effective tax rate was 20.9 percent and (7.5)
percent for 1996 and 1995, respectively. The increase in tax expense resulted
primarily from the realization of tax benefits totaling $38 million in 1996
compared to $72 million in 1995. For an additional discussion of income taxes,
see Note 7 of Item 8, Financial Statements and Supplementary Data.
 
                                       12
<PAGE>   16
 
  Extraordinary Loss
 
     In preparation for the Merger and Distributions, Old Tenneco initiated a
realignment of its indebtedness. Upon completion of the debt realignment
transactions, the Company is only responsible for its remaining debt which was
not tendered, exchanged, defeased or otherwise retired (approximately $265
million of such debt remained outstanding immediately after the Merger). The
Company recognized an after-tax extraordinary charge of $234 million related to
the debt realignment immediately prior to the Merger.
 
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
  Operating Revenues
 
     Operating revenues for 1995 decreased by 18 percent compared with 1994. The
regulated operations experienced a decline in revenues from $920 million in 1994
to $761 million in 1995. Lower regulated merchant gas sales caused a decline of
approximately $222 million. Under FERC Order No. 636, customers assume the
responsibility for acquiring their gas supplies, reducing sales by the pipeline.
Other non-recurring regulatory adjustments, that had no operating income impact,
partially offset the decrease in revenues by $63 million. Revenues in the
nonregulated operations in 1995 were $1,155 million, down $299 million compared
with 1994. Average natural gas prices were lower in 1995 compared with 1994,
contributing approximately $175 million to the revenue decrease. Furthermore,
natural gas volumes declined, contributing $148 million to the revenue decrease.
Warmer weather in early 1995 resulted in lower levels of storage activity during
the year, decreasing demand for natural gas and forcing prices lower. These
effects were offset somewhat by approximately $18 million in revenues earned by
the PASA assets which were acquired by the Company in June 1995. Revenues from
the other operations of the Company were $59 million in 1995 compared with $47
million in 1994.
 
  Operating Income
 
     Operating income from regulated operations was down by $99 million in 1995
as compared with 1994 primarily due to the termination or expiration of
transportation contracts and an $11 million benefit recognized in 1994 from the
Columbia Gas contract settlement. Additionally, approximately $42 million of
environmental costs were reflected in 1995 and offset by insurance recoveries as
a result of the environmental settlement. These insurance recoveries are
included in other income as discussed below. The 1995 operating income for the
nonregulated business decreased by $11 million compared with 1994. The operating
income decline was due to increased startup and development costs on
international programs of approximately $12 million, lower margins and volumes
due to lower demand in gas marketing which resulted in a $9 million decrease,
and an increase in administrative costs of approximately $5 million. These
decreases were partially offset by approximately $9 million in operating income
from the PASA assets during the last half of 1995. The Company's other
operations reported an operating loss of $49 million in 1995 compared to $41
million in 1994.
 
  Other (Income) and Expense
 
     Other income increased to $14 million in 1995. The increase resulted from a
$30 million gain recognized in 1995 from the sale of Kern River, lower interest
expense of $20 million, and insurance recoveries related to environmental costs,
as discussed above. These increases were partially offset by a $23 million gain
from the 1994 sale of a 20 percent interest in the Company's marketing and
intrastate pipeline subsidiary to Ruhrgas Aktiengesellschaft, a $7 million loss
on the 1995 sale of TGP's interest in Ozark, a $30 million reserve for estimated
regulatory and legal settlement costs, and a $25 million charge to establish a
reserve for liquidation of surplus real estate holdings and notes. The Company
reacquired Ruhrgas Aktiengesellschaft's interest in the marketing and intrastate
pipeline subsidiary in September 1996.
 
  Income Tax Expense (Benefit)
 
     Income tax benefit for 1995 was $11 million compared with income tax
expense of $72 million in 1994. The effective tax rate for 1995 was (7.5)
percent compared with 32 percent in 1994.
 
                                       13
<PAGE>   17
 
                        LIQUIDITY AND CAPITAL RESOURCES
 
CASH FROM OPERATING ACTIVITIES
 
     Net cash used in operating activities was $27 million for 1996, compared
with $765 million of net cash provided by operating activities for 1995. This
decrease was due primarily to a reduction in the level of trade receivables
sold, which was $370 million lower in 1996 compared with 1995. Operating cash
flow in 1996 also declined $374 million as a result of higher tax payments
compared with 1995 due to the settlement of 1987 through 1989 federal tax
liabilities and TGP's gas contract settlements of $392 million.
 
     Net cash provided by operating activities was $765 million for 1995
compared with $278 million of net cash used in operating activities for 1994.
The Company generated $783 million from the collection and sale of customer
receivables in 1995 compared with $245 million in 1994. This was due to the sale
of $470 million of receivables and the collection of Case Corporation retail
receivables in 1995.
 
CASH FROM INVESTING ACTIVITIES
 
     The sale of businesses and assets generated $465 million during 1996
compared with $17 million in 1995 and $68 million in 1994, respectively. These
sales included a 50 percent interest in Kern River, 70 percent of the Company's
interests in two natural gas pipeline systems in Australia and the sale of the
Company's oil and gas exploration, production and financing unit, formerly known
as Tenneco Ventures.
 
     In 1996, the Company reacquired for $41 million the 20 percent interest in
the Company's marketing and intrastate pipeline subsidiary. PASA was acquired
for approximately $225 million in 1995.
 
     The Company invested $323 million in capital expenditures in its existing
businesses during 1996, $337 million during 1995 and $345 million during 1994.
The Company's planned capital and investment expenditures for 1997 of $254
million are primarily for the maintenance of pipeline systems and other
facilities, expansion of international operations and non-regulated operations,
and system enhancements.
 
     During 1996, subsequent to the Merger, the Company made advances to EPG of
approximately $170 million.
 
     Future funding for capital expenditures, acquisitions, and other investing
expenditures will be provided by internally generated funds, debt issuances,
available credit facilities and/or contributions from EPG.
 
CASH FROM FINANCING ACTIVITIES
 
     Net cash used in financing activities was $177 million during 1996, $150
million more than the same period in 1995. Dividends paid on Old Tenneco common
and preferred stock during 1996 were $321 million. The Company repurchased $172
million of common stock in 1996, down $483 million from the previous year.
During 1996, the Company had net borrowings under credit facilities and
short-term debt of approximately $1.2 billion, including amounts borrowed under
EPTPC's Revolving Credit and Competitive Advance Facility (the "Credit
Facility"). The proceeds from the 1996 short-term borrowings were generally
utilized to pay distributions to affiliates, dividends, capital expenditures and
to fund other operating cash flow uses discussed above. Old Tenneco also retired
$2.3 billion of long-term debt in 1996 compared to $497 million retired in 1995.
In November 1996, $296 million of Series A Preferred Stock was issued in a
registered public offering and remains outstanding. Finally, the Company
received contributions of $476 million in cash from affiliates, as compared to
contributions from affiliates of $320 million received in 1995. Cash
contributions from and distributions to affiliates vary based on cash generated
by affiliates from operations net of cash required for operating and investing
activities.
 
     Net cash used in financing activities was $27 million during 1995. In
addition to business expansion, the Company used its cash flow during 1995 for
the scheduled retirement of $497 million in long-term debt, to reacquire Old
Tenneco Common Stock for $655 million and to pay $286 million in dividends on
Old Tenneco stock. In addition, the Company issued approximately $1 billion of
total short-term and long-term debt in
 
                                       14
<PAGE>   18
 
1995. During 1994, the Company had a net reduction of $605 million in debt and
paid dividends on Old Tenneco stock of $318 million. Other cash sources included
net contributions from affiliates of $1.4 billion.
 
     Future funding for long-term debt retirements, dividends, and other
financing expenditures will be provided by internally generated funds, debt
issuances, available credit facilities and/or contributions from EPG.
 
LIQUIDITY
 
     Historically, excess net cash flows from operating and investing activities
have been used to meet consolidated debt and other obligations. Conversely, when
cash requirements have been in excess of cash flows from operations, the Company
has utilized its consolidated credit facilities to fund the EPTPC obligations.
Also, depending on market and other conditions, EPTPC has utilized external
sources of capital to meet specific funding requirements.
 
     Prior to the Merger, Old Tenneco restructured its consolidated indebtedness
for money borrowed pursuant to the Debt Realignment through a series of tender
offers, exchange offers, payments, defeasances, and prepayments. At December 31,
1996, the Company's outstanding debt consisted of $265 million of long-term debt
which remained outstanding after the Debt Realignment and $1.6 billion of
borrowings under the $3 billion Credit Facility.
 
     In February 1997, EPG issued 3 million shares of its common stock resulting
in net proceeds of $152 million. This amount was used to reduce the $1.6 billion
outstanding under the Credit Facility at December 31, 1996. The availability of
borrowings under the Company's agreements and facilities is subject to its
ability at the time to meet certain specified conditions, which management
believes it currently meets. These conditions include compliance with the
financial covenants and ratios required by such agreements, absence of default
under such agreements, and continued accuracy of the representations and
warranties contained in such agreements (including the absence of any material
adverse changes since the specified dates).
 
     In February 1997, TGP's shelf registration statement on Form S-3 filed with
the SEC covering an aggregate of $1 billion unsecured debt securities was
declared effective. In March 1997, TGP issued $900 million of long-term debt,
the proceeds of which were used to pay down the Credit Facility.
 
     At December 31, 1996, the Company's balance sheet reflected a negative
working capital balance of $519 million. This included $700 million of
borrowings under the Credit Facility and a $167 million rate refund payable
which will be refunded to customers in March 1997.
 
     The Company believes its internally generated funds from operations,
available credit facilities and contributions from EPG will provide adequate
sources of working capital and funds to finance its future capital requirements.
 
                         COMMITMENTS AND CONTINGENCIES
 
  Capital Commitments
 
     At December 31, 1996, the Company had capital or investment commitments of
$36 million which are expected to be funded through cash provided by operations
and/or incremental borrowings. The Company's other planned capital and
investment projects are discretionary in nature, with no substantial capital
commitments made in advance of the actual expenditures.
 
  Purchase Obligations
 
     In connection with the financing commitments of certain joint ventures, the
Company has entered into unconditional purchase obligations for products and
services of $121 million ($94 million on a present value basis) at December 31,
1996. The Company's annual obligations under these agreements are $22 million
for the years 1997 and 1998, $21 million for the years 1999 and 2000, and $11
million for the year 2001. Payments
 
                                       15
<PAGE>   19
 
under such obligations, including additional purchases in excess of contractual
obligations, were $25 million, $26 million and $34 million for the years 1996,
1995 and 1994, respectively. In addition, in connection with the Great Plains
coal gasification project, TGP continues to have an obligation to purchase 30
percent of a capped volume of the plant output through July 2009. TGP has
executed a settlement of this contract as a part of its GSR negotiations
discussed in "Rates and Regulatory Matters," below.
 
  Guarantees
 
     The Company has guaranteed various obligations of its subsidiaries, which
obligations are not expected to exceed $3 million. For further information, see
Note 4 of Item 8, Financial Statements and Supplementary Data.
 
  Rates and Regulatory Matters
 
     A phased proceeding was scheduled at FERC with respect to the recovery of
TGP's GSR costs. Testimony has been completed in connection with Phase I of that
proceeding relating to the eligibility of GSR cost recovery. Phase II of the
proceeding on the prudency of the costs to be recovered and on certain contract
specific eligibility issues has not yet been scheduled. Although the Order No.
636 transition cost recovery mechanism provides for complete recovery by
pipelines of eligible and prudently incurred transition costs, certain customers
have challenged the prudence and eligibility of TGP's GSR costs and settlement
discussions have been entered into with TGP's customers concerning the amount of
such costs in response to FERC's public statements encouraging such settlements.
 
     On February 28, 1997, TGP filed with FERC a proposed settlement of all
issues related to the recovery by TGP of its GSR and other transition costs and
related proceedings (the "GSR Stipulation and Agreement"). Upon final approval
by FERC, this settlement will become effective retroactive to
January 1, 1997. The settlement is based upon a preliminary GSR understanding,
which called for sharing of transition costs, that EPG reached with TGP's
customers in October 1996 in anticipation of the Merger. The GSR Stipulation and
Agreement allows for TGP to recover up to $770 million in GSR and other
transition costs, including interest, of which approximately $531 million has
previously been recovered, subject to refund, pending resolution of the
transition cost issues. Assuming FERC approves the GSR Stipulation and
Agreement, TGP will be entitled to recover additional transition costs, up to
the remaining $239 million, through a two-year demand transportation surcharge
and an interruptible transportation surcharge. The terms of the GSR Stipulation
and Agreement provide for a rate case moratorium through November 2000
(subject to certain limited exceptions) and provide a rate cap, indexed to
inflation, through October 31, 2005, for certain of TGP's customers. The
purchase accounting adjustments reflected in the Company's consolidated
financial statements assume approval of the settlement with respect to TGP's GSR
and other transition costs in accordance with the terms of the GSR Stipulation
and Agreement.
 
     Although parties to TGP's transition cost proceedings do not have to
declare their support or opposition to the GSR Stipulation and Agreement until
mid-March, management believes that all of TGP's customers will support or not
oppose the GSR Stipulation and Agreement.
 
     In order to resolve litigation concerning purchases made by TGP of
synthetic gas produced from the Great Plains coal gasification plant, TGP, along
with three other pipelines, executed four separate settlement agreements with
Dakota and the U.S. Department of Energy and initiated four separate proceedings
at FERC seeking approval to implement the settlement agreements. Among other
things, the settlement required TGP to pay Dakota over a limited period a
premium over the spot price for Dakota's production and resolves the litigation
with Dakota. As of December 31, 1996, TGP had paid $87 million of this premium
obligation and has accrued its estimated remaining premium obligation through
December 2003 of $55 million. FERC previously ruled that the costs related to
the Great Plains project are eligible for recovery through GSR and other special
recovery mechanisms and that the costs are eligible for recovery for the
duration of the term of the original gas purchase agreements. In October 1994,
FERC consolidated the four proceedings and set them for hearing before an ALJ.
The hearing, which concluded in July 1995, was limited to the issue of whether
the settlement agreements are prudent. The ALJ concluded, in his initial
decision issued in December 1995, that
 
                                       16
<PAGE>   20
 
the settlement was not prudent. In December 1996, FERC unanimously reversed that
decision and upheld the settlements among the pipelines, the U.S. Department of
Energy and Dakota. No parties filed for rehearing of the FERC decision. TGP
notified Dakota in December 1996 that it accepted the settlement.
 
     In December 1994, TGP filed for a general rate increase (the "1995 Rate
Case"). In January 1995, FERC accepted the filing, suspended its effectiveness
for the maximum period of five months pursuant to normal regulatory process, and
set the matter for hearing. On July 1, 1995, TGP began collecting rates, subject
to refund, reflecting an $87 million increase in TGP's annual revenue
requirement. A Stipulation was filed with an ALJ in this proceeding in April
1996. This Stipulation resolves the rates that are the subject of the 1995 Rate
Case, including a structural rate design change that results in a larger
proportion of TGP's transportation revenues being dependent upon throughput.
Under the Stipulation, TGP is required to refund, upon final approval of the
Stipulation, the difference between the revenues collected under the July 1,
1995 motion rates and the revenues that would have been collected pursuant to
rates underlying the Stipulation. In October 1996, FERC approved the Stipulation
with certain modifications and clarifications which are not material. In January
1997, FERC issued an order denying requests for rehearing of the October 1996
order. Refunds will be made in March 1997. The Company has established a
provision for these refunds, and the balance of this provision at December 31,
1996 was $167 million. One party to the rate proceeding, a competitor of TGP,
filed with the Court of Appeals a Petition for Review of the FERC orders
approving the Stipulation.
 
     Management believes the ultimate resolution of the aforementioned rate and
regulatory matters, which are in various stages of finalization, will not have a
materially adverse effect on the Company's financial position. For a further
discussion of regulatory matters, see Note 5 of Item 8, Financial Statements and
Supplementary Data.
 
  Future Projects
 
     In September 1996, a subsidiary of the Company was selected to acquire a 50
percent controlling interest in an operating 70 MW power plant located in
Dunaujvaros, Hungary. The electricity generated at this plant is consumed by
Dunaferr, the largest steel mill in Hungary. Excess power is sold pursuant to
long-term contracts to the Hungarian national electric utility. Subject to
satisfaction of certain conditions, the acquisition is scheduled to be finalized
in the first quarter of 1997. The assets will be acquired for approximately $25
million and no financing will be involved. The Company is seeking political risk
insurance from the Overseas Private Investment Corporation for its equity
investment. The acquisition agreement requires the Company to study and, if
deemed economically feasible, to expand the electric generating plant. The
feasibility study is underway.
 
  Legal Proceedings
 
     See Item 3, Legal Proceedings which is incorporated herein by reference.
 
                                 ENVIRONMENTAL
 
     The Company is subject to extensive federal, state, and local laws and
regulations governing environmental quality and pollution control. These laws
and regulations require the Company to remove or remedy the effect on the
environment of the disposal or release of specified substances at ongoing and
former operating sites. As of December 31, 1996, the Company had a reserve of
approximately $187 million for the following environmental contingencies which
the Company anticipates incurring through 2002: (i) expected remediation costs
and associated onsite, offsite and groundwater technical studies of
approximately $134 million; and (ii) other costs of approximately $53 million.
For a further discussion of specific environmental matters, see Item 3, Legal
Proceedings and Note 5 of Item 8, Financial Statements and Supplementary Data.
 
     The Company and certain of its subsidiaries have been designated, have
received notice that they could be designated, or have been asked for
information to determine whether they could be designated as a PRP with respect
to 25 sites under the Comprehensive Environmental Response, Compensation and
Liability Act
 
                                       17
<PAGE>   21
 
(CERCLA or Superfund) or state equivalents. The Company has sought to resolve
its liability as a PRP with respect to these Superfund sites through
indemnification by third parties and/or settlements which provide for payment of
the Company's allocable share of remediation costs. As of December 31, 1996, the
Company has estimated its share of the remediation costs at these sites to be
between $7 million and $41 million and has provided reserves that it believes
are adequate for such costs. Because the clean-up costs are estimates and are
subject to revision as more information becomes available about the extent of
remediation required, the Company's estimate of its share of remediation costs
could change. Moreover, liability under the federal Superfund statute is joint
and several, meaning that the Company could be required to pay in excess of its
pro rata share of remediation costs. The Company's understanding of the
financial strength of other PRPs has been considered, where appropriate, in its
determination of its estimated liability as described herein. The Company
presently believes that the costs associated with the current status of such
entities as PRPs at the Superfund sites referenced above will not have a
materially adverse effect on the financial position or results of operations of
the Company.
 
     The Company estimates that its subsidiaries will make capital expenditures
for environmental matters of approximately $5 million in 1997 and that capital
expenditures for environmental matters will range from approximately $40 million
to $80 million in the aggregate for the years 1998 through 2007. These
expenditures primarily relate to compliance with air regulations and control of
water discharges.
 
                                     OTHER
 
  SFAS No. 71, Accounting for the Effects of Certain Types of Regulation
 
     The Company's businesses that are subject to the regulations and accounting
requirements of FERC continue to meet the accounting requirements of SFAS No.
71. The Consolidated and Combined Balance Sheets of the Company contain assets
and liabilities related to operations which have been recorded pursuant to SFAS
No. 71. If these accounting principles should no longer be applied, an amount
would be charged to earnings as an extraordinary item. At December 31, 1996,
this amount was estimated to be approximately $59 million, net of income taxes.
Changes in the regulatory and economic environment may, at some point in the
future, create circumstances in which the application of regulatory accounting
principles is no longer appropriate. Any potential charge would be non-cash and
would have no direct effect on the ability to seek recovery of the underlying
deferred costs in future rate proceedings or on the ability to collect the rates
set thereby. For a further discussion of SFAS No. 71 issues, see Note 2 of Item
8, Financial Statements and Supplementary Data.
 
  FERC Compliance Audits
 
     TGP, as with all interstate pipelines, is subject to a FERC audit review of
its books and records. TGP currently has an open audit covering the years 1991
through 1994. FERC audit staff is expected to issue its audit report in early
1997.
 
                             RECENT PRONOUNCEMENTS
 
     The Company adopted SFAS No. 125, SFAS No. 127 and Statement of Position
No. 96-1 effective January 1, 1997. The Company believes that these
pronouncements will not have a material impact on the Company's financial
position or results of operations. In addition, SFAS No. 128 and SFAS No. 129
were issued in early March 1997 and the Company is currently evaluating the
effect of these pronouncements. For a further discussion of these
pronouncements, see Note 2 of Item 8, Financial Statements and Supplementary
Data.
 
                                       18
<PAGE>   22
 
       CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
            OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
     This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. Where, in any forward-looking
statement, the Company or its management expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The words "believe," "expect," "estimate," "anticipate" and similar expressions
identify forward-looking statements.
 
     Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:
 
HIGHLY COMPETITIVE INDUSTRY
 
          The ability to maintain or increase current transmission, gathering,
     processing, and sales volumes, or to remarket unsubscribed capacity, can be
     subject to the impact of future weather conditions, including those that
     favor other alternative energy sources; price competition; drilling
     activity and supply availability; and service competition. Future
     profitability also may be affected by the Company's ability to compete with
     the services offered by other energy enterprises which may be larger, offer
     more services, and possess greater resources. The ability of TGP to
     negotiate new contracts and to renegotiate existing contracts (70 percent
     of which are expiring over the next five years, principally in the year
     2000) could be adversely affected by the proposed construction of
     additional pipeline capacity in the Northeast U.S., reduced demand due to
     higher gas prices, the availability of alternative energy sources, and
     other factors that are not within its control. For a further discussion see
     Item 1, Business -- Regulated Operations -- Markets and Competition.
 
IMPACT OF NATURAL GAS AND NATURAL GAS LIQUIDS PRICES
 
          The value of natural gas transmission services is based on an all-in
     cost, including the cost of the natural gas. Therefore, the Company's
     ability to compete with other transporters is impacted by natural gas
     prices in the supply basins connected to its pipeline systems compared to
     prices in other gas producing regions, especially Canada. Additionally,
     revenues generated by the Company from its gathering and processing
     contracts are dependent upon volumes and rates, both of which can be
     affected by the prices of natural gas and natural gas liquids. Fluctuations
     in energy prices are caused by a number of factors, including regional,
     domestic and international demand, availability and adequacy of
     transportation facilities, energy legislation, federal or state taxes, if
     any, on the sale or transportation of natural gas and natural gas liquids
     and the price and abundance of supplies of alternative energy sources.
 
USE OF DERIVATIVE FINANCIAL INSTRUMENTS
 
          In the ordinary course and conduct of its business, some of the
     Company's non-regulated subsidiaries are engaged in the gathering,
     processing and marketing of natural gas and other energy commodities and
     utilize futures and option contracts traded on the New York Mercantile
     Exchange and Over-The-Counter options and price and basis swaps with other
     gas merchants and financial institutions. The Company could incur financial
     losses in future periods as a result of volatility in the market values of
     the underlying commodities.
 
                                       19
<PAGE>   23
 
ACQUISITIONS AND INVESTMENTS
 
          Opportunities for growth through acquisitions and investments in joint
     ventures, and future operating results and the success of acquisitions and
     joint ventures within and outside the U.S. may be subject to the effects
     of, and changes in, U.S. and foreign trade and monetary policies, laws and
     regulations, political and economic developments, inflation rates, and the
     effects of taxes and operating conditions. Activities in areas outside the
     U.S. also are subject to the risks inherent in foreign operations,
     including loss of revenue, property and equipment as a result of hazards
     such as expropriation, nationalization, war, insurrection and other
     political risks, and the effects of currency fluctuations and exchange
     controls. Such legal and regulatory delays and other unforeseeable
     obstacles may be beyond the Company's control or ability to manage.
 
PENDING REGULATORY PROCEEDINGS
 
          TGP has entered into comprehensive settlements with its customers
     that, if approved by FERC, would resolve many of the transportation rate,
     gas supply realignment and other transition issues in which it is involved.
     Whether FERC will approve such settlements in the form filed or whether
     these regulatory proceedings will be otherwise resolved in a manner
     satisfactory to the Company cannot be predicted with certainty, and the
     business of the Company could be adversely affected thereby. For a
     description of certain regulatory proceedings involving the Company, see
     Item 1, Business -- Regulated Operations -- Regulatory Environment.
 
POTENTIAL ENVIRONMENTAL LIABILITIES
 
          The Company may incur significant costs and liabilities in order to
     comply with existing environmental laws and regulations. It is also
     possible that other developments, such as increasingly strict environmental
     laws, regulations and enforcement policies thereunder, and claims for
     damages to property, employees, other persons and the environment resulting
     from current or discontinued operations, could result in substantial costs
     and liabilities in the future. For additional information concerning the
     Company's environmental matters, see Note 5 of Item 8, Financial Statements
     and Supplementary Data.
 
OPERATING HAZARDS AND UNINSURED RISKS
 
          While the Company maintains insurance against certain of the risks
     normally associated with the transportation, gathering and processing of
     natural gas, including explosions, pollution and fires, the occurrence of a
     significant event that is not fully insured against could have a material
     adverse effect on the Company.
 
POTENTIAL LIABILITIES RELATED TO THE MERGER
 
          The amount of the actual and contingent liabilities of Old Tenneco,
     which remained the liabilities of the Company after the Merger, could vary
     materially from the amount estimated by the Company, which was based upon
     assumptions which may prove to be inaccurate. If New Tenneco or Newport
     News were unable or unwilling to pay their respective liabilities, a court
     could require the Company, under certain legal theories which may or may
     not be applicable to the situation, to assume responsibility for such
     obligations, which could have a material adverse effect on the Company.
 
UNCERTAINTY SURROUNDING INTEGRATION OF OPERATIONS
 
          EPG is engaged in a comprehensive review of the business and
     operations of EPTPC and its subsidiaries and has begun to integrate such
     operations to increase operating and administrative efficiency through
     consolidation and reengineering of facilities, workforce reductions and
     coordination of purchasing, sales and marketing activities. Management
     anticipates that the complementary interstate and intrastate pipeline
     operations and energy marketing activities of the combined company should
     provide increased operating flexibility and access to additional customers
     and markets, although the amount and timing of the realization of such
     benefits will depend upon the Company's ability to integrate
 
                                       20
<PAGE>   24
 
     successfully the businesses and operations of the companies, and the time
     period over which such integration is effected.
 
POTENTIAL FEDERAL INCOME TAX LIABILITIES
 
          In connection with the Merger and Distributions, the IRS issued a
     private letter ruling to Old Tenneco, in which the IRS ruled that for U.S.
     federal income tax purposes: (i) the Distributions would be tax-free to Old
     Tenneco and, except to the extent cash was received in lieu of fractional
     shares, to its then existing stockholders; (ii) the Merger would constitute
     a tax-free reorganization; and (iii) that certain other transactions
     effected in connection with the Merger and Distributions would be tax-free.
     If the Distributions were not to qualify as tax-free distributions, then a
     corporate level federal income tax would be assessed to the consolidated
     group of which Old Tenneco was the common parent. This corporate level
     federal income tax would be payable by EPTPC. Under certain limited
     circumstances, however, New Tenneco and Newport News have agreed to
     indemnify EPTPC for a defined portion of such tax liabilities.
 
REFINANCING AND INTEREST RATE EXPOSURE RISKS
 
          The business and operating results of the Company can be adversely
     affected by factors such as the availability or cost of capital, changes in
     interest rates, changes in the tax rates due to new tax laws, market
     perceptions of the natural gas industry or the Company, or security
     ratings.
 
POTENTIAL FOR CHANGES IN ACCOUNTING STANDARDS
 
          Authoritative generally accepted accounting principle or policy
     changes from such standard setting bodies as the Financial Accounting
     Standards Board, FERC, and the SEC may affect the Company's results of
     operations or financial position.
 
                                       21
<PAGE>   25
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         EL PASO TENNESSEE PIPELINE CO.
 
                         COMBINED STATEMENTS OF INCOME
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1996        1995        1994
                                                              -------     -------     -------
                                                              -- PRE-ACQUISITION COMBINED --
<S>                                                           <C>         <C>         <C>
Operating revenues:
  Gas sales.................................................   $1,788      $1,122      $1,695
  Gas transportation........................................      767         690         611
  Other.....................................................      180         163         115
                                                               ------      ------      ------
                                                                2,735       1,975       2,421
                                                               ------      ------      ------
Operating expenses:
  Cost of gas sold..........................................    1,579         954       1,472
  Operating expenses........................................      455         414         379
  General and administrative................................      240         200         143
  Finance charges...........................................       62          79          75
  Depreciation, depletion and amortization..................      217         196         102
                                                               ------      ------      ------
                                                                2,553       1,843       2,171
                                                               ------      ------      ------
Operating income............................................      182         132         250
                                                               ------      ------      ------
Other (income) and expense:
  Interest income...........................................      (32)        (31)        (21)
  Interest expense, net of interest allocated to
     affiliates.............................................      142         122         142
  Equity in net income of affiliated companies..............      (30)        (65)        (51)
  Gain on sale of assets, net...............................      (35)        (11)         (1)
  Gain on the sale by a subsidiary of its stock.............    --          --            (23)
  Other income, net.........................................      (26)        (29)        (21)
                                                               ------      ------      ------
                                                                   19         (14)         25
                                                               ------      ------      ------
Income before income taxes..................................      163         146         225
Income tax expense (benefit)................................       34         (11)         72
                                                               ------      ------      ------
Income before extraordinary loss............................      129         157         153
Extraordinary loss, net of income tax.......................     (234)      --          --
                                                               ------      ------      ------
Net income (loss)...........................................   $ (105)     $  157      $  153
                                                               ======      ======      ======
</TABLE>
 
              The accompanying Notes are an integral part of these
                Consolidated and Combined Financial Statements.
 
                                       22
<PAGE>   26
 
                         EL PASO TENNESSEE PIPELINE CO.
 
                    CONSOLIDATED AND COMBINED BALANCE SHEETS
                      (IN MILLIONS, EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                              -------------------------------------
                                                                    1996                 1995
                                                              ----------------     ----------------
                                                              POST-ACQUISITION     PRE-ACQUISITION
                                                                CONSOLIDATED           COMBINED
<S>                                                           <C>                  <C>
                           ASSETS
Current assets:
  Cash and temporary cash investments.......................       $   14               $  249
  Notes receivable, net.....................................            9                  180
  Accounts receivable --
    Customer accounts, net..................................          233                  328
    Affiliated companies....................................          170                  199
    Gas transportation and exchange.........................          218                   64
    Income taxes............................................          213                  133
    Other...................................................          285                  436
  Inventories...............................................           42                   36
  Deferred income tax benefit...............................           67              --
  Prepayments and other.....................................           46                   71
                                                                  -------              -------
         Total current assets...............................        1,297                1,696
                                                                  -------              -------
Plant, property and equipment, net..........................        3,952                2,841
Investment in affiliated companies..........................          322                  280
Long-term notes and other receivables, net..................           45                  352
Other.......................................................          139                  623
                                                                  -------              -------
                                                                    4,458                4,096
                                                                  -------              -------
         Total assets.......................................       $5,755               $5,792
                                                                  =======              =======
 
                   LIABILITIES AND EQUITY
Current liabilities:
  Short-term borrowings (including current maturities on
    long-term debt).........................................       $  715               $  456
  Accounts payable --
    Trade...................................................          422                  365
    Affiliated companies....................................           --                   88
    Gas transportation and exchange.........................          156                   28
  Taxes accrued.............................................           38                  525
  Deferred income taxes.....................................           --                   65
  Interest accrued..........................................           22                  102
  Rate refund payable.......................................          167                   48
  Other.....................................................          296                  407
                                                                  -------              -------
         Total current liabilities..........................        1,816                2,084
                                                                  -------              -------
Note payable to affiliate...................................          170                   --
                                                                  -------              -------
Long-term debt, less current maturities.....................        1,150                1,811
                                                                  -------              -------
Deferred income taxes, less current portion.................          769                  323
                                                                  -------              -------
Postretirement benefits, less current portion...............          309                  260
                                                                  -------              -------
Deferred credits and other liabilities......................          307                  478
                                                                  -------              -------
         Total liabilities..................................        4,521                4,956
                                                                  -------              -------
Minority interest...........................................           --                   19
                                                                  -------              -------
Commitments and contingencies (See Note 5.)
Preferred stock with mandatory redemption provisions........           --                  130
                                                                  -------              -------
Equity:
  Combined equity...........................................           --                  687
  Stockholders' equity:
    Series A Preferred Stock................................          296                   --
    Common stock, par value $.01 per share; authorized
      100,000 shares; issued 1,000 shares...................           --                   --
    Additional paid-in capital..............................          938                   --
    Retained earnings.......................................           --                   --
                                                                  -------              -------
         Total equity.......................................        1,234                  687
                                                                  -------              -------
         Total liabilities and equity.......................       $5,755               $5,792
                                                                  =======              =======
</TABLE>
 
              The accompanying Notes are an integral part of these
                Consolidated and Combined Financial Statements.
 
                                       23
<PAGE>   27
 
                         EL PASO TENNESSEE PIPELINE CO.
 
                       COMBINED STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                               1996         1995         1994
                                                              -------     --------     --------
                                                               -- PRE-ACQUISITION COMBINED --
<S>                                                           <C>         <C>          <C>
Cash flows from operating activities:
Net income (loss)...........................................  $  (105)     $ 157        $ 153
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities --
  Extraordinary loss, net of tax............................      234       --           --
  Depreciation, depletion and amortization..................      217        196          102
  Equity in net income of affiliated companies, net of
     dividends..............................................       13        (12)          (3)
  Deferred income taxes.....................................      (47)        88           51
  Net gain on sale of assets................................      (35)       (11)         (24)
  Cash paid for interest allocated to affiliates, net of
     tax....................................................     (139)      (117)         (78)
  Changes in components of working capital --
     (Increase) decrease in receivables.....................       39        451           17
     (Increase) decrease in inventories.....................      (11)      --              5
     (Increase) decrease in prepayments and other current
       assets...............................................       15          8           30
     Increase (decrease) in payables........................       32        (25)        (262)
     Increase (decrease) in taxes accrued...................     (163)        40         (252)
     Increase (decrease) in interest accrued................      (83)       (52)         (39)
     Increase (decrease) in rate refund payable.............       32       (156)         (91)
     Increase (decrease) in other current liabilities.......      (34)      (102)         (60)
  (Increase) decrease in long-term notes and other
     receivables (net)......................................      455        332          228
  Take-or-pay recoupments, net..............................        3         36           26
  Other.....................................................     (396)       (68)         (81)
                                                              -------      -----        -----
     Net cash provided by (used in) operating activities....       27        765         (278)
                                                              -------      -----        -----
Cash flows from investing activities:
  Net proceeds from sale of businesses and assets...........      465         17           68
  Expenditures for plant, property and equipment............     (323)      (337)        (345)
  Acquisitions of businesses................................      (41)      (241)        --
  Net change in affiliated advances.........................     (170)        --           --
  Investments and other.....................................      (16)        24           48
                                                              -------      -----        -----
     Net cash used in investing activities..................      (85)      (537)        (229)
                                                              -------      -----        -----
Cash flows from financing activities:
  Issuance of Old Tenneco common and treasury shares........      164        102          188
  Issuance of Series A Preferred Stock......................      296       --           --
  Purchase of Old Tenneco common stock......................     (172)      (655)         (26)
  Redemption of Old Tenneco preferred stock.................      (20)       (20)         (20)
  Dividends (Old Tenneco common and preferred stock)........     (321)      (286)        (318)
  Redemption of equity securities by a subsidiary...........    --          --           (160)
  Net increase (decrease) in short-term debt excluding
     current maturities on long-term debt...................     (410)       415          (97)
  Net increase in borrowings under the Credit Facility......    1,600       --           --
  Increase in note payable to affiliate.....................      170       --           --
  Issuance of other long-term debt..........................      310        594         --
  Retirement of long-term debt..............................   (2,270)      (497)        (508)
  Net cash contributions from affiliates....................      476        320        1,367
                                                              -------      -----        -----
     Net cash provided by (used in) financing activities....     (177)       (27)         426
                                                              -------      -----        -----
Increase (decrease) in cash and temporary cash
  investments...............................................     (235)       201          (81)
Cash and temporary cash investments, at beginning of
  period....................................................      249         48          129
                                                              -------      -----        -----
Cash and temporary cash investments, at end of period.......  $    14      $ 249        $  48
                                                              =======      =====        =====
</TABLE>
 
              The accompanying Notes are an integral part of these
                Consolidated and Combined Financial Statements.
 
                                       24
<PAGE>   28
 
                         EL PASO TENNESSEE PIPELINE CO.
 
           STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
                              AND COMBINED EQUITY
                       (IN MILLIONS EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                     COMMON STOCK     SERIES A    ADDITIONAL
                                                   ----------------   PREFERRED    PAID-IN     RETAINED   COMBINED    TOTAL
                                                   SHARES   AMOUNT      STOCK      CAPITAL     EARNINGS    EQUITY    EQUITY
                                                   ------   -------   ---------   ----------   --------   --------   -------
<S>                                                <C>      <C>       <C>         <C>          <C>        <C>        <C>
January 1, 1994 Pre-Acquisition Combined.........     --    $    --     $ --         $ --      $    --    $  (652)   $  (652)
  Net income.....................................                                                             153        153
  Cash paid for interest allocated to affiliates,
     net of tax..................................                                                             (78)       (78)
  Change in corporate debt allocated to
     affiliates..................................                                                            (135)      (135)
  Cash contributions from (distributions to)
     affiliates, net.............................                                                           1,367      1,367
  Noncash contributions from (distributions to)
     affiliates, net.............................                                                             (98)       (98)
  Contributions from (distributions to) Old
     Tenneco stockholders, net...................                                                            (175)      (175)
                                                   -----    -------     ----         ----      -------    -------    -------
December 31, 1994 Pre-Acquisition Combined.......     --         --       --           --           --        382        382
  Net income.....................................                                                             157        157
  Cash paid for interest allocated to affiliates,
     net of tax..................................                                                            (117)      (117)
  Change in corporate debt allocated to
     affiliates..................................                                                             930        930
  Cash contributions from (distributions to)
     affiliates, net.............................                                                             320        320
  Noncash contributions from (distributions to)
     affiliates, net.............................                                                            (235)      (235)
  Contributions from (distributions to) Old
     Tenneco stockholders, net...................                                                            (750)      (750)
                                                   -----    -------     ----         ----      -------    -------    -------
December 31, 1995 Pre-Acquisition Combined.......     --         --       --           --           --        687        687
  Net loss.......................................                                                            (105)      (105)
  Cash paid for interest allocated to affiliates,
     net of tax..................................                                                            (139)      (139)
  Change in corporate debt allocated to
     affiliates..................................                                                          (2,292)    (2,292)
  Cash contributions from (distributions to)
     affiliates, net.............................                                                             476        476
  Noncash contributions from (distributions to)
     affiliates, net.............................                                                           2,126      2,126
  Contributions from (distributions to) Old
     Tenneco stockholders, net...................                                                            (267)      (267)
  Issuance of Series A Preferred Stock...........                        296                                             296
                                                   -----    -------     ----         ----      -------    -------    -------
December 11, 1996 Pre-Acquisition Combined.......     --         --      296           --           --        486        782
  Merger transaction.............................  1,000         --                   486           --       (486)        --
  Acquisition adjustment to record assets and
     liabilities at fair value...................                                     452                                452
                                                   -----    -------     ----         ----      -------    -------    -------
December 31, 1996 Post-Acquisition
  Consolidated...................................  1,000    $    --     $296         $938      $    --    $    --    $ 1,234
                                                   =====    =======     ====         ====      =======    =======    =======
</TABLE>
 
              The accompanying Notes are an integral part of these
                Consolidated and Combined Financial Statements.
 
                                       25
<PAGE>   29
 
                         EL PASO TENNESSEE PIPELINE CO.
 
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 
1. MERGER AND DISTRIBUTIONS
 
     On December 12, 1996, EPTPC (formerly Tenneco Inc.) became an indirect
subsidiary of EPG as a result of the Merger between Old Tenneco and an indirect
subsidiary of EPG. Prior to the Merger, Old Tenneco and its subsidiaries
effected various intercompany transfers and distributions which restructured,
divided and separated their businesses, assets and liabilities so that all the
assets, liabilities and operations related to the Industrial Business and the
Shipbuilding Business were spun-off to Old Tenneco's then existing common
stockholders in the Distributions. The entity consisting of the Industrial
Business was subsequently renamed Tenneco Inc. (referred to herein as "New
Tenneco") and the entity consisting of the Shipbuilding Business was renamed
Newport News. Following the Distributions, the remaining operations consisted
primarily of those operations related to the transmission and marketing of
natural gas and the discontinued operations of Old Tenneco. Pursuant to the
Merger, Old Tenneco was renamed EPTPC. As a result of the Merger, EPG indirectly
owns 100 percent of the common stock of EPTPC, representing at the effective
time of the Merger approximately 75 percent of the equity value of EPTPC; the
balance of the equity value of EPTPC is held by the holders of its Series A
Preferred Stock, which was issued in a registered public offering in November
1996 and remains outstanding.
 
     As used in these financial statements, unless the context otherwise
requires, the "Company" refers to: (i) for periods as of and subsequent to the
Merger, EPTPC and consolidated subsidiaries; and (ii) for periods prior to the
Merger, the combined historical businesses and operations of Old Tenneco owned
directly or indirectly by EPTPC (the "Energy Businesses of EPTPC"), principally
the energy businesses and certain discontinued operations of Old Tenneco. See
also "Basis of Presentation" discussion below.
 
     In preparation for the Merger and Distributions, Old Tenneco initiated the
Debt Realignment. As part of the Debt Realignment, Old Tenneco initiated tender
offers for certain issues of the Company's debt and certain other debt issues
were exchanged into New Tenneco debt, defeased or otherwise retired. Upon
completion of the debt realignment transactions, the Company is only responsible
for the remaining debt which was not tendered, exchanged, defeased or otherwise
retired. The Company recognized an after-tax extraordinary charge of $234
million related to the Debt Realignment immediately prior to the Merger.
 
     At December 31, 1996, EPTPC had approximately $1.6 billion of borrowings
under the Credit Facility dated as of November 4, 1996. In addition, the Company
had $300 million ($296 million net book value) of Series A Preferred Stock
outstanding and $134 million aggregate principal amount of debt which was not
redeemed or retired as a part of the Debt Realignment. Borrowings under the
Credit Facility are guaranteed by EPG. The primary assets of EPTPC consist of
its investment in TGP, which holds the majority of the Company's operations, and
management anticipates that the funds necessary to service the debt and other
securities of EPTPC will be provided by EPG or the operations and asset sale or
financing transactions of TGP.
 
     On October 30, 1996, the IRS issued a private letter ruling to Old Tenneco,
in which the IRS ruled that for U.S. federal income tax purposes: (i) the
Distributions would be tax-free to Old Tenneco and, except to the extent cash
was received in lieu of fractional shares, to its then existing stockholders;
(ii) the Merger would constitute a tax-free reorganization; and (iii) that
certain other transactions effected in connection with the Merger and
Distributions would be tax-free. If the Distributions were not to qualify as
tax-free distributions, then a corporate level federal income tax would be
assessed to the consolidated group of which Old Tenneco was previously the
common parent. This corporate level federal income tax would be payable by
EPTPC. Under certain limited circumstances, however, New Tenneco and Newport
News. have agreed to indemnify EPTPC for a defined portion of such tax
liabilities.
 
     The consideration provided in the Merger was approximately $4 billion,
including retained debt and EPG equity consideration valued at $913 million.
 
                                       26
<PAGE>   30
 
  Accounting for Acquisition by EPG
 
     The acquisition of the Company by EPG pursuant to the Merger has been
accounted for using the purchase method of accounting and included the
application of "pushdown" accounting to the Company's financial statements
effective as of December 31, 1996. Accordingly, an allocation of the purchase
price has been assigned to the assets and liabilities acquired based upon the
estimated fair value of those assets and liabilities as of the acquisition date.
A substantial portion of the excess purchase price, approximately $1.6 billion,
has been allocated to the property, plant and equipment of the Company's
interstate pipeline systems. Such allocation is based on the Company's internal
evaluation of such assets. An independent appraisal of the fair value of the
property acquired is in process and is expected to be completed by mid-1997.
Should the independent appraisal not support such allocation, the excess of
total purchase price over fair value of net assets acquired will be reflected as
goodwill. In addition, the Company may make adjustments during 1997 to other
components of the preliminary purchase price allocation relating to regulatory,
tax, environmental or other issues based upon any changes in the Company's
preliminary assumptions or analysis. The final results of the independent
appraisal and the ultimate disposition of the purchase price allocation should
not materially impact future operating results. Current FERC policy does not
permit the Company to recover through its rates amounts allocated in purchase
accounting to its regulated operations in excess of original cost.
 
     The consolidated balance sheet of EPTPC and subsidiaries as of December 31,
1996, contained herein reflects the purchase price recorded by EPG and is
referred to herein as "Post-Acquisition". The combined financial statements of
the Company for periods prior to December 31, 1996, are referred to as
"Pre-Acquisition". As a result of the change in the basis of accounting from
historical cost to reflect EPG's purchase cost, the financial statements for
Pre-Acquisition periods are not comparable to those of Post-Acquisition periods.
See also "Basis of Presentation" discussion below.
 
  Pro Forma Information
 
     The following unaudited pro forma information illustrates the effect of the
Merger and related transactions as if they had occurred at the beginning of
1995, after giving effect to certain pro forma adjustments including the
realignment of the Company's indebtedness, the issuance of the Series A
Preferred Stock, the removal of the results of the Company's exploration and
production business, and other adjustments based on the purchase price
allocation related to the acquisition, together with estimates of the related
income tax effects.
 
                       PRO FORMA INFORMATION (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                              -----------------
                       (IN MILLIONS)                           1996       1995
                       -------------                          ------     ------
<S>                                                           <C>        <C>
Operating revenues..........................................  $2,620     $1,874
Income before extraordinary loss............................     113         99
</TABLE>
 
     The summarized pro forma information has been prepared for comparative
purposes only. It is not necessarily indicative of the actual operating results
that would have occurred had the Merger and related transactions been
consummated at the beginning of 1995, or the results that may be attained in the
future.
 
  Basis of Presentation
 
     Although the separation of the Industrial Business and Shipbuilding
Business from Old Tenneco prior to the Merger was structured as a "spin-off" of
New Tenneco and Newport News for legal, tax and other reasons, New Tenneco
succeeded to certain important aspects of the Old Tenneco business, organization
and affairs, namely: (i) New Tenneco was renamed "Tenneco Inc." subsequent to
the consummation of the Merger; (ii) New Tenneco is headquartered at Old
Tenneco's former headquarters in Greenwich, Connecticut; (iii) New Tenneco's
Board of Directors consists of those persons previously constituting the Old
Tenneco Board of Directors prior to the Merger; (iv) New Tenneco's executive
management consists substantially of
 
                                       27
<PAGE>   31
 
the Old Tenneco executive management prior to the Merger; and (v) the businesses
conducted by New Tenneco consist largely of the Industrial Business, which
represented over half of the assets, revenues and operating income of the
businesses, operations and companies constituting Old Tenneco and its
subsidiaries prior to the Merger and Distributions. In New Tenneco's Annual
Report on Form 10-K for the year ended December 31, 1996, New Tenneco has
reflected in its financial statements the historical results of operations and
financial position of the Company and the Shipbuilding Business as discontinued
operations.
 
     Consequently, the Company has restated its historical financial statements
for periods prior to
December 31, 1996 to reflect the combined financial position, results of
operations and cash flows of the Energy Businesses of EPTPC. Additionally,
certain reclassifications have been made to the prior year financial statements
to conform to current year presentation.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Control and Consolidation
 
     As a result of the Merger, EPG owns 100 percent of the common equity of
EPTPC, representing at the effective time of the Merger approximately 75 percent
of the equity value of EPTPC; the balance of the equity value of EPTPC is held
by the holders of the Series A Preferred Stock that was issued in a registered
public offering in November 1996 and remains outstanding.
 
     Investments in 20 percent to 50 percent owned companies where the Company
has the ability to exert significant influence over operating and financial
policies are accounted for by the equity method. Reference is made to Note 12,
"Investment in Affiliated Companies," for information concerning significant
equity method investments.
 
     All significant transactions and balances among combined and consolidated
businesses have been eliminated.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
 
  Accounting for Regulated Operations
 
     The Company's businesses that are subject to the regulations and accounting
requirements of FERC continue to meet the accounting requirements of SFAS No.
71, Accounting for the Effects of Certain Types of Regulation, which accounting
methods may differ from those used by non-regulated entities. Transactions that
have been recorded differently as a result of regulatory accounting requirements
include: transition costs to be recovered under volumetric surcharges; certain
benefits and other costs and taxes included in or expected to be included in
future rates, including costs to refinance debt. When the accounting method
followed is prescribed by or allowed by the regulatory authority for rate-making
purposes, such accounting conforms to the generally accepted accounting
principle of matching costs against the revenues to which they apply.
 
     Changes in the regulatory and economic environment may, at some point in
the future, create circumstances in which the application of regulatory
accounting principles will no longer be appropriate. If these accounting
principles should no longer be applied, an amount would be charged to earnings
as an extraordinary item. At December 31, 1996, this amount, after consideration
of purchase accounting adjustments, was estimated to be approximately $59
million, net of income taxes. Any potential charge would be non-cash and would
have no direct effect on the regulated companies' ability to seek recovery of
the underlying deferred costs in their future rate proceedings or on their
ability to include such costs in the rates set thereby.
 
                                       28
<PAGE>   32
 
  Cash and Temporary Cash Investments
 
     Short-term investments purchased with an original maturity of three months
or less are considered cash equivalents.
 
  Allowance for Doubtful Accounts and Notes
 
     The Company has established a provision for losses on accounts and notes
receivable, as well as gas imbalances due from shippers and operators, which may
become uncollectible. Collectibility is reviewed regularly, and the allowance
for bad debts is adjusted as necessary primarily under the specific
identification method. The balances of this provision at December 31, 1996 and
1995 were $45 million and $49 million, respectively.
 
  Gas Imbalances
 
     The Company values gas imbalances due to or due from shippers and operators
at the appropriate index price. The gas imbalances are either settled in cash or
made up in-kind.
 
  Inventory
 
     Inventories, consisting of materials and supplies and gas in storage, are
valued at the lower of cost, determined using the average cost method, or
market, as adjusted at December 31, 1996 for purchase accounting considerations
as discussed in Note 1, "Merger and Distributions."
 
  Property, Plant and Equipment
 
     Property, plant and equipment is recorded at cost, adjusted at December 31,
1996 to reflect the allocation of the excess purchase price as discussed in Note
1, "Merger and Distributions." Included in the Company's property, plant, and
equipment is construction work in progress of approximately $110 million and
$223 million at December 31, 1996, and 1995, respectively. An allowance for both
debt and equity funds used during construction is included in the cost of the
Company's property, plant, and equipment.
 
     Depreciation of the Company's regulated transmission facilities are
provided primarily using the composite method over the estimated useful lives of
the depreciable facilities. The rates for depreciation range from approximately
2 percent to 5 percent.
 
     Depreciation of the Company's nonregulated properties is provided using the
straight line or composite method which, in the opinion of management, is
adequate to allocate the cost of properties over their estimated useful lives.
 
     Costs of regulated properties that are not operating units, as defined by
FERC, which are retired, sold, or abandoned are charged or credited, net of
salvage, to accumulated depreciation and amortization. Gains or losses on sales
of operating units are credited or charged to income.
 
     The Company evaluates impairment of its property, plant, and equipment in
accordance with SFAS No. 121.
 
  Goodwill
 
     Goodwill resulting from acquisitions was being amortized over 20 to 40
years using the straight-line method. Such amortization amounted to $1.6 million
in 1996 and $1.8 million for 1995 and 1994, respectively. Accumulated
amortization of goodwill was $5.4 million at December 31, 1995. The pre-Merger
balance of unamortized goodwill was eliminated as part of the purchase
accounting adjustments discussed in Note 1, "Merger and Distributions."
 
                                       29
<PAGE>   33
 
  Environmental Costs
 
     Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of the
liability are based upon currently available facts, existing technology and
presently enacted laws and regulations taking into consideration the likely
effects of inflation and other societal and economic factors. All available
evidence is considered including prior experience in remediation of contaminated
sites, other companies' clean-up experience and data released by the EPA or
other organizations. These estimated liabilities are subject to revision in
future periods based on actual costs or new circumstances. These liabilities are
included in the accompanying balance sheets at their undiscounted amounts, as
adjusted through purchase accounting at December 31, 1996. Reference is made to
Note 1, "Merger and Distributions." Recoveries are evaluated separately from the
liability and, when recovery is assured, are recorded and reported separately
from the associated liability in the consolidated and combined financial
statements as a regulatory asset.
 
  Other Income
 
     Gains or losses on the sale by a subsidiary of its stock are included in
the accompanying combined statements of income when recognized.
 
  Financial Instruments With Off-Balance-Sheet Risk
 
     The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to reduce its exposure to fluctuations in
interest rates and the price of certain energy and power commodities. These
financial instruments include interest rate swaps, price swap agreements,
futures, and options.
 
     Price risks management activities consist of transactions entered into by
the Company to hedge the impact of market fluctuations on assets, liabilities,
production or other contractual commitments. Changes in the market value of
these transactions are deferred until the gains or losses on the hedged item are
recognized. See Note 4 for further discussion of the Company's price risk
management activities.
 
  Income Taxes
 
     The Company accounts for income taxes whereby it recognizes deferred tax
assets and liabilities for the future tax consequences of temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the consolidated and combined financial statements. Deferred tax assets are
reduced by a valuation allowance when, based upon management's estimates, it is
more likely than not that a portion of the deferred tax assets will not be
realized in a future period. The estimates utilized in the recognition of
deferred tax assets are subject to revision in future periods based on new facts
or circumstances.
 
     Old Tenneco, together with certain of its subsidiaries which were owned 80
percent or more, including subsidiaries in the Industrial Business (now held by
New Tenneco) and the Shipbuilding Business (now held by Newport News), had
entered into an agreement to file a consolidated U.S. federal income tax return.
Such agreement provided, among other things, that (i) each company in a taxable
income position would be currently charged with an amount equivalent to its
federal income tax computed on a separate return basis, and (ii) each company in
a tax loss position would be reimbursed currently to the extent its deductions,
including general business credits, were utilized in the consolidated return.
Management believes that income tax amounts reflected in the combined financial
statements of the Company prior to the Merger under the provisions of the tax
sharing arrangement would not be materially different from the income taxes
which would have been provided had the Company filed a separate consolidated tax
return. Under the tax sharing agreement, Old Tenneco paid all federal taxes
directly and billed or refunded, as applicable, its subsidiaries for the
applicable portion of the total tax payments. This tax sharing agreement remains
in effect among EPTPC
 
                                       30
<PAGE>   34
 
and certain of its subsidiaries which are owned 80 percent or more. EPTPC will
continue to file a separate consolidated U.S. federal income tax return
subsequent to the Merger.
 
     As a result of the Merger, the Company entered into a new tax sharing
agreement with Newport News, New Tenneco and EPG. This new tax sharing agreement
provides, among other things, for the allocation among the parties of tax assets
and liabilities arising prior to, as a result of, and subsequent to the
Distributions. Generally, EPTPC will be liable for taxes imposed on the Company.
In the case of federal income taxes imposed with respect to periods prior to the
consummation of the Distributions on the combined activities of Old Tenneco and
other members of its consolidated group prior to giving effect to the
Distributions, New Tenneco and Newport News will be liable to the Company for
federal income taxes attributable to their activities, and each will be
allocated an agreed-upon share of estimated tax payments made by Old Tenneco.
Pursuant to the new tax sharing agreement, the Company will pay New Tenneco for
the tax benefits realized from the deduction of taxable losses generated by a
debt realignment completed prior to the Merger and such amount has been accrued
in the accompanying consolidated balance sheet.
 
  Recent Pronouncements
 
     In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, which establishes new accounting standards for the
impairment of long-lived assets and for long-lived assets to be disposed of. The
Company adopted the new standard in the first quarter of 1996 with no material
effect on the Company's financial position or results of operations.
 
     In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which establishes new accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
The statement is effective for transactions occurring after December 31, 1996,
but in December 1996, the Financial Accounting Standards Board issued SFAS No.
127, Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125, which defers the implementation of certain provisions of SFAS No. 125 until
January 1998. The new pronouncements are not expected to have a material impact
on the Company's financial position or results of operations.
 
     In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position No. 96-1, "Environmental Remediation Liabilities,"
which establishes new accounting and reporting standards for the recognition and
disclosure of environmental remediation liabilities. The provisions of the
statement are effective for fiscal years beginning after December 15, 1996. This
pronouncement is not expected to have a material impact on the Company's
financial position or results of operations.
 
     In March 1997, SFAS No. 128, Earnings Per Share, and SFAS No. 129,
Disclosures of Information about Capital Structure, were issued. The Company is
currently evaluating the impact of these pronouncements.
 
3. LONG-TERM DEBT AND OTHER FINANCING
 
     In contemplation of the Merger and Distributions, Old Tenneco initiated a
Debt Realignment to restructure, realign, and divide the Company's indebtedness.
As part of this Debt Realignment, Old Tenneco completed certain cash tender
offers for approximately $1.5 billion aggregate principal amount of the
Company's outstanding notes and debentures. In addition, approximately $1.9
billion aggregate principal amount of Old Tenneco notes and debentures were
exchanged into notes and debentures of New Tenneco. Certain other components of
the Company's historical short-term and long-term debt were defeased, redeemed
or otherwise retired in the Debt Realignment. The cash funding requirements of
the Debt Realignment were financed with internally generated cash, new
borrowings under the Credit Facility, cash contributions from New Tenneco and
Newport News, and proceeds from the issuance of the Series A Preferred Stock.
All obligations relating to the Series A Preferred Stock, all borrowings under
the Credit Facility, and the other remaining debt of the Company, including debt
which was not tendered or exchanged in the Debt Realignment, has been retained
by the Company subsequent to the Merger. Restrictive covenants
 
                                       31
<PAGE>   35
 
on the Company's remaining debt which was subject to the Debt Realignment were
eliminated as a part of the Debt Realignment transactions. The Company
recognized an after-tax extraordinary charge of $234 million (net of $126
million income tax benefit) related to the Company's debt realignment
immediately prior to the Merger.
 
     Subsequent to the Merger, the majority of the Company's debt consists of
borrowings under the Credit Facility and the notes and debentures that were not
tendered or exchanged pursuant to the Debt Realignment. The long-term and
short-term debt amounts at December 31, 1995, presented in the accompanying
balance sheet represent the historical indebtedness of the Company, the majority
of which was subject to the debt realignment, and includes a reduction for the
amount of corporate debt allocated to the Industrial Business and the
Shipbuilding Business. See Note 15 for information concerning debt allocated to
the Industrial Business and the Shipbuilding Business. The long-term debt
amounts at December 31, 1996 have been adjusted to fair market value in the
application of purchase accounting, as discussed in Note 1, "Merger and
Distributions."
 
     Long-term debt outstanding at December 31, 1996 and 1995, consisted of the
following:
 
<TABLE>
<CAPTION>
                                                1996                 1995
                                          -----------------    ----------------
                                          POST-ACQUISITION     PRE-ACQUISITION
(IN MILLIONS)                               CONSOLIDATED           COMBINED
<S>                                       <C>                  <C>
EPTPC --
  Credit Facility borrowings, effective
    interest rate 6.78% in 1996.........       $1,600               $   --
  Debentures due 2008 through 2025,
    average effective interest rate 8.9%
    in 1996 and 8.7% in 1995 (including
    $4 million in 1996 of unamortized
    premium and $2 million in 1995 of
    unamortized discount)...............           55                  698
  Notes due 1998 through 2005, average
    effective interest rate 9.6% in 1996
    and 8.8% in 1995 (including $7
    million in 1996 of unamortized
    premium and $5 million in 1995 of
    unamortized discount)...............           90                1,962
TGP --
  Debentures due 2011, effective
    interest rate 15.1% in 1996 and 1995
    (net of $11 million in 1996 and $216
    million in 1995 of unamortized
    discount)...........................           73                  184
  Notes average effective interest rate
    9.7% in 1995 (including $5 million
    in 1995 of unamortized discount)....           --                  570
El Paso Energy Credit Corporation --
  Senior notes due 1997 through 2001,
    average effective interest rate 9.9%
    in 1996 and 9.7% in 1995 (including
    $3 million in 1996 of unamortized
    premium and $1 million in 1995 of
    unamortized discount)...............           30                  549
  Medium-term notes average effective
    interest rate 9.0% in 1995..........           --                   38
  Subordinated notes due 1998, average
    effective interest rate 9.9% in 1996
    and in 1995.........................            7                   92
Other Subsidiaries --
  Notes due 1997 through 2014, average
    effective interest rate 7.6% in 1996
    and 8.6% in 1995 (including $14
    million in 1995 of unamortized
    discount)...........................           10                   11
                                              -------              -------
                                                1,865                4,104
    Less -- current maturities..........          715                  414
                                              -------              -------
             Total long-term debt.......       $1,150               $3,690
                                              =======              =======
</TABLE>
 
---------------
 
Note: The average effective interest rates disclosed above could change in the
      future based on changes in market rates on variable-rate debt and the
      application of purchase accounting adjustments.
 
                                       32
<PAGE>   36
 
     The following are aggregate maturities of long-term debt for the next five
years and in total thereafter:
 
<TABLE>
<S>                                        <C>
1997....................................       $  715
1998....................................           47
1999....................................            3
2000....................................            7
2001....................................           46
Thereafter..............................        1,047
                                               ------
          Total long-term debt,
            including current
            maturities..................       $1,865
                                               ======
</TABLE>
 
     In November 1996, Old Tenneco established with a group of banks a 364-day
revolving credit and competitive advance facility (previously defined as the
"Credit Facility") with an initial termination date in November 1997.
Outstanding borrowings under the Credit Facility which are unpaid at the initial
termination date become due by the second anniversary following that date. Under
the Credit Facility, the banks initially agreed to make up to $3 billion of
credit available to EPTPC, which amount had been reduced by EPTPC to $2 billion
at December 31, 1996. At such date approximately $1.6 billion in borrowings and
$400 million in unused loan commitments remained outstanding under the Credit
Facility. Borrowings under the Credit Facility are guaranteed by EPG, and EPTPC
is required to pay commitment fees on the unused loan commitments under the
Credit Facility. In March 1997, TGP issued $900 million of long-term debt, with
interest rates ranging from 7 percent to 7 5/8 percent and maturities ranging
from 20 to 40 years. The proceeds of this borrowing were be used to pay down
borrowings under the Credit Facility. Due to the refinancing of the Credit
Facility borrowings with long-term debt of TGP, the Company has classified $900
million of borrowings at December 31, 1996 under that facility as long-term
debt.
 
  Long-Term Corporate Debt Allocation
 
<TABLE>
<CAPTION>
                                                                   1995
(IN MILLIONS)                                                 ---------------
                                                              PRE-ACQUISITION
                                                                 COMBINED
<S>                                                           <C>
Total Long-term debt........................................      $ 3,690
Less: Long-term debt allocated to the Industrial Business
      and the Shipbuilding Business.........................       (1,879)
                                                                  -------
          Total long-term debt, net of allocation to the
            Industrial Business and the Shipbuilding
            Business........................................      $ 1,811
                                                                  =======
</TABLE>
 
---------------
 
Note: Reference is made to Note 15 for information concerning corporate debt
      allocated to the Industrial Business and the Shipbuilding Business.
 
  Short-Term Corporate Debt
 
     The Company has historically used commercial paper, lines of credit and
overnight borrowings to finance its short-term capital requirements. Information
regarding short-term debt for the year ended December 31, 1995 follows:
 
<TABLE>
<CAPTION>
                                                                        1995
                                                              ------------------------
                                                              COMMERCIAL     CREDIT
                                                                PAPER      AGREEMENTS*
                                                              ----------   -----------
                       (IN MILLIONS)                          PRE-ACQUISITION COMBINED
<S>                                                           <C>          <C>
Outstanding borrowings at end of year.......................     $346         $ 85
Weighted average interest rate on outstanding borrowings at
  end of year...............................................      6.2%         7.2%
</TABLE>
 
---------------
 
 * Includes borrowings under both committed credit facilities and uncommitted
   lines of credit and similar arrangements.
 
                                       33
<PAGE>   37
 
     The Company had no other short-term borrowings outstanding at December 31,
1996, and had short-term borrowings of $24 million outstanding at December 31,
1995.
 
  Short-Term Corporate Debt Allocation
 
<TABLE>
<CAPTION>
                                                                     1995
                                                                ---------------
                                                                PRE-ACQUISITION
                       (IN MILLIONS)                               COMBINED
<S>                                                             <C>
Current maturities on long-term debt........................         $ 414
Commercial paper............................................           346
Credit agreements...........................................            85
Other.......................................................            24
                                                                     -----
          Total short-term debt (including current
            maturities on long-term corporate debt).........           869
          Less: Short-term debt allocated to the Industrial
            Business and the Shipbuilding Business..........          (413)
                                                                     -----
               Total short-term debt, net of allocation to
               the Industrial Business and the Shipbuilding
               Business.....................................         $ 456
                                                                     =====
</TABLE>
 
---------------
 
Note: Reference is made to Note 15 for information concerning corporate debt
      allocated to the Industrial Business and the Shipbuilding Business.
 
4. FINANCIAL INSTRUMENTS
 
  Fair Value of Financial Instruments
 
     The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of SFAS No. 107.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies.
 
     As of December 31, 1996, and 1995, the carrying amounts of certain
financial instruments employed by the Company, including cash, temporary cash
investments, short-term borrowings and investments, and trade receivables and
payables are representative of fair value because of the short-term maturity of
these instruments. The fair value of the long-term debt has been estimated based
on quoted market prices for the same or similar issues. The fair value of all
derivative financial instruments is the estimated amount at which management
believes they could be liquidated over a reasonable period of time, based on
quoted market prices, current market conditions, or other estimates obtained
from third-party dealers.
 
     At December 31, 1996, the Company's aggregate customer and long-term
receivables balance was concentrated within the energy industry. Consequently,
the Company's credit risk could be effected by changes in the condition of the
energy industry. At December 31, 1995, the Company's aggregate customer and
long-term receivable balance was concentrated by industry as follows: energy
industry 22 percent; automotive parts industry 9 percent; packaging industry 8
percent; and farm and construction equipment industries 52 percent; all other
amounts were not significant. Receivables in the automotive parts, packaging and
farm and construction equipment industries resulted from Tenneco Credit
Corporation's (renamed El Paso Energy Credit Corporation) financing of
receivables of current and former operating divisions of Old Tenneco. See Note
15 for a further discussion.
 
                                       34
<PAGE>   38
 
     The carrying and estimated fair values of the Company's financial
instruments by class at December 31, 1996 and 1995, were as follows:
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                          ---------------------------------------
                                                                 1996                 1995
                                                          ------------------   ------------------
                                                          CARRYING    FAIR     CARRYING    FAIR
                  ASSETS (LIABILITIES)                     AMOUNT     VALUE     AMOUNT     VALUE
                  --------------------                    --------   -------   --------   -------
                                                            POST-ACQUISITION      PRE-ACQUISITION
(IN MILLIONS)                                                   CONSOLIDATED             COMBINED
<S>                                                       <C>        <C>       <C>        <C>
Balance Sheet Financial Instruments:
  Long-term debt (including current maturities).........  $(1,865)   $(1,865)  $(4,104)   $(4,692)
Instruments With Off-Balance-Sheet Risk:
  Derivative
     Interest rate swaps:
       In a net receivable position.....................    --         --        --            10
       In a net payable position........................    --         --        --           (22)
     Natural gas swaps, futures and options.............    --         (3)        --            3
  Non-derivative
     Financial guarantees...............................    --         (3)        --          (14)
</TABLE>
 
---------------
 
Note: The carrying amount and estimated fair value of long-term debt for 1995 is
      before allocation of corporate debt to the Industrial Business and
      Shipbuilding Business. Reference is made to Note 15 for information
      concerning corporate debt allocated to the Industrial Business and
      Shipbuilding Business.
 
  Instruments With Off-Balance-Sheet Risk
 
  Derivative
 
     Interest Rate Swaps -- The fair value of interest rate swaps was based on
the cost that would have been incurred to buy out those swaps in a loss position
and the consideration that would have been received to terminate those swaps in
a gain position. At December 31, 1996 all outstanding interest rate swaps had
fully matured. At December 31, 1995, the Company was a party to swaps with a
notional value of $1.5 billion, $750 million of which were in a net receivable
position and $795 million of which were in a net payable position. Notional
amounts associated with these swaps do not represent future cash payment
requirements. These contractual amounts are only used as a base to measure
amounts to be exchanged at specified settlement dates. The counterparties to
these interest rate swaps were major international financial institutions. The
risk associated with counterparty default on interest rate swaps were measured
as the cost of replacing, at the prevailing market rates, those contracts in a
gain position.
 
     Price Risk Management -- The Company uses exchange-traded futures and
option contracts and over-the-counter option and swap contracts to reduce its
exposure to fluctuations in the prices of natural gas. The fair value of these
contracts is based upon the estimated consideration that would be received to
terminate those contracts in a gain position and the estimated cost that would
be incurred to terminate those contracts in a loss position. As of December 31,
1996 and 1995, these contracts, maturing through 2000 and 1997, respectively,
had an absolute notional contract quantity of 237 Bcf and 321 Bcf, respectively.
Since the contracts described above are designated as hedges whose fair values
correlate to price movements of natural gas, any gains or losses on the
contracts resulting from market changes will be offset by losses or gains on the
hedged transactions. The Company has off-balance sheet risk of credit loss in
the event of non-performance by counterparties to all over-the-counter
contracts. However, the Company does not anticipate non-performance by the
counterparties.
 
                                       35
<PAGE>   39
 
  Non-derivative
 
     Guarantees -- At December 31, 1996 and 1995, the Company had guaranteed
payment and performance of approximately $3 million and $14 million,
respectively, primarily with respect to letters of credit and other guarantees
supporting various financing and operating activities.
 
5. COMMITMENTS AND CONTINGENCIES
 
  Rates and Regulatory Matters
 
     In 1992, FERC issued Order No. 636 which restructured the natural gas
industry by requiring mandatory "unbundling" of pipeline sales and
transportation services. Numerous parties appealed to the Court of Appeals,
challenging the legality of Order No. 636 generally, as well as the legality of
specific provisions of Order No. 636. In July 1996, the Court of Appeals issued
its decision upholding, in large part, Order No. 636, and remanded to FERC
several issues for further explanation, including further explanation of FERC's
decision to allow pipelines to recover 100 percent of their GSR costs and FERC's
requirement that pipelines allocate 10 percent of GSR costs to interruptible
transportation customers. In February 1997, FERC reaffirmed its decision to
allow pipelines to recover 100 percent of GSR costs. In addition, FERC modified
the requirement that pipelines allocate 10 percent of GSR costs to interruptible
customers to permit pipelines to propose an allocation of any percentage of such
costs to their interruptible customers.
 
     TGP implemented revisions to its tariff, which restructured its
transportation, storage and sales services to convert TGP from primarily a
merchant to primarily a transporter of gas as required by Order No. 636. As a
result of this restructuring, TGP's gas sales declined while certain obligations
to producers under long-term gas supply contracts continued, causing TGP to
incur significant restructuring transition costs. Pursuant to the provisions of
Order No. 636 allowing for the recovery of transition costs related to the
restructuring, TGP has made filings to recover the following transition costs:
(i) costs related to its Bastian Bay facilities; (ii) the "stranded" costs of
TGP's continuing contractual obligations to pay for capacity on other pipeline
systems ("TBO costs"); (iii) GSR costs resulting from TGP's remaining gas
purchase obligations (collectively referred to as "Transition Costs"); and (iv)
the remaining unrecovered balance of purchased gas ("PGA") costs. The filings
implementing TGP's recovery mechanisms for these transition costs were accepted
by FERC effective September 1, 1993, subject to refund and pending FERC review
and approval for eligibility and prudence.
 
     TGP's filings to recover costs related to its Bastian Bay facilities have
been rejected by FERC based on the continued use of the gas production from the
field; however, FERC recognized the ability of TGP to file for the recovery of
any losses upon disposition of these assets. TGP has filed for appellate review
of FERC actions and is confident that the Bastian Bay costs will ultimately be
recovered; FERC has not contested the ultimate recoverability of these costs.
 
     TGP is recovering through a surcharge, subject to refund, TBO costs
formerly incurred to perform its sales function. FERC issued an order requiring
TGP to refund certain of these costs and refunds were made in May 1996. TGP is
appealing this decision and believes such appeal will likely be successful.
 
     A phased proceeding was scheduled at FERC with respect to the recovery of
TGP's GSR costs. Testimony has been completed in connection with Phase I of that
proceeding relating to the eligibility of GSR cost recovery. Phase II of the
proceeding on the prudency of the costs to be recovered and on certain contract
specific eligibility issues has not yet been scheduled. Although the Order No.
636 transition cost recovery mechanism provides for complete recovery by
pipelines of eligible and prudently incurred transition costs, certain customers
have challenged the prudence and eligibility of TGP's GSR costs and settlement
discussions have been entered into with TGP's customers concerning the amount of
such costs in response to FERC's public statements encouraging such settlements.
 
     On February 28, 1997, TGP filed with FERC a proposed settlement of all
issues related to the recovery by TGP of its Transition Costs and related
proceedings, as discussed above. Upon final approval by FERC, this settlement
will become effective retroactive to January 1, 1997. The settlement is based
upon the preliminary GSR understanding, which called for sharing of transition
costs, that EPG reached with TGP's
 
                                       36
<PAGE>   40
 
customers in October 1996 in anticipation of the Merger. The GSR Stipulation and
Agreement allows for TGP to recover up to $770 million in Transition Costs,
including interest, of which approximately $531 million has previously been
recovered, subject to refund, pending resolution of the Transition Costs issues.
Assuming FERC approves the GSR Stipulation and Agreement, TGP will be entitled
to recover additional Transition Costs, up to the remaining $239 million,
through a two-year demand transportation surcharge and an interruptible
transportation surcharge. The terms of the GSR Stipulation and Agreement provide
for a rate case moratorium through November 2000 (subject to certain limited
exceptions) and provide a rate cap, indexed to inflation, through October 31,
2005, for certain of TGP's customers. The purchase accounting adjustments
reflected in the Company's consolidated financial statements assume approval of
the settlement with respect to TGP's Transition Costs in accordance with the
terms of the GSR Stipulation and Agreement.
 
     Although parties to TGP's Transition Cost proceedings do not have to
declare their support or opposition to the GSR Stipulation and Agreement until
mid-March, management believes that all of TGP's customers will support or not
oppose the GSR Stipulation and Agreement.
 
     Following negotiations with its customers, TGP filed in July 1994 with FERC
a Stipulation and Agreement (the "PGA Stipulation"), which provides for the
recovery of PGA costs of approximately $100 million and the recovery of costs
associated with the transfer of storage gas inventory to new storage customers
in TGP's restructuring proceeding. The PGA Stipulation eliminates all challenges
to the PGA costs, but establishes a cap on the charges that may be imposed upon
former sales customers. In April 1995, FERC orders approving the PGA Stipulation
and resolving all outstanding issues became final. TGP implemented the terms of
the PGA Stipulation and made refunds in May 1995. The refunds had no material
effect on the Company's reported net income. The orders approving the PGA
Stipulation have been appealed to the Court of Appeals by certain customers. TGP
believes the FERC orders approving the PGA Stipulation will be upheld on appeal.
 
     In order to resolve litigation concerning purchases made by TGP of
synthetic gas produced from the Great Plains coal gasification plant, TGP, along
with three other pipelines, executed four separate settlement agreements with
Dakota and the U.S. Department of Energy and initiated four separate proceedings
at FERC seeking approval to implement the settlement agreements. Among other
things, the settlement required TGP to pay Dakota over a limited period a
premium over the spot price for Dakota's production and resolves the litigation
with Dakota. As of December 31, 1996, TGP had paid $87 million of this premium
obligation and has accrued its estimated remaining premium obligation through
December 2003 of $55 million. FERC previously ruled that the costs related to
the Great Plains project are eligible for recovery through GSR and other special
recovery mechanisms and that the costs are eligible for recovery for the
duration of the term of the original gas purchase agreements. In October 1994,
FERC consolidated the four proceedings and set them for hearing before an ALJ.
The hearing, which concluded in July 1995, was limited to the issue of whether
the settlement agreements are prudent. The ALJ concluded, in his initial
decision issued in December 1995, that the settlement was not prudent. In
December 1996, FERC unanimously reversed that decision and upheld the
settlements among the pipelines, the U.S. Department of Energy and Dakota. No
parties filed for rehearing of the FERC decision. TGP notified Dakota in
December 1996 that it accepted the settlement.
 
     In December 1994, TGP filed the 1995 Rate Case. In January 1995, FERC
accepted the filing, suspended its effectiveness for the maximum period of five
months pursuant to normal regulatory process, and set the matter for hearing. On
July 1, 1995, TGP began collecting rates, subject to refund, reflecting an $87
million increase in TGP's annual revenue requirement. A Stipulation was filed
with an ALJ in this proceeding in April 1996. This Stipulation resolves the
rates that are the subject of the 1995 Rate Case, including a structural rate
design change that results in a larger proportion of TGP's transportation
revenues being dependent upon throughput. Under the Stipulation, TGP is required
to refund, upon final approval of the Stipulation, the difference between the
revenues collected under the July 1, 1995 motion rates and the revenues that
would have been collected pursuant to the rates underlying the Stipulation. In
October 1996, FERC approved the Stipulation with certain modifications and
clarifications which are not material. In January 1997, FERC issued an order
denying request for rehearing of the October 1996 order. Refunds will be made in
March 1997. The Company has established a provision for these refunds, and the
balance of this
 
                                       37
<PAGE>   41
 
provision at December 31, 1996 was $167 million. One party to the rate
proceeding, a competitor of TGP, filed with the Court of Appeals a Petition for
Review of the FERC orders approving the Stipulation.
 
     Management believes the ultimate resolution of the aforementioned rate and
regulatory matters, which are in various stages of finalization, will not have a
materially adverse effect on the Company's financial position or results of
operations.
 
  Environmental Matters
 
     As of December 31, 1996, the Company had a reserve of approximately $187
million to cover environmental assessments and remediation activities as
discussed below. The reserve for such issues at December 31, 1996 has been
adjusted to reflect the purchase price allocation discussed in Note 1,
"Merger and Distributions."
 
     Since 1988, TGP has been engaged in an internal project to identify and
deal with the presence of PCBs and other substances of concern, including
substances on the EPA List of Hazardous Substances at compressor stations and
other facilities operated by both its interstate and intrastate natural gas
pipeline systems. While conducting this project, TGP has been in frequent
contact with federal and state regulatory agencies, both through informal
negotiation and formal entry of consent orders, in order to assure that its
efforts meet regulatory requirements.
 
     Due to the current uncertainty regarding the further activity necessary for
TGP to address the presence of PCBs, substances on the EPA List of Hazardous
Substances and other substances of concern on its sites, including the
requirements for additional site characterization, the actual amount of such
substances at the sites, and the final, site-specific cleanup decisions to be
made with respect to cleanup levels and remediation technologies, the Company
cannot at this time accurately project what additional costs, if any, may arise
from future characterization and remediation activities. While there are still
many uncertainties relating to the ultimate costs which may be incurred, based
upon the Company's evaluation and experience to date, the Company believes that
the recorded estimate for the reserve is adequate.
 
     Following negotiations with its customers, TGP in May 1995 filed with FERC
a separate Stipulation and Agreement (the "Environmental Stipulation") that
establishes a mechanism for recovering a substantial portion of the
environmental costs. In November 1995, FERC issued an order approving the
Environmental Stipulation. Although one shipper filed for rehearing, FERC denied
rehearing of its order in February 1996. This shipper filed a Petition for
Review in April 1996 in the Court of Appeals; TGP believes the FERC order
approving the Environmental Stipulation will be upheld on appeal. The
Environmental Stipulation, which was effective July 1, 1995, had no material
effect on the Company's financial position or results of operations. As of
December 31, 1996, the balance of the regulatory asset was $49 million.
 
     TGP has completed settlements with and has received payments from the
majority of its liability insurance policy carriers for remediation costs and
related claims. TGP believes that additional recoveries from the remaining
carriers in the pending litigation against such carriers are reasonably
possible. In addition, TGP has settled its pending litigation against and
received payment from the manufacturer of the
PCB-containing lubricant previously used in the starting air systems in a
portion of TGP's pipeline. TGP has reduced the amount it is seeking to recover
under the Environmental Stipulation by the amount it has received in these
proceedings.
 
     The Company and certain of its subsidiaries have been designated, have
received notice that they could be designated, or have been asked for
information to determine whether they could be designated as a PRP with respect
to 25 sites under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA or Superfund) or state equivalents. The Company has sought
to resolve its liability as a PRP with respect to these Superfund sites through
indemnification by third parties and/or settlements which provide for payment of
the Company's allocable share of remediation costs. Because the clean-up costs
are estimates and are subject to revision as more information becomes available
about the extent of remediation required, the
 
                                       38
<PAGE>   42
 
Company's estimate of its share of remediation costs could change. Moreover,
liability under the federal Superfund statute is joint and several, meaning that
the Company could be required to pay in excess of its pro rata share of
remediation costs. The Company's understanding of the financial strength of
other PRPs has been considered, where appropriate, in its determination of its
estimated liability as described herein. The Company presently believes that the
costs associated with the current status of such entities as PRPs at the
Superfund sites referenced above will not have a materially adverse effect on
the financial position or results of operations of the Company.
 
     In addition, the Company has identified a number of formerly owned or
leased sites, and certain other sites associated with its discontinued
operations, where environmental remediation may be required. The Company
presently believes that the costs to remediate these sites will not have a
materially adverse effect on its financial position or results of operations.
 
     The Company has identified other sites where environmental remediation may
be required should there be a change in ownership, operations or applicable
regulations. These possibilities cannot be predicted or quantified at this time
and, accordingly, no provision has been recorded. However, provisions have been
made for all instances where it has been determined that the incurrence of any
material remedial expense is probable. The Company believes that the provisions
recorded for environmental exposures are adequate based on current estimates.
 
  Capital Commitments
 
     At December 31, 1996, the Company had capital or investment commitments of
$36 million which are expected to be funded through cash provided by operations
and/or incremental borrowings. The Company's other planned capital and
investment projects are discretionary in nature, with no substantial capital
commitments made in advance of the actual expenditures.
 
  Purchase Obligations
 
     In connection with the financing commitments of certain joint ventures, the
Company has entered into unconditional purchase obligations for products and
services of $121 million ($94 million on a present value basis) at December 31,
1996. The Company's annual obligations under these agreements are $22 million
for the years 1997 and 1998, $21 million for the years 1999 and 2000, and $11
million for the year 2001. Payments under such obligations, including additional
purchases in excess of contractual obligations, were $25 million, $26 million
and $34 million for the years 1996, 1995 and 1994, respectively. In addition, in
connection with the Great Plains coal gasification project, TGP continues to
have an obligation to purchase 30 percent of a capped volume of the plant output
through July 2009. TGP has executed a settlement of this contract as a part of
its GSR negotiations discussed in "Rates and Regulatory Matters" above and has
established a provision for the estimated costs in excess of market prices which
management believes is adequate.
 
  Legal Proceedings
 
     See Item 3, Legal Proceedings, which is incorporated herein by reference.
 
6. ACQUISITIONS AND DISPOSITIONS
 
  Acquisitions
 
     During 1995, the Company acquired the natural gas pipeline assets of PASA
which includes a 488-mile pipeline, for approximately $225 million. Also during
1995, the Company acquired a 50 percent interest in two gas-fired cogeneration
plants from ARK Energy, a privately owned power generation company, for
approximately $65 million.
 
                                       39
<PAGE>   43
 
     In May 1996, the Company acquired a 50 percent ownership interest in a
producing gas field (approximately 500 Bcf) and a 47.5 percent ownership
interest in a 135 MW power generating plant under construction in South
Sulawesi, Indonesia.
 
     In September 1996, the Company reacquired for $41 million the 20 percent
interest in the Company's marketing and intrastate pipeline subsidiary.
 
     Each of the acquisitions discussed above was accounted for as a purchase.
Net income would not have been significantly different from amounts reported if
the acquisitions had occurred at the beginning of each respective year.
 
  Disposition of Assets
 
     In 1994, the Company's marketing and intrastate pipeline subsidiary issued
50 shares of its common stock, diluting Old Tenneco's ownership in this
subsidiary to 80 percent and resulting in a gain of $23 million. No taxes were
provided on the gain because management expected that the recorded investment
would be recovered in a tax-free manner.
 
     In December 1995, the Company sold its 50 percent interest in Kern River
for a pre-tax gain of $30 million. Kern River owns a 904-mile pipeline extending
from Wyoming to California. Also in 1995, the Company sold certain other
facilities and assets for a combined pre-tax loss of $19 million.
 
     During 1996, TGP sold its 13.2 percent interest in Iroquois, its 50 percent
interest in Dauphin Island Gathering System and certain other assets, resulting
in a net pre-tax gain of $35 million.
 
     In December 1996, subsequent to the Merger, the Company sold 70 percent of
its interests in two natural gas pipeline systems in Australia to CNGI Australia
Pty. Limited, a wholly-owned indirect subsidiary of Consolidated Natural Gas
Company, and four Australian investors for approximately $400 million, inclusive
of related debt financing involving these projects, and completed the sale of
its oil and gas exploration, production and financing unit, formerly known as
Tenneco Ventures, in a $105 million transaction. There was no gain or loss
recognized on these transactions due to the Merger and the application of
pushdown accounting to the Company. The net proceeds from these transactions
were utilized to retire outstanding borrowings under the Credit Facility
subsequent to year end.
 
7. INCOME TAXES
 
     Following is a comparative analysis of the components of pre-acquisition
combined income tax expense (benefit) for the years 1996, 1995 and 1994.
 
<TABLE>
<CAPTION>
                       (IN MILLIONS)                           1996     1995     1994
                       -------------                           -----    -----    -----
                                                                -- PRE-ACQUISITION --
                                                                      COMBINED
<S>                                                            <C>      <C>      <C>
Current --
  Federal ..................................................    $ 27     $(96)     $25
  State and local...........................................      54       (3)      (4)
                                                                ----     ----      ---
                                                                  81      (99)      21
                                                                ----     ----      ---
Deferred --
  Federal ..................................................     (25)      76       39
  State and local...........................................     (22)      12       12
                                                                ----     ----      ---
                                                                 (47)      88       51
                                                                ----     ----      ---
Income tax expense (benefit)................................    $ 34     $(11)     $72
                                                                ====     ====      ===
</TABLE>
 
                                       40
<PAGE>   44
 
     Following is a reconciliation of income taxes computed at the statutory
U.S. federal income tax rate
(35 percent for all years presented) to the income tax expense (benefit)
reflected in the pre-acquisition combined statements of income for the years
1996, 1995 and 1994:
 
<TABLE>
<CAPTION>
                       (IN MILLIONS)                           1996     1995     1994
                       -------------                           -----    -----    -----
                                                                -- PRE-ACQUISITION --
                                                                      COMBINED
<S>                                                            <C>      <C>      <C>
Tax expense computed at the statutory U.S. federal income
  tax rate..................................................    $ 57     $ 51     $ 79
Increases (reductions) in income tax expense resulting from:
  State and local taxes on income, net of U.S. federal
     income tax benefit.....................................      21        6        5
  Permanent differences on sales of assets..................       8       12       --
  Realization of unrecognized deferred tax assets...........     (38)     (72)      --
  Net reversal of tax reserves..............................      (4)      --       --
  Other.....................................................     (10)      (8)     (12)
                                                                ----     ----     ----
Income tax expense (benefit)................................    $ 34     $(11)    $ 72
                                                                ====     ====     ====
</TABLE>
 
     Current U.S. income tax expense (benefit) for the years ended December 31,
1996, 1995 and 1994, includes a reduction in current tax amounts of $74 million,
$63 million and $42 million, respectively, related to the allocation of
corporate interest expense to the Industrial Business and the Shipbuilding
Business. Reference is made to Note 15 for information concerning corporate debt
and interest allocated to the Industrial Business and the Shipbuilding Business
from the Company.
 
     The components of the Company's net deferred tax liability at December 31,
1996 and 1995, were as follows:
 
<TABLE>
<CAPTION>
                     (IN MILLIONS)                              1996                1995
                     -------------                        ----------------     ---------------
                                                          POST-ACQUISITION     PRE-ACQUISITION
                                                            CONSOLIDATED          COMBINED
<S>                                                       <C>                  <C>
Deferred tax assets --
  U.S. capital loss carryforwards.......................       $   --               $ 163
  Postretirement benefits other than pensions...........          124                 104
  Regulatory Issues.....................................          235                 141
  Environmental reserve.................................           71                  75
  Other.................................................          202                  76
  Valuation allowance...................................           --                (117)
                                                              -------               -----
  Net deferred tax asset................................          632                 442
                                                              -------               -----
Deferred tax liabilities --
  Tax over book depreciation............................        1,001                 440
  Regulatory Issues.....................................          158                 208
  Debt related items....................................            2                  43
  Book versus tax gains and losses on asset disposals...           39                  23
  Other.................................................          134                 116
                                                              -------               -----
  Total deferred tax liability..........................        1,334                 830
                                                              -------               -----
Net deferred tax liability..............................       $  702               $ 388
                                                              =======               =====
</TABLE>
 
     As reflected by the valuation allowance in the table above, the Company had
potential tax benefits of $117 million at December 31, 1995, which were not
recognized in the combined statements of income when generated. These benefits
resulted primarily from U.S. capital loss carryforwards which were available to
offset future capital gains. During 1996, these capital loss carryforwards were
utilized to offset taxes on capital gain transactions of the Company and certain
Old Tenneco affiliates. The table above reflects the deferred tax effects of the
purchase price allocation at December 31, 1996, as discussed in Note 1, "Merger
and Distributions."
 
                                       41
<PAGE>   45
 
8. EMPLOYEE BENEFITS
 
  Postretirement Benefits
 
     As part of the Distributions and Merger, the Company assumed responsibility
for certain benefits for former employees of Old Tenneco and the postretirement
health care plans for the Company's employees were significantly changed. The
Company will be responsible for benefits for both the Company's former employees
and former employees of operations previously disposed of by Old Tenneco.
Employees who retire before July 1, 1997 will receive the same benefits as
former employees. While employees who retire on or after July 1, 1997 will
continue to receive $10,000 of postretirement life insurance, they will not
receive any employer subsidized postretirement health care benefits. All of
these benefits may be subject to deductibles, co-payment provisions and other
limitations. The Company has reserved the right to change these benefits.
 
     The majority of the Company's postretirement benefit plans are not funded.
In June 1994, two trusts were established to fund postretirement benefits for
certain plan participants of TGP. The contributions are collected from customers
in FERC approved rates. As of December 31, 1996, cumulative contributions were
$16 million. Plan assets consist principally of fixed income securities.
 
     The funded status of the postretirement benefit plans reconciles with
amounts recognized on the consolidated and combined balance sheets at December
31, 1996 and 1995, as follows:
 
<TABLE>
<CAPTION>
                                                                 1996               1995
                                                           POST-ACQUISITION    PRE-ACQUISITION
                      (IN MILLIONS)                          CONSOLIDATED         COMBINED
                      -------------                        ----------------    ---------------
<S>                                                        <C>                 <C>
Actuarial present value of accumulated postretirement
  benefit obligation:
  Retirees...............................................       $ 339               $ 320
  Fully eligible active plan participants................          13                   5
  Other active plan participants.........................           1                   2
                                                              -------               -----
Total accumulated postretirement benefit obligation......         353                 327
Plan assets at fair value................................           4                   3
                                                              -------               -----
Accumulated postretirement benefit obligation in excess
  of plan assets.........................................        (349)               (324)
Claims paid during the fourth quarter....................          --                  14
Unrecognized reduction of prior service obligations
  resulting from plan amendments.........................          --                 (68)
Unrecognized net loss resulting from plan experience and
  changes in actuarial assumptions.......................          (1)                 74
                                                              -------               -----
Accrued postretirement benefit cost at December 31.......       $(350)              $(304)
                                                              =======               =====
</TABLE>
 
---------------
 
Note: The accrued postretirement benefit cost has been recorded based upon
      certain actuarial estimates, which are subject to revision in future
      periods given new facts or circumstances, as described below, and reflects
      adjustments recorded in purchase accounting at December 31, 1996. For the
      1996 period the plan liabilities were estimated as of December 31, 1996
      and for the 1995 period the plan liabilities were estimated at September
      30, 1995 and rolled forward to December 31, 1995.
 
     In December 1992, FERC issued a statement of policy which allows
jurisdictional pipelines to recognize allowances for prudently incurred costs of
postretirement benefits other than pensions on an accrual basis consistent with
the accounting principles set forth in SFAS No. 106. The Company believes that
all costs of providing postretirement benefits to its employees are necessary
and prudent operating expenses and that such costs are recoverable in rates.
Accordingly, postretirement benefit costs related to FERC regulated operations
have been deferred as a regulatory asset. At December 31, 1996 the balance of
this regulatory asset was $28 million and is being recovered through rates.
 
                                       42
<PAGE>   46
 
     The net periodic postretirement benefit cost for the years 1996, 1995 and
1994 consists of the following components:
 
<TABLE>
<CAPTION>
                      (IN MILLIONS)                           1996          1995          1994
                      -------------                         --------      --------      --------
                                                               -- PRE-ACQUISITION COMBINED --
<S>                                                         <C>           <C>           <C>
Service cost for benefits earned during the year..........    $  1          $  1          $  1
Interest cost on accumulated postretirement benefit
  obligation..............................................      25            26            17
Net amortization of unrecognized amounts..................     (12)          (13)           (6)
                                                              ----          ----          ----
Net periodic postretirement benefit cost..................    $ 14          $ 14          $ 12
                                                              ====          ====          ====
</TABLE>
 
     The initial weighted average assumed health care cost trend rate used in
determining the 1996, 1995 and 1994 accumulated postretirement benefit
obligation was 6 percent, 7 percent and 8 percent, respectively, declining to 5
percent in 1997 and remaining at that level thereafter.
 
     Increasing the assumed health care cost trend rate by one percentage-point
in each year would increase the 1996, 1995 and 1994 accumulated postretirement
benefit obligations by approximately $5 million, $14 million and $14 million,
respectively, and would increase the aggregate of the service cost and interest
cost components of the net postretirement benefit cost for 1996, 1995 and 1994
by approximately $1 million, $1 million and $3 million, respectively.
 
     The discount rates (which are based on long-term market rates) used in
determining the 1996, 1995 and 1994 accumulated postretirement benefit
obligations were 7.75 percent, 7.75 percent and 8.25 percent, respectively.
 
  Pension Plans
 
     In conjunction with the Distributions in December 1996, benefit accruals
for Company employees in the Old Tenneco Retirement Plan (the "TRP") were frozen
as of the last day of December 1996 and all benefits were fully vested. New
Tenneco became the sole sponsor of the TRP such that the Company is not
responsible for any benefits accrued before the last day of December 1996. The
Company employees became participants in the new EPG Cash Balance Pension Plan
("CBP Select") as of January 1, 1997 with no account balances credited for prior
service.
 
     The Company's employees who were age 55 with at least 10 years of service
as of December 31, 1996 are eligible for special benefits under the 1997 Early
Retirement Incentive Program (the "ERIP") under the CBP Select. As a result of
the Merger, certain eligible employees who elected to retire under the ERIP will
receive an enhanced credit under the CBP Select which will be one year of pay
for most employees. The Company has accrued for these enhanced benefits as of
December 31, 1996.
 
9. PREFERRED STOCK
 
     At December 31, 1996, EPTPC had authorized 20,000,000 shares of preferred
stock. In November 1996, the Company issued 6,000,000 shares of Series A
Preferred Stock. The Series A Preferred Stock is not convertible into shares of
any other class or series of stock of the Company and it has no maturity date.
Holders of shares of Series A Preferred Stock are entitled to receive cash
dividends payable quarterly at the rate of 8 1/4% of the stated value of $50 per
share. It is not redeemable at the option of EPTPC prior to December 31, 2001,
unless one or more amendments to the Internal Revenue Code are enacted that
reduce the percentage of the dividends received deduction as specified in
Section 243(a)(1) of the Internal Revenue Code. On or after December 31, 2001,
the Series A Preferred Stock is redeemable at the option of the Company, in
whole or in part, upon not less than 30 days' notice at a redemption price of
$50 per share, plus unpaid dividends.
 
     In December 1996, the remaining outstanding shares of the $7.40 and $4.50
preferred stock issues of Old Tenneco were exchanged for EPG equity and
cancelled in accordance with the terms of the Merger. The $7.40 and $4.50
preferred stock issues had a mandatory redemption value of $100 per share and
were recorded
 
                                       43
<PAGE>   47
 
at their fair value at the date of original issue (an aggregate of $250 million)
with periodic accretions of the excess of the redemption value over the fair
value at the date of issue.
 
     In March 1997, the Company issued 3,036,600 shares of a new series of
preferred stock (the "Series B Preferred Stock"), which is subordinated to the
Series A Preferred Stock, to EPG in exchange for cancellation of indebtedness
owed to EPG of approximately $152 million. EPG is entitled to receive
cash dividends payable annually at the rate of 8 1/2% of the stated value of $50
per share. On or after
December 31, 2001, the Series B Preferred Stock is redeemable at the option of
the Company, in whole or in part, upon not less than 30 days' notice at a
redemption price of $50 per share, plus unpaid dividends.
 
  Changes in Preferred Stock with Mandatory Redemption Provisions
 
<TABLE>
<CAPTION>
                                          1996                  1995                 1994
                                   -------------------   ------------------   ------------------
                                     SHARES     AMOUNT    SHARES     AMOUNT    SHARES     AMOUNT
                                   ----------   ------   ---------   ------   ---------   ------
(IN MILLIONS EXCEPT SHARE
AMOUNTS)                                             PRE-ACQUISITION COMBINED
<S>                                <C>          <C>      <C>         <C>      <C>         <C>
Balance January 1................   1,390,993   $ 130    1,586,764    $147    1,782,508    $163
  Shares redeemed................    (195,751)    (20)    (195,771)    (20)    (195,744)    (20)
  Shares cancelled in the
     Merger......................  (1,195,242)   (113)          --      --           --      --
  Accretion of excess of
     redemption value over fair
     value at date of issue......          --       3           --       3           --       4
                                   ----------   -----    ---------    ----    ---------    ----
Balance December 31..............          --      --    1,390,993    $130    1,586,764    $147
                                   ==========   =====    =========    ====    =========    ====
</TABLE>
 
10. INVENTORIES
 
     Inventories consisted of the following at December 31:
 
<TABLE>
<CAPTION>
                                                            1996                    1995
                                                      ----------------        ----------------
                                                      POST-ACQUISITION        PRE-ACQUISITION
(IN MILLIONS)                                           CONSOLIDATED              COMBINED
<S>                                                   <C>                     <C>
Materials and supplies..............................        $19                     $24
Gas in storage......................................         23                      12
                                                            ---                     ---
          Total.....................................        $42                     $36
                                                            ===                     ===
</TABLE>
 
11. PROPERTY, PLANT, AND EQUIPMENT
 
     Property, plant and equipment consisted of the following at December 31:
 
<TABLE>
<CAPTION>
                                                              1996                1995
                                                        ----------------    -----------------
                                                        POST-ACQUISITION     PRE-ACQUISITION
(IN MILLIONS)                                             CONSOLIDATED          COMBINED
<S>                                                     <C>                 <C>
Property, plant, and equipment, at cost...............       $2,371              $6,272
Less -- accumulated depreciation and depletion........           --               3,431
                                                            -------             -------
                                                              2,371               2,841
Additional acquisition cost assigned to utility plant,
  net of accumulated amortization.....................        1,581                  --
                                                            -------             -------
          Total property, plant and equipment, net....       $3,952              $2,841
                                                            =======             =======
</TABLE>
 
     Current FERC policy does not permit the Company to recover amounts in
excess of original cost allocated in purchase accounting to its regulated
operations through rates.
 
12. INVESTMENT IN AFFILIATED COMPANIES
 
     The Company holds investments in various affiliates which are accounted for
on the equity method of accounting. The principal equity method investments were
the Company's investments in international
 
                                       44
<PAGE>   48
 
pipelines, interstate pipelines, power generation plants, gathering systems and
natural gas storage facilities. These investments were subject to certain
purchase accounting adjustments at December 31, 1996, as discussed in Note 1,
"Merger and Distributions."
 
     At December 31, 1996 and 1995, the Company's consolidated stockholders'
equity and combined equity, respectively, included equity in undistributed
earnings from equity method investments of $12 million and $25 million,
respectively. Dividends and distributions received from affiliates accounted for
on the equity method were $43 million, $53 million and $48 million during 1996,
1995 and 1994, respectively.
 
     At December 31, 1996, the Company's investment in affiliates balance
exceeded the underlying net assets of its investments by $69 million. The excess
is being amortized into income by decreasing equity in net income of affiliated
companies using the straight-line method over the estimated economic useful
life.
 
     Summarized financial information of the Company's proportionate share of 50
percent or less owned companies accounted for by the equity method of accounting
as of December 31, 1996, 1995 and 1994, and for the years then ended is as
follows:
 
<TABLE>
<CAPTION>
                                                        1996                1995          1994
                                                  ----------------    ----------------    -----
                                                  POST-ACQUISITION    PRE-ACQUISITION COMBINED
(IN MILLIONS)                                       CONSOLIDATED
<S>                                               <C>                 <C>                 <C>
Current assets..................................        $ 46                $ 60           $ 47
Non-current assets..............................         545                 543            901
Short-term debt.................................          18                 122             19
Other current liabilities.......................          37                  24             61
Long-term debt..................................         244                 152            494
Other non-current liabilities...................          39                  25             16
Equity in net assets............................         253                 280            358
Revenues and other income.......................          98                 184            183
Costs and expenses..............................          68                 119            132
Net income......................................          30                  65             51
</TABLE>
 
---------------
 
NOTE: Balance sheet amounts related to Kern River are not included in the table
      above as of December 31, 1996 and 1995, due to the Company's sale of its
      investment in Kern River in December 1995. Reference is made to Note 6 for
      information concerning the sale of Kern River.
 
13. NATURE OF OPERATIONS AND SIGNIFICANT CUSTOMERS
 
     The Company is engaged in the transportation, gathering, processing and
marketing of natural gas. For the year ended December 31, 1996, the Company's
operating revenues were predominately derived from the transportation and
marketing of natural gas. The Company's principal end markets for the
transportation of natural gas are the Northeast and Midwest United States. Prior
to the Merger, Tenneco Credit Corporation (now renamed El Paso Energy Credit
Corporation), a Company subsidiary, was engaged in financing, on a nonrecourse
basis, receivables of other operating divisions of Old Tenneco. El Paso Energy
Credit Corporation continues to sell certain energy receivables in the ordinary
course of its business subsequent to the Merger.
 
     The Company did not have gross revenues from any customer equal to, or in
excess of, 10 percent of the combined operating revenues for the years ended
December 31, 1996, 1995, and 1994.
 
14. SUPPLEMENTAL CASH FLOW INFORMATION
 
     The following table contains supplemental cash flow information for the
years ended December 31:
 
<TABLE>
<CAPTION>
                                                              1996      1995      1994
                                                              -----    ------    ------
(IN MILLIONS)                                                 PRE-ACQUISITION COMBINED
<S>                                                           <C>      <C>       <C>
Interest....................................................   $491     $ 420     $ 349
Income taxes................................................    251      (123)     (129)
</TABLE>
 
---------------
 
NOTE: Amounts presented represent tax payments made by the Company net of
      refunds and tax payments received from Old Tenneco affiliates under the
      tax sharing agreement in effect prior to the Merger.
 
                                       45
<PAGE>   49
 
15. TRANSACTIONS WITH AFFILIATES
 
  Combined Equity
 
     The "Combined Equity" caption in the accompanying combined financial
statements represents Old Tenneco's cumulative investment in the combined
businesses of the Company prior to the Merger. Changes in the "Combined Equity"
caption represent the net income (loss) of the Company, cash paid for interest
allocated to affiliates, net of tax, changes in corporate debt allocated to
affiliates, contributions from (distributions to) Old Tenneco stockholders, and
net cash and noncash contributions from (distributions to) affiliates. Reference
is made to the statements of changes in consolidated stockholders' equity and
combined equity for an analysis of activity in the "Pre-Acquisition Combined
Equity" caption for each of the three years in the period ended December 31,
1996.
 
  General and Administrative Expenses
 
     Included in the total general and administrative expenses for 1996, 1995
and 1994, is $17 million, $16 million, and $13 million, respectively, which
represents the Company's share of Old Tenneco's corporate general and
administrative costs for legal, financial, communication and other
administrative services. Old Tenneco's corporate general and administrative
expenses have been allocated based on the estimated level of effort devoted to
Old Tenneco's various operations and relative size based on revenues, gross
property and payroll. The Company's management believes the method for
allocating corporate general and administrative expenses is reasonable and that
total general and administrative expenses reflected in the accompanying
pre-acquisition combined statements of income are reasonable when compared with
the total general and administrative costs the Company would have incurred on a
stand-alone basis.
 
  Corporate Debt and Interest Allocations
 
     The Company's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries rather than at the operating company level, and to centrally manage
various cash functions. Consequently, corporate debt of the Company and its
related interest expense have been allocated to Old Tenneco's automotive,
packaging, and shipbuilding businesses ("Old Tenneco's non-energy operations")
based upon the portion of Old Tenneco's investment in Old Tenneco's non-energy
operations that is deemed to be debt, generally based upon the ratio of Old
Tenneco's non-energy operations' net assets to Old Tenneco's consolidated net
assets plus debt. Interest expense was allocated at a rate equivalent to the
weighted-average cost of all corporate debt, which was 8.2 percent, 7.7 percent
and 8.3 percent for 1996, 1995 and 1994, respectively. Total pre-tax interest
expense allocated to Old Tenneco's non-energy operations in 1996, 1995 and 1994
was $211 million, $180 million and $120 million, respectively. Old Tenneco's
non-energy operations have also been allocated tax benefits totaling
approximately 35 percent of the allocated pre-tax interest expense. Although
interest expense, and the related tax effects, have been allocated to Old
Tenneco's non-energy operations for financial reporting on a historical basis,
Old Tenneco's non-energy operations have not been billed for these amounts. The
changes in allocated corporate debt and the after-tax allocated interest expense
have been included as a component of the Company's combined equity. Although
management believes that the historical allocation of corporate debt and
interest expense is reasonable, it is not necessarily indicative of the debt
currently borrowed by the Company or the debt which the Company may incur in the
future.
 
  Notes and Advances Receivable or Payable with Affiliates
 
     "Cash contributions from (distributions to) affiliates" in the statements
of changes in consolidated stockholders' equity and combined equity consist of
net cash changes in notes and advances receivable or payable between the Company
and the Industrial Business and Shipbuilding Business which have been included
in combined equity. Historically, Old Tenneco has utilized notes and advances to
centrally manage cash funding requirements for its consolidated group.
 
     At December 31, 1995, the Company had an interest-bearing note payable to
the Industrial Business totaling $494 million, which was due on demand and
included as a component of the Company's combined
 
                                       46
<PAGE>   50
 
equity. At December 31, 1995, the Company had a non-interest bearing note
payable to the Shipbuilding Business totaling $965 million, which is included as
a component of the Company's combined equity. The unpaid balances of all notes
and advances between the Company, the Industrial Business and the Shipbuilding
Business were capitalized and forgiven immediately prior to the Distributions.
 
     The "Note payable to affiliates" balance at December 31, 1996 relates to an
interest-bearing demand loan made to TGP from EPG in December 1996 subsequent to
the Merger.
 
  Accounts Receivable and Accounts Payable -- Affiliated Companies
 
     The December 31, 1995 "Accounts payable -- Affiliated companies" balance
primarily includes billings for general and administrative costs incurred by the
Industrial Business and charged to the Company. The December 31, 1995 "Accounts
receivable -- Affiliated companies" balance primarily relates to billings for
U.S. income taxes incurred by Old Tenneco and charged to the Industrial Business
and Shipbuilding Business. Affiliated accounts receivable and accounts payable
between the Company and the Industrial Business and Shipbuilding Business were
settled, capitalized or converted into ordinary trade accounts, as applicable,
as part of the Distributions.
 
     The December 31, 1996 "Accounts receivable -- Affiliated companies" balance
relates to
interest-bearing advances of cash flows from TGP operations to EPG.
 
  Employee Benefits
 
     Certain employees of the Company participated in Old Tenneco's employee
stock ownership and employee stock purchase plans. The Old Tenneco employee
stock ownership plan provided for the grant of Old Tenneco common stock options
and other stock awards at a price not greater than market value at the date of
grant. The Old Tenneco employee stock purchase plan allowed employees to
purchase Old Tenneco common stock at a 15 percent discount subject to certain
thresholds. Certain employees of the Industrial Business and Shipbuilding
Business also participated in Old Tenneco's employee stock ownership and
employee stock purchase plans. The cost of stock issued to these employees was
billed to the Industrial Business and Shipbuilding Business. In connection with
the Distributions, outstanding options on Old Tenneco common stock held by the
Company's employees were vested so that they became fully exercisable prior to
the Merger. If not exercised prior to the Merger, such options were cancelled
upon consummation of the Merger. Outstanding options on Old Tenneco common stock
held by the Industrial Business and Shipbuilding Business employees were
converted into new options of New Tenneco and Newport News, as applicable, so as
to preserve the aggregate value of the options held prior to the Distributions.
 
     Employees of the Company also participated in certain Old Tenneco
postretirement and pension plans. Reference is made to Note 8, "Employee
Benefits," for a further discussion of the plans.
 
  Sales of Receivables
 
     At December 31, 1995, Tenneco Credit Corporation (now renamed El Paso
Energy Credit Corporation) had purchased $513 million of trade receivables from
Old Tenneco's Industrial Business. Tenneco Credit Corporation sold a portion of
these trade receivables to a third party in the ordinary course of business. In
addition, at December 31, 1995, Tenneco Credit Corporation had certain notes
receivable primarily related to retail sales of farm and construction equipment
by Case Corporation which it received in a prior transaction. As a part of the
intercompany transfers preceding the Merger and Distributions, Tenneco Credit
Corporation transferred these Case Corporation retail receivables and all of its
interest and obligations associated with receivables relating to the Industrial
Business held or factored at that time to New Tenneco.
 
                                       47
<PAGE>   51
 
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                    -- PRE-ACQUISITION --
                                                                          COMBINED
                                                        ---------------------------------------------
                       QUARTER                          OPERATING       OPERATING            NET
                    (IN MILLIONS)                       REVENUES         INCOME         INCOME (LOSS)
                    -------------                       ---------       ---------       -------------
<S>                                                     <C>          <C>                <C>
1996 1st..............................................   $  754           $ 63              $  49
      2nd.............................................      629             42                 24
      3rd.............................................      636             49                 22
      4th.............................................      716             28               (200)
                                                         ------           ----              -----
                                                         $2,735           $182              $(105)
                                                         ======           ====              =====
1995 1st..............................................   $  529           $ 54              $  32
      2nd.............................................      447             30                 15
      3rd.............................................      439             46                  5
      4th.............................................      560              2                105
                                                         ------           ----              -----
                                                         $1,975           $132              $ 157
                                                         ======           ====              =====
</TABLE>
 
---------------
 
NOTE: See Item 7, Management's Discussion and Analysis of Financial Condition
      and Results of Operations and Notes 1, 3, 6, and 7 of the notes to
      consolidated and combined financial statements for significant issues
      affecting comparability of quarterly results.
 
                                       48
<PAGE>   52
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To El Paso Tennessee Pipeline Co.:
 
     We have audited the accompanying post-acquisition balance sheet of El Paso
Tennessee Pipeline Co. ("EPTPC") and consolidated subsidiaries as of December
31, 1996 and the pre-acquisition combined balance sheet of the Energy Businesses
of EPTPC, as predecessor operations to EPTPC and consolidated subsidiaries (see
Note 1), as of December 31, 1995, and the related pre-acquisition combined
statements of income, cash flows and changes in consolidated stockholders'
equity and combined equity for each of the three years in the period ended
December 31, 1996. These consolidated and combined financial statements, and the
schedule referred to below, are the responsibility of EPTPC's management. Our
responsibility is to express an opinion on these consolidated and combined
financial statements and schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated and combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
and combined financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated and combined financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
     In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the post-acquisition
financial position of EPTPC and consolidated subsidiaries as of December 31,
1996 and the pre-acquisition combined financial position of the Energy
Businesses of EPTPC as of December 31, 1995, and the results of their
pre-acquisition combined operations and cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
 
     Our audits were made for the purpose of forming an opinion on the basic
consolidated and combined financial statements taken as a whole. The
supplemental schedule listed in the index to Part IV, Item 14 is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated and combined financial statements. The
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic consolidated and combined financial statements and, in
our opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic consolidated and combined
financial statements taken as a whole.
 
                                    ARTHUR ANDERSEN LLP
 
Houston, Texas
March 4, 1997
 
                                       49
<PAGE>   53
 
                                  SCHEDULE II
 
                         EL PASO TENNESSEE PIPELINE CO.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                COLUMN A                   COLUMN B           COLUMN C            COLUMN D    COLUMN E
                --------                   --------    -----------------------    --------    --------
                                          BALANCE AT   CHARGED TO   CHARGED TO                BALANCE
                                          BEGINNING    COSTS AND      OTHER                    AT END
              DESCRIPTION                  OF YEAR      EXPENSES     ACCOUNTS    DEDUCTIONS   OF YEAR
              -----------                 ----------   ----------   ----------   ----------   --------
<S>                                       <C>          <C>          <C>          <C>          <C>
Allowance for Doubtful Accounts Deducted
  from Assets to Which it Applies:
  Year Ended December 31, 1996..........     $49          $15          $ 8          $27         $45
                                             ===          ===          ===          ===         ===
  Year Ended December 31, 1995..........     $21          $26          $ 9          $ 7         $49
                                             ===          ===          ===          ===         ===
  Year Ended December 31, 1994..........     $37          $ 2          $ 2          $20         $21
                                             ===          ===          ===          ===         ===
</TABLE>
 
                                       50
<PAGE>   54
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information appearing under the caption "Proposal No. 1 -- Election of
Directors" in EPTPC's proxy statement for the 1997 Annual Meeting of
Stockholders is incorporated herein by reference. Information regarding
executive officers of EPTPC is presented in Item 1 of this Form 10-K under the
caption "Executive Officers of the Registrant" and is incorporated herein by
reference.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Information appearing under the caption "Executive Compensation" in EPTPC's
proxy statement for the 1997 Annual Meeting of Stockholders is incorporated
herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
 
     Information appearing under the caption "Security Ownership of a Certain
Beneficial Owner" in EPTPC's proxy statement for the 1997 Annual Meeting of
Stockholders is incorporated herein by reference. Information appearing under
the caption "Security Ownership of Directors and Executive Officers" in EPTPC's
proxy statement for the 1997 Annual Meeting of Stockholders is incorporated
herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Information appearing under the caption "Relationships with El Paso Energy
Corporation and El Paso Natural Gas Company" in EPTPC's proxy statement for the
1997 Annual Meeting of Stockholders is incorporated herein by reference.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as a part of this report:
 
      1. Financial statements.
 
     The following consolidated and combined financial statements of the Company
are included in Part II, Item 8 of this report:
 
<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                           <C>
     Combined statements of income..........................     22
     Consolidated and combined balance sheets...............     23
     Combined statements of cash flows......................     24
     Statements of changes in consolidated stockholders'
      equity and combined equity............................     25
     Notes to consolidated and combined financial
      statements............................................     26
     Report of independent public accountants...............     49
</TABLE>
 
      2. Financial statement schedules and supplementary information required to
be submitted.
 
<TABLE>
<S>                                                           <C>
     Schedule II -- Valuation and qualifying accounts.......     50
     Schedules other than that listed above are omitted
      because they are not applicable
 
 3. Exhibit list............................................     53
</TABLE>
 
                                       51
<PAGE>   55
 
     (b) Reports on Form 8-K:
 
     On November 6, 1996, Tenneco Inc. (now renamed El Paso Tennessee Pipeline
Co.) filed a report under Item 5 on Form 8-K, dated November 6, 1996, with
respect to the resignation of the President and Chief Executive Officer of
Tenneco Automotive.
 
     On November 13, 1996, Tenneco Inc. (now renamed El Paso Tennessee Pipeline
Co.) filed a report under Items 5 and 7 on Form 8-K, dated November 13, 1996.
Financial statements for the energy businesses and operations owned directly or
indirectly by Tenneco Inc. and its subsidiaries, and other existing and
discontinued operations of Tenneco Inc. were filed.
 
     On November 18, 1996, Tenneco Inc. (now renamed El Paso Tennessee Pipeline
Co.) filed a report under Items 5 and 7 on Form 8-K, dated November 18, 1996,
with respect to the issuance of 6,000,000 shares of 8 1/4% Cumulative Junior
Preferred Stock, Series A, to a syndicate of underwriters managed by Morgan
Stanley & Co. Incorporated.
 
     On December 26, 1996, EPTPC filed a report under Item 1, 2, 5 and 7 on Form
8-K, dated December 26, 1996, as amended pursuant to an amendment on Form 8-K/A
filed January 21, 1997 respectively, with respect to the Merger.
 
                                       52
<PAGE>   56
 
                         EL PASO TENNESSEE PIPELINE CO.
 
                                  EXHIBIT LIST
                               DECEMBER 31, 1996
 
     The following exhibits are filed with this Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, or are incorporated herein by reference
(exhibits designated by an asterisk are filed with this Report; all other
exhibits are incorporated herein by reference to a prior filing):
 
<TABLE>
<C>                      <S>
           2.1           -- Amended and Restated Merger Agreement dated as of June
                            19, 1996, among EPG, El Paso Merger Company and Old
                            Tenneco (Exhibit 2.A to Registration No. 333-10911).
           2.2           -- Distribution Agreement, dated as of November 1, 1996,
                            among Old Tenneco, New Tenneco Inc. and Newport News
                            Shipbuilding Inc. (Exhibit 2.2 to the Form 8-K of EPG
                            dated December 26, 1996, File No. 1-2700).
           2.3           -- Amendment No. 1 to Distribution Agreement entered into as
                            of December 11, 1996, by and among Old Tenneco, New
                            Tenneco Inc. and Newport News Shipbuilding Inc. (Exhibit
                            2.3 to the Form 8-K/A of EPG dated January 21, 1997, File
                            No. 1-2700).
           3.1           -- Certificate of Incorporation as amended and supplemented
                            as of March 1, 1995 (Exhibit 3(a)(1) to Form 10-K of
                            Tenneco Inc. for the fiscal year ended December 31, 1994,
                            File No. 1-9864).
          *3.2           -- Certificate of Retirement of Preferred Stock Redeemed or
                            Purchased, dated February 16, 1996; Certificate of
                            Elimination of the Series A Cumulative Preferred Stock of
                            Tenneco Inc. dated February 27, 1996; Certificate of
                            Elimination of the Variable Rate Preferred Stock of
                            Tenneco Inc. dated February 27, 1996; Certificate of
                            Elimination of the Participating Preferred Stock of
                            Tenneco Inc. dated February 27, 1996; Certificate of
                            Designation, Preferences and Rights of 8 1/4% Cumulative
                            Junior Preferred Stock, Series A, dated November 18,
                            1996; Certificate of Amendment of Certificate of
                            Incorporation, dated December 11, 1996; Certificate of
                            Merger dated December 11, 1996; and Certificate of
                            Designation, Preferences and Rights of 8 1/2% Cumulative
                            Junior Preferred Stock, Series B, dated March 5, 1997.
          *3.2           -- By-laws of EPTPC effective December 12, 1996.
          *4.1           -- Indenture dated as of March 4, 1997, between TGP and The
                            Chase Manhattan Bank.
          *4.2           -- First Supplemental Indenture dated as of March 13, 1997,
                            between TGP and The Chase Manhattan Bank to the Indenture
                            dated as of March 4, 1997, between TGP and The Chase
                            Manhattan Bank.
          *4.3           -- Second Supplemental Indenture dated as of March 13, 1997,
                            between TGP and The Chase Manhattan Bank to the Indenture
                            dated as of March 4, 1997, between TGP and The Chase
                            Manhattan Bank.
          *4.4           -- Third Supplemental Indenture dated as of March 13, 1997,
                            between TGP and The Chase Manhattan Bank to the Indenture
                            dated as of March 4, 1997, between TGP and The Chase
                            Manhattan Bank.
          10.1           -- $3 billion Revolving Credit and Competitive Advance
                            Facility Agreement dated as of November 4, 1996 between
                            Tenneco Inc. (renamed El Paso Tennessee Pipeline Co.),
                            The Chase Manhattan Bank and certain other banks (Exhibit
                            10.F to Form 10-K of El Paso Natural Gas Company, File
                            No. 1-2700, filed March 6, 1997).
         *21             -- List of Subsidiaries and Affiliates of El Paso Tennessee
                            Pipeline Co.
</TABLE>
 
                                       53
<PAGE>   57
         *27             -- Financial Data Schedule.
 
UNDERTAKING
 
     The undersigned, EPTPC, hereby undertakes, pursuant to Regulation S-K, Item
601(b), paragraph (4)(iii), to furnish to the Securities and Exchange Commission
upon request all constituent instruments defining the rights of holders of
long-term debt of EPTPC and its consolidated subsidiaries not filed herewith for
the reason that the total amount of securities authorized under any of such
instruments does not exceed 10 percent of the total consolidated assets of EPTPC
and its consolidated subsidiaries.
 
                                       54
<PAGE>   58
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, El Paso Tennessee Pipeline Co. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized on the
14th day of March 1997.
 
                                          EL PASO TENNESSEE PIPELINE CO.
 
                                          By:       /s/ WILLIAM A. WISE
                                            ------------------------------------
                                                      William A. Wise
                                              Chairman of the Board, President
                                                and Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this report has been signed below by the following persons on behalf of
El Paso Tennessee Pipeline Co. and in the capacities and on the dates as
indicated.
 
<TABLE>
<CAPTION>
                 SIGNATURE                                  TITLE                          DATE
                 ---------                                  -----                          ----
<C>                                           <S>                                <C>
 
            /s/ WILLIAM A. WISE               Chairman of the Board, President,            March 14, 1997
--------------------------------------------  Chief Executive Officer and
              William A. Wise                 Director
 
            /s/ H. BRENT AUSTIN               Senior Vice President, Chief                 March 14, 1997
--------------------------------------------  Financial Officer and Director
              H. Brent Austin
 
           /s/ JOEL RICHARDS III              Senior Vice President and Director           March 14, 1997
--------------------------------------------
             Joel Richards III
 
           /s/ BRITTON WHITE, JR.             Senior Vice President, General               March 14, 1997
--------------------------------------------  Counsel and Director
             Britton White, Jr.
 
           /s/ JEFFREY I. BEASON              Vice President, Controller and               March 14, 1997
--------------------------------------------  Director
             Jeffrey I. Beason
</TABLE>
 
                                       55
<PAGE>   59
 
                               INDEX TO EXHIBITS
 
<TABLE>
<C>                      <S>
           2.1           -- Amended and Restated Merger Agreement dated as of June
                            19, 1996, among EPG, El Paso Merger Company and Old
                            Tenneco (Exhibit 2.A to Registration No. 333-10911).
           2.2           -- Distribution Agreement, dated as of November 1, 1996,
                            among Old Tenneco, New Tenneco Inc. and Newport News
                            Shipbuilding Inc. (Exhibit 2.2 to the Form 8-K of EPG
                            dated December 26, 1996, File No. 1-2700).
           2.3           -- Amendment No. 1 to Distribution Agreement entered into as
                            of December 11, 1996, by and among Old Tenneco, New
                            Tenneco Inc. and Newport News Shipbuilding Inc. (Exhibit
                            2.3 to the Form 8-K/A of EPG dated January 21, 1997, File
                            No. 1-2700).
           3.1           -- Certificate of Incorporation as amended and supplemented
                            as of March 1, 1995 (Exhibit 3(a)(1) to Form 10-K of
                            Tenneco Inc. for the fiscal year ended December 31, 1994,
                            File No. 1-9864).
          *3.2           -- Certificate of Retirement of Preferred Stock Redeemed or
                            Purchased, dated February 16, 1996; Certificate of
                            Elimination of the Series A Cumulative Preferred Stock of
                            Tenneco Inc. dated February 27, 1996; Certificate of
                            Elimination of the Variable Rate Preferred Stock of
                            Tenneco Inc. dated February 27, 1996; Certificate of
                            Elimination of the Participating Preferred Stock of
                            Tenneco Inc. dated February 27, 1996; Certificate of
                            Designation, Preferences and Rights of 8 1/4% Cumulative
                            Junior Preferred Stock, Series A, dated November 18,
                            1996; Certificate of Amendment of Certificate of
                            Incorporation, dated December 11, 1996; Certificate of
                            Merger dated December 11, 1996; and Certificate of
                            Designation, Preferences and Rights of 8 1/2% Cumulative
                            Junior Preferred Stock, Series B, dated March 6, 1997.
          *3.3           -- By-laws of EPTPC effective December 12, 1996.
          *4.1           -- Indenture dated as of March 4, 1997, between TGP and The
                            Chase Manhattan Bank.
          *4.2           -- First Supplemental Indenture dated as of March 13, 1997,
                            between TGP and The Chase Manhattan Bank to the Indenture
                            dated as of March 4, 1997, between TGP and The Chase
                            Manhattan Bank.
          *4.3           -- Second Supplemental Indenture dated as of March 13, 1997,
                            between TGP and The Chase Manhattan Bank to the Indenture
                            dated as of March 4, 1997, between TGP and The Chase
                            Manhattan Bank.
          *4.4           -- Third Supplemental Indenture dated as of March 13, 1997,
                            between TGP and The Chase Manhattan Bank to the Indenture
                            dated as of March 4, 1997, between TGP and The Chase
                            Manhattan Bank.
          10.1           -- $3 billion Revolving Credit and Competitive Advance
                            Facility Agreement dated as of November 4, 1996 between
                            Tenneco Inc. (renamed El Paso Tennessee Pipeline Co.),
                            The Chase Manhattan Bank and certain other banks (Exhibit
                            10.F to Form 10-K of El Paso Natural Gas Company, File
                            No. 1-2700, filed March 6, 1997).
         *21             -- List of Subsidiaries and Affiliates of El Paso Tennessee
                            Pipeline Co.
</TABLE>
 
         *27             -- Financial Data Schedule.