UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-2745

Southern Natural Gas Company, L.L.C.

(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		63-0196650 (I.R.S. Employer Identification No.)

El Paso Building 1001 Louisiana Street Houston, Texas (Address of Principal Executive Offices)		77002 (Zip Code)

Telephone Number: (713) 420-2600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o (Do not check if a smaller reporting company) ~~Smaller reporting company o~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

SOUTHERN NATURAL GAS COMPANY, L.L.C. ~~TABLE OF CONTENTS~~

Caption	Page
PART I — Financial Information
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3. Quantitative and Qualitative Disclosures About Market Risk		*
Item 4. Controls and Procedures		11
PART II — Other Information
Item 1. Legal Proceedings		12
Item 1A. Risk Factors		12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		*
Item 3. Defaults Upon Senior Securities		*
Item 4. (Removed and Reserved)		12
Item 5. Other Information		12
Item 6. Exhibits		13
Signatures		14
EX-3.A
EX-3.B
EX-12
EX-31.A
EX-31.B
EX-32.A
EX-32.B
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

TABLE OF CONTENTS


Caption	Page
PART I — Financial Information

Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosures About Market Risk		*
Item 4. Controls and Procedures		11

PART II — Other Information

Item 1. Legal Proceedings		12
Item 1A. Risk Factors		12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		*
Item 3. Defaults Upon Senior Securities		*
Item 4. (Removed and Reserved)		12
Item 5. Other Information		12
Item 6. Exhibits		13
Signatures		14
EX-31.A
EX-31.B
EX-32.A
EX-32.B
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT


^*		We have not included a response to this item in this document since no response is required pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q.

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


/d = per day		BBtu = billion British thermal units

When we refer to “us”, “we”, “our”, or “ours”, we are describing Southern Natural Gas Company, L.L.C. and/or our subsidiaries.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SOUTHERN NATURAL GAS COMPANY, L.L.C. ~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In millions) (Unaudited)~~

	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Operating revenues	$	133		$	131		$	278		$	276
Operating expenses
Operation and maintenance		38			38			72			75
Depreciation and amortization		16			14			31			29
Taxes, other than income taxes		7			7			15			14
		61			59			118			118
Operating income		72			72			160			158
Earnings from unconsolidated affiliate		3			3			7			7
Other income, net		2			1			4			2
Interest and debt expense		(16	)		(16	)		(32	)		(32	)
Affiliated interest income, net		—			—			—			1
Net income	$	61		$	60		$	139		$	136

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions)
(Unaudited)


	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Operating revenues	$	139		$	134		$	417		$	410

Operating expenses
Operation and maintenance		44			41			116			116
Depreciation and amortization		15			15			46			44
Taxes, other than income taxes		8			7			23			21

		67			63			185			181

Operating income		72			71			232			229
Earnings from unconsolidated affiliate		4			4			11			11
Other income, net		1			1			5			3
Interest and debt expense		(20	)		(16	)		(52	)		(48	)
Affiliated interest income, net		2			—			2			1

Net income	$	59		$	60		$	198		$	196

See accompanying notes.

SOUTHERN NATURAL GAS COMPANY, L.L.C. ~~CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited)~~

	June 30,		December 31,
	2011		2010
ASSETS
Current assets
Cash and cash equivalents	$	2	$	4
Accounts and note receivable
Customer, net of allowance		2		3
Affiliates		81		—
Other		18		26
Materials and supplies		16		16
Other		16		14
Total current assets		135		63
Property, plant and equipment, at cost		3,951		3,885
Less accumulated depreciation and amortization		1,393		1,390
Total property, plant and equipment, net		2,558		2,495
Other non-current assets
Investment in unconsolidated affiliate		58		56
Note receivable from affiliate		218		—
Other		70		73
		346		129
Total assets	$	3,039	$	2,687
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts and note payable
Trade	$	21	$	25
Affiliates		14		28
Other		22		31
Taxes payable		14		13
Accrued interest		19		18
Contractual deposits		8		6
Other		4		1
Total current liabilities		102		122
Long-term debt		1,210		910
Other non-current liabilities		31		31
Commitments and contingencies (Note 5)
Partners’ capital		1,696		1,624
Total liabilities and partners’ capital	$	3,039	$	2,687

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)


	September 30,		December 31,
	2011		2010
ASSETS
Current assets
Cash and cash equivalents	$	5	$	4
Accounts and note receivable
Customer, net of allowance		5		3
Affiliates		57		—
Other		20		26
Materials and supplies		16		16
Assets held for sale		50		—
Regulatory assets		13		14
Other		2		—

Total current assets		168		63

Property, plant and equipment, at cost		3,640		3,885
Less accumulated depreciation and amortization		1,135		1,390

Total property, plant and equipment, net		2,505		2,495

Other long-term assets
Investment in unconsolidated affiliate		58		56
Note receivable from affiliate		205		—
Regulatory assets		70		34
Other		39		39

		372		129

Total assets	$	3,045	$	2,687


LIABILITIES AND MEMBER’S EQUITY/PARTNERS’ CAPITAL
Current liabilities
Accounts and note payable
Trade	$	23	$	25
Affiliates		14		28
Other		20		31
Taxes payable		21		13
Accrued interest		22		18
Contractual deposits		9		6
Other		2		1

Total current liabilities		111		122

Long-term debt		1,210		910

Other long-term liabilities		31		31


Commitments and contingencies (Note 5)
Member’s equity/partners’ capital		1,693		1,624

Total liabilities and member’s equity/partners’ capital	$	3,045	$	2,687

See accompanying notes.

SOUTHERN NATURAL GAS COMPANY, L.L.C. ~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)~~

	Six Months Ended
	June 30,
	2011			2010
Cash flows from operating activities
Net income	$	139		$	136
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		31			29
Earnings from unconsolidated affiliate, adjusted for cash distributions		(2	)		—
Other non-cash income items		(2	)		—
Asset and liability changes		10			(21	)
Net cash provided by operating activities		176			144
Cash flows from investing activities
Capital expenditures		(100	)		(51	)
Net change in note receivable from affiliate		(298	)		69
Acquisition		—			(18	)
Proceeds from the sale of assets		—			8
Other		2			2
Net cash provided by (used in) investing activities		(396	)		10
Cash flows from financing activities
Net change in note payable to affiliate		(12	)		—
Net proceeds from issuance of debt		297			—
Contributions from partners		60			—
Distributions to partners		(127	)		(151	)
Net cash provided by (used in) financing activities		218			(151	)
Net change in cash and cash equivalents		(2	)		3
Cash and cash equivalents
Beginning of period		4			—
End of period	$	2		$	3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)


	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities
Net income	$	198		$	196
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		46			44
Earnings from unconsolidated affiliate, adjusted for cash distributions		(2	)		22
Other non-cash income items		(1	)		—
Asset and liability changes		14			(21	)

Net cash provided by operating activities		255			241

Cash flows from investing activities
Capital expenditures		(150	)		(120	)
Net change in note receivable from affiliate		(262	)		100
Acquisition		—			(18	)
Proceeds from the sale of assets		—			8
Other		2			—

Net cash used in investing activities		(410	)		(30	)

Cash flows from financing activities
Net change in note payable to affiliate		(12	)		—
Net proceeds from issuance of debt		297			—
Contributions from partners		60			—
Distributions to member/partners		(189	)		(205	)

Net cash provided by (used in) financing activities		156			(205	)

Net change in cash and cash equivalents		1			6
Cash and cash equivalents
Beginning of period		4			—

End of period	$	5		$	6

See accompanying notes.

SOUTHERN NATURAL GAS COMPANY, L.L.C. ~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

We prepared this Quarterly Report on Form 10-Q under the rules and regulations of the United States Securities and Exchange Commission. As an interim period filing presented using a condensed format, it does not include all of the disclosures required by U.S. generally accepted accounting principles, and should be read along with our 2010 Annual Report on Form 10-K. The financial statements as of ~~June~~September 30, 2011, and for the quarters and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, are unaudited. The condensed consolidated balance sheet as of December 31, 2010 was derived from the audited balance sheet filed in our 2010 Annual Report on Form 10-K. In our opinion, we have made adjustments, all of which are of a normal, recurring nature, to fairly present our interim period results. Due to the seasonal nature of our business, information for interim periods may not be indicative of our operating results for the entire year. Our disclosures in this Form 10-Q are an update to those provided in our 2010 Annual Report on Form 10-K.

During 2011, El Paso Pipeline Partners, L.P. (EPB) acquired the remaining 40 percent interest (25 percent in March and 15 percent in June) in us from El Paso Corporation (El Paso) and we became an indirect wholly owned subsidiary of EPB. EPB is controlled by its general partner, El Paso Pipeline GP Company, L.L.C., a wholly-owned subsidiary of El Paso.

Effective August 1, 2011, we converted our legal structure to a limited liability company and changed our name to Southern Natural Gas Company, L.L.C.

On October 16, 2011, El Paso announced a definitive agreement with Kinder Morgan, Inc. (KMI) whereby KMI will acquire El Paso in a transaction that values El Paso at approximately $38 billion including the assumption of debt. The transaction has been approved by each company’s board of directors but remains subject to approvals of El Paso shareholders, the Federal Trade Commission (FTC) and other customary regulatory and other approvals. The approval of KMI shareholders will also be required, but a voting agreement has been executed by the majority of the shareholders of KMI to support the transaction.

Significant Accounting Policies

There were no changes in the significant accounting policies described in our 2010 Annual Report on Form 10-K and no significant accounting pronouncements issued but not yet adopted as of ~~June~~September 30, 2011.

2. Acquisition and Divestiture

Acquisition and Divestiture

In 2010, we purchased certain pipeline assets from Elba Express Company, L.L.C. (Elba Express), our affiliate, for $18 million and sold certain pipeline assets to Elba Express for net proceeds of $8 million. We recorded both the purchase and sale at their historical cost and accordingly, we recognized no gain or loss on these transactions.

3. Assets ~~Financial~~Held ~~Instruments~~for Sale

AtIn ~~June~~September 302011, ~~2011~~we ~~and~~entered ~~December 31,~~into ~~2010,~~an ~~the~~agreement ~~carrying~~to ~~amounts~~sell ofcertain ~~cash~~offshore and ~~cash~~onshore ~~equivalents and~~assets ~~trade~~(including ~~receivables~~pipeline, platforms and ~~payables~~other ~~represent~~related ~~fair~~assets ~~value~~located ~~because~~in of the ~~short-term~~Gulf ~~nature~~ of ~~these~~Mexico and ~~instruments~~Louisiana) for approximately $50 million. At ~~June~~ September 30, 2011, we ~~had~~classified anthese ~~interest~~assets ~~bearing~~as ~~note~~held ~~receivable~~for ~~from EPB of approximately~~sale ~~$298 million.~~at Atfair ~~December 31,~~value ~~2010,~~which ~~this~~approximates ~~note~~the ~~carried~~sales aprice. ~~payable~~The ~~balance~~fair tovalue ~~EPB of approximately $12~~is ~~million.~~based ~~The~~on ~~interest~~observable ~~rate~~market ondata ~~this~~which ~~note~~ is ~~variable~~a ~~and~~Level ~~was~~ 2 measurement.2% ~~and~~We ~~0.8%~~deferred atthe ~~June 30,~~estimated ~~2011~~loss ~~and~~of ~~December~~approximately $35 ~~31,~~million ~~2010.~~as ~~While~~a weregulatory ~~are~~asset. ~~exposed~~The tosale ~~changes~~is incontingent ~~interest~~upon ~~income~~receiving oran acceptable ~~expense~~FERC ~~based~~approval onof ~~changes to~~ the ~~variable~~abandonment ~~interest~~application ~~rate,~~including the ~~fair~~ability ~~value~~to ofrecover ~~this note approximates its carrying value due to~~ the regulatory ~~note~~asset ~~being~~in ~~due~~our orfuture ~~payable~~rates, onwhich ~~demand~~we ~~and~~believe ~~the~~is ~~market-based nature of the interest rate~~probable.

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

	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In millions)
Long-term debt	$	1,210	$	1,368	$	910	$	984

3. Financial Instruments

At September 30, 2011 and December 31, 2010, the carrying amounts of cash and cash equivalents and trade receivables and payables represent fair value because of the short-term nature of these instruments. At September 30, 2011, we had an interest bearing note receivable from EPB of approximately $262 million. At December 31, 2010, this note carried a payable balance to EPB of approximately $12 million. The interest rate on this note is variable and was 2.2% and 0.8% at September 30, 2011 and December 31, 2010. While we are exposed to changes in interest income or expense based on changes to the variable interest rate, the fair value of this note approximates its carrying value due to the note being due or payable on demand and the market-based nature of the interest rate.

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


	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
			(In millions)
Long-term debt	$	1,210	$	1,373	$	910	$	984

4. Debt

In June 2011, we and our wholly owned finance subsidiary, Southern Natural Issuing Corporation (SNIC) , issued $300 million aggregate principal amount of senior unsecured notes at 4.4 percent, due June 15, 2021. The net proceeds of $297 million from this offering were advanced to EPB under its cash management program and will be ~~used~~subsequently ~~for~~utilized to fund our growth capital expenditures and for general corporate purposes. The indenture governing these notes contains restrictions and covenants, none of which are more restrictive than those of our existing debt covenants.

SNIC as the co-issuer of the debt securities is jointly and severally liable for the obligation. SNIC has no material assets, operations, revenues or cash flows other than those related to its service as a co-issuer of our debt securities. Accordingly, it has no ability to service obligations on our debt securities.

5. Commitments and Contingencies

Legal Proceedings

We and our affiliates are named defendants in numerous legal proceedings and claims that arise in the ordinary course of our business. For each of these matters, we evaluate the merits of the case or claim, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be estimated, we establish the necessary accruals. While the outcome of these matters cannot be predicted with certainty, and there are still uncertainties related to the costs we may incur, based upon our evaluation and experience to date, we believe we have established appropriate reserves for these matters. It is possible, however, that new information or future developments could require us to reassess our potential exposure related to these matters and adjust our accruals accordingly, and these adjustments could be material. As of ~~June~~September 30, 2011, we had approximately $2 million accrued for all of our outstanding legal proceedings.

Environmental Matters

We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remedy the effect of the disposal or release of specified substances at current and former operating sites. At ~~June~~ September 30, 2011, our accrual was less than $1 million for our environmental matters.

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

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

We expect to make capital expenditures for environmental matters of approximately $2 million in the aggregate for the remainder of 2011 through 2015, including capital expenditures associated with the impact of the Environmental Protection Agency rule on emissions of hazardous air pollutants from reciprocating internal combustion engines which are subject to regulations with which we have to be in compliance by October 2013.

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

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

We expect to make capital expenditures for environmental matters of approximately $3 million in the aggregate for the remainder of 2011 through 2015, including capital expenditures associated with the impact of the Environmental Protection Agency rule on emissions of hazardous air pollutants from reciprocating internal combustion engines which are subject to regulations with which we have to be in compliance by October 2013.

Other Commitment

During 2009, we entered into a $57 million letter of credit associated with our estimated construction cost related to the Southeast Supply Header project. As invoices are paid under the contract, we are able to reduce the value of the letter of credit. At ~~June~~September 30, 2011, the letter of credit has been reduced to approximately $18 million.

6. Accounts Receivable Sales Program

We participate in an accounts receivable sales program where we sell receivables in their entirety to a third party financial institution (through a wholly-owned special purpose entity). The sale of these accounts receivable (which are short-term assets that generally settle within 60 days) qualify for sale accounting. The third party financial institution involved in our accounts receivable sales program acquires interests in various financial assets and issues commercial paper to fund those acquisitions. We do not consolidate the third party financial institution because we do not have the power to control, direct, or exert significant influence over its overall activities since our receivables do not comprise a significant portion of its operations.

In connection with our accounts receivable sales, we receive a portion of the sales proceeds up front and receive an additional amount upon the collection of the underlying receivables (which we refer to as a deferred purchase price). Our ability to recover the deferred purchase price is based solely on the collection of the underlying receivables. The ~~table~~tables below ~~contains~~contain information related to our accounts receivable sales program.

	Quarter Ended				~~Six~~Nine Months Ended
	June 30,				June 30,
	September 30,				September 30,
	2011		2010		2011		2010
	~~(In millions)~~		(In millions)
Accounts receivable sold to the third-party financial institution(1)	$	~~138~~143	$	~~137~~144	$	~~300~~443	$	~~283~~427
Cash received for accounts receivable sold under the program		8886		8891		~~184~~270		~~211~~302
Deferred purchase price related to accounts receivable sold		5057		4953		~~116~~173		72125
Cash received related to the deferred purchase price		53		5251		~~126~~179		~~109~~160
Amount paid in conjunction with terminated programs(2)		—		—		—		30
Amount paid in conjunction with terminated program(2)		—		—		—		30

(1)		During the quarters and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, losses recognized on the sale of accounts receivable were immaterial.
(2)		In January 2010, we terminated our previous accounts receivable sales program and paid $30 million to acquire the related senior interests in certain receivables under that program. See our 2010 Annual Report on Form 10-K for further information.

	June 30,		December 31,
	2011		2010
	(In millions)
Accounts receivable sold and held by third-party financial institution	$	47	$	56
Uncollected deferred purchase price related to accounts receivable sold(1)		16		26


	September 30,		December 31,
	2011		2010
	(In millions)
Accounts receivable sold and held by third-party financial institution	$	47	$	56
Uncollected deferred purchase price related to accounts receivable sold⁽¹⁾		20		26


⁽¹⁾		Initially recorded at an amount which approximates its fair value using observable inputs other than quoted prices in active markets.

The deferred purchase price related to the accounts receivable sold is reflected as other accounts receivable on our balance sheet. Because the cash received up front and the deferred purchase price relate to the sale or ultimate collection of the underlying receivables, and are not subject to significant other risks given their short term nature, we reflect all cash flows under the accounts receivable sales program as operating cash flows on our statement of cash flows. Under the accounts receivable sales program, we service the underlying receivables for a fee. The fair value of this servicing agreement, as well as the fees earned, were not material to our financial statements for the quarters and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010.

7. Investment in Unconsolidated Affiliate and Transactions with Affiliates

Investment in Unconsolidated Affiliate

We have a 50 percent ownership interest in Bear Creek Storage Company, L.L.C. (Bear Creek), a joint venture with Tennessee Gas Pipeline Company, L.L.C., our affiliate. For the ~~six~~nine months ended ~~June~~ September 30, 2011 and 2010, we received $59 million and $710 million in cash distributions from Bear Creek. Also, during the third quarter of 2010, Bear Creek utilized its note receivable balance under the cash management program with El Paso to pay a cash distribution to its partners, including $23 million to us.

Summarized financial information for our proportionate share of Bear Creek is presented as follows:

	Quarter Ended				~~Six~~Nine Months Ended
	June 30,				June 30,
	September 30,				September 30,
	2011		2010		2011		2010
	~~(In millions)~~		(In millions)
Operating results data:
Operating revenues	$	5	$	5	$	1015	$	1015
Operating expenses		21		21		34		34
Income from continuing operations and net income		34		34		711		711

Transactions with Affiliates

EPB Acquisition. During 2011, EPB acquired the remaining 40 percent interest (25 percent in March and 15 percent in June) in us from El Paso and we became an indirect wholly owned subsidiary of EPB.

Distributions and Contributions. We are required to make distributions to ofour ~~available~~owners ~~cash~~ as defined in our partnership and limited liability company agreements on a quarterly basis. During the ~~six~~ nine months ended ~~June~~September 30, 2011 and 2010, we paid cash distributions of approximately $~~127~~189 million and $~~151~~205 million to our member/partners. In addition, in ~~July~~October 2011, we paid a cash ~~distributions~~distribution to our ~~partners~~ member of approximately $6162 million. During the nine ~~six~~ months ended ~~June~~September 30, 2011, we received cash contributions of approximately $60 million from our partners to fund our expansion projects.

Cash Management Program. We participate in EPB’s cash management program which matches short-term cash surpluses and needs of participating affiliates, thus minimizing total borrowings from outside sources. EPB uses the cash management program to settle intercompany transactions between participating affiliates. At ~~June~~September 30, 2011, we had a note receivable from EPB of approximately $~~298~~262 million. We classified $8057 million of this receivable as current on our balance sheet at ~~June~~September 30, 2011 based on the net amount we anticipate using in the next twelve months considering available cash sources and needs. At December 31, 2010 this note carried a payable balance to EPB of approximately $12 million which was classified as current on our balance sheet. The interest rate on this note is variable and was 2.2% and 0.8% at ~~June~~September 30, 2011 and December 31, 2010.

Affiliate Revenues and Expenses. We enter into transactions with our affiliates within the ordinary course of business. For a further discussion of our affiliated transactions, see our 2010 Annual Report on Form 10-K. The following table shows revenues and charges from our affiliates:

	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(In millions)
Revenues	$	2	$	2	$	4	$	4
Operation and maintenance expenses		29		29		56		59
Reimbursement of operating expenses		1		1		2		2

Affiliate Revenues and Expenses. We enter into transactions with our affiliates within the ordinary course of business. For a further discussion of our affiliated transactions, see our 2010 Annual Report on Form 10-K. The following table shows revenues and charges from our affiliates.


	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
			(In millions)
Revenues	$	2	$	2	$	6	$	6
Operation and maintenance expenses		30		28		86		87
Reimbursement of operating expenses		1		1		3		3

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

The information required by this Item is presented in a reduced disclosure format pursuant to General Instruction H to Form 10-Q. In addition, this Item updates, and should be read in conjunction with, the information disclosed in our 2010 Annual Report on Form 10-K, and the financial statements and notes presented in Item 1 of this Quarterly Report on Form 10-Q.

On October 16, 2011, El Paso announced a definitive agreement with KMI whereby KMI will acquire El Paso in a transaction that values El Paso at approximately $38 billion including the assumption of debt. The transaction has been approved by each company’s board of directors but remains subject to the approvals of El Paso shareholders, the FTC and other customary regulatory and other approvals. The approval of KMI shareholders will also be required, but a voting agreement has been executed by the majority of the shareholders of KMI to support the transaction.

Results of Operations

Beginning January 1, 2011, our management uses segment earnings before interest expense and income taxes (Segment EBIT) as a measure to assess the operating results and effectiveness of our business, which consists of consolidated operations as well as an investment in an unconsolidated affiliate. We believe Segment EBIT is useful to investors to provide them with the same measure used by our management to evaluate our performance and so that investors may evaluate our operating results without regard to our financing methods. Segment EBIT is defined as net income adjusted for items such as interest and debt expense, and affiliated interest income. Segment EBIT may not be comparable to measures used by other companies. Additionally, Segment EBIT should be considered in conjunction with net income and other performance measures such as operating income or operating cash flows. Below is a reconciliation of our Segment EBIT to net income, our throughput volumes and an analysis and discussion of our results for the ~~six~~nine months ended ~~June~~September 30, 2011 compared with the same period in 2010.

Operating Results:

	2011			2010
	(In millions,
	except for volumes)
Operating revenues	$	~~278~~417		$	~~276~~410
Operating expenses		(~~118~~185	)		(~~118~~181	)
Operating income		~~160~~232			~~158~~229
Earnings from unconsolidated affiliate		711			711
Other income, net		45			23
Segment EBIT		~~171~~248			~~167~~243
Interest and debt expense		(3252	)		(3248	)
Affiliated interest income, net		—2			1
Net income	$	~~139~~198		$	~~136~~196
Throughput volumes (BBtu/d) (1)		2,~~453~~442			2,~~535~~492


⁽¹⁾		Throughput volumes include billable transportation throughput volumes for storage injection.

Segment EBIT Analysis:

	Variance
	Operating			Operating
	Revenue			Expense			Other			Total
	Favorable/(Unfavorable)
	(In millions)
Expansions	$	1121		$	(1	)	$	2(1	)	$	1219
Reservation and usage revenues		(811	)		—			—			(811	)
Other(1)		(13	)		1(3	)		—3			—(3	)
Total impact on Segment EBIT	$	27		$	—(4	)	$	2		$	45


⁽¹⁾		Consists of individually insignificant items.

Expansions. During 2011, we benefited from increased reservation revenues due to ~~Phase~~Phases I and ~~Phase~~ II of the South System III Expansion project being ~~placed in service. Additionally, in June~~ ~~2011, we~~ placed ~~Phase II of the Southeast Supply Header project~~ in service~~; however, our Segment EBIT was not significantly impacted as a result of this project being placed in service~~.

Reservation and Usage Revenues. We experienced a decrease of $4 million in our usage and interruptible services for the six months ended June 30, 2011 compared to the same period in 2010, due to record weather conditions in the Southeast during 2010 compared to 2011. Additionally, our

reservation revenues were lower by approximately $4 million during the six months ended June 30, 2011 compared to the same period in 2010 as a result of various contract changes, primarily turned back capacity on our system.

Affiliated Interest Income, Net

The following table shows the average advances due from EPB and El Paso, and the average short-term interest rates for the periods ended June 30:

	2011			2010
	(In millions, except for rates)
Average advance due from El Paso	$	—		$	117
Average advance due from EPB		95			—
Average short-term interest rate		0.8	%		1.5	%

Reservation and Usage Revenues. Our reservation revenues were lower by approximately $7 million during the nine months ended September 30, 2011 compared to the same period in 2010 as a result of various contract changes, primarily turned back capacity on our system due to expiring contracts. Additionally, we experienced a decrease of $4 million in our usage and interruptible services for the nine months ended September 30, 2011 compared to the same period in 2010, due to unfavorable market conditions.

Interest and Debt Expense

Interest and debt expense for the nine months ended September 30, 2011, was $4 million higher than the same period in 2010 primarily due to the issuance of $300 million senior unsecured notes at 4.4 percent in June 2011.

Affiliated Interest Income, Net

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


	2011			2010
	(In millions, except for rates)
Average advance due from El Paso	$	—		$	106
Average advance due from EPB		198			—
Average short-term interest rate		1.3	%		1.5	%

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operating activities and amounts ~~available~~ available to us under EPB’s cash management program, while our primary uses of cash are for working capital, capital expenditures and required distributions. At ~~June~~September 30, 2011, we had a note receivable from EPB of approximately $~~298~~262 million. ~~We classified~~of which $8057 million ofwas ~~this~~classified ~~receivable~~ as current on our balance sheet ~~at June 30, 2011~~ based on the net amount we anticipate using in the next twelve months considering available cash sources and needs. See Item 1, Financial Statements, Note 7, for a further discussion of EPB’s cash management program.

In June 2011, we and our wholly owned finance subsidiary, SNIC, issued $300 million aggregate ~~principal~~ principal amount of senior unsecured notes at 4.4 percent, due June 15, 2021. The net proceeds of $297 million from this offering were advanced to EPB under the cash management program and will be subsequently utilized to fund our growth capital expenditures and for general corporate purposes. See Item 1, Financial Statements, Note 4 for a further discussion of our debt issuance.

WeOur ~~believe~~cash wecapital ~~have~~expenditures ~~adequate~~for ~~liquidity~~the ~~available~~nine tomonths usended toSeptember 30, ~~meet~~2011 ~~our capital requirements~~ and our ~~existing~~ ~~operating needs through cash flows from operating activities and amounts available to us~~estimated ~~under~~capital ~~EPB’s~~expenditures ~~cash~~for ~~management program. While we do not anticipate a need to directly access~~ the ~~financial markets in the~~ remainder of ~~2011~~this ~~for~~year ~~any of our operating activities or expansion capital needs based on liquidity available~~ to ~~us,~~expand ~~market conditions~~and ~~may~~maintain ~~impact~~ our orsystem ~~EPB’s~~are ~~ability to act opportunistically~~listed below.

Our cash capital expenditures for the six months ended June 30, 2011 and our estimated capital expenditures for the remainder of this year to expand and maintain our system are listed below:


	Nine Months Ended		2011
	September 30, 2011		Remaining		Total
	(In millions)
Expansion	$	111	$	18	$	129
Maintenance		39		19		58

	$	150	$	37	$	187

	Six Months Ended		2011
	June 30, 2011		Remaining		Total
			(In millions)
Expansion	$	74	$	57	$	131
Maintenance		26		30		56
	$	100	$	87	$	187

We believe we have adequate liquidity available to us to meet our capital requirements and our existing operating needs through cash flows from operating activities and amounts available to us under EPB’s cash management program. While we do not anticipate a need to directly access the financial markets in the remainder of 2011 for any of our operating activities or expansion capital needs based on liquidity available to us, market conditions may impact our or EPB’s ability to act opportunistically. Our future plans could also be impacted by the completion of El Paso’s announced acquisition by KMI.

Commitments and Contingencies

For a further discussion of our commitments and contingencies, see Item 1, Financial Statements, Note 5 which is incorporated herein by reference and our 2010 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~June~~September 30, 2011, we carried out an evaluation under the supervision and with the participation of our management, including our President and Chief Financial Officer (CFO), as to the effectiveness, design and operation of our disclosure controls and procedures. This evaluation considered the various processes carried out under the direction of our disclosure committee in an effort to ensure that information required to be disclosed in the U.S. Securities and Exchange Commission reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act) is accurate, complete and timely. Our management, including our President and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent and/or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our President and CFO concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a — 15(e) and 15d — 15(e)) were effective as of ~~June~~September 30, 2011.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the ~~second~~third quarter of 2011 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 1, Financial Statements, Note 5 which is incorporated herein by reference.

Item 1A. Risk Factors

CAUTIONARY STATEMENTS FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions or beliefs that we believe to be reasonable; however, assumed facts almost always vary from actual results, and differences between assumed facts and actual results can be material, depending upon the circumstances. Where, based on assumptions, we or our management express an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur, be achieved or accomplished. The words “believe,” “expect,” “estimate,” “anticipate,” and similar expressions will generally identify forward-looking statements. All of our forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report.

Important factors that could cause actual results to differ materially from estimates or projections contained in forward-looking statements are described in our 2010 Annual Report on Form 10-K under Part I, Item 1A, Risk Factors. There have been no material changes in these risk factors since that report.

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

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

Item 3. Defaults Upon Senior Securities

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

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

The Exhibit Index is hereby incorporated herein by reference.

The agreements included as exhibits to this report are intended to provide information regarding their terms and not to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by the parties to the agreements, including us, solely for the benefit of the other parties to the applicable agreement and:

	•		should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

	•		may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

	•		may apply standards of materiality in a way that is different from what may be viewed as material to certain investors; and

	•		were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Southern Natural Gas Company, L.L.C. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~SOUTHERN NATURAL GAS COMPANY, L.L.C.~~	SOUTHERN NATURAL GAS COMPANY, L.L.C.
Date: August 5, 2011	/s/ Norman G. Holmes
Date: November 4, 2011		/s/ Norman G. Holmes
	~~Norman G. Holmes~~	Norman G. Holmes
	~~President (Principal Executive Officer)~~	President (Principal Executive Officer)
Date: August 5, 2011	/s/ John R. Sult
Date: November 4, 2011		/s/ John R. Sult
	~~John R. Sult~~	John R. Sult
	~~Executive Vice President and Chief Financial Officer (Principal Financial Officer)~~	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

SOUTHERN NATURAL GAS COMPANY, L.L.C.

EXHIBIT INDEX

Each exhibit identified below is filed as a part of this Report. ~~Exhibits filed with this~~ ~~Report are designated by “*”. All exhibits not so designated are incorporated herein by reference to a prior filing as indicated.~~

Exhibit
Number		Description
*3.A		Sixth Amendment to General Partnership Agreement of Southern Natural Gas Company.
31.A		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*3.B		First Amended and Restated Limited Liability Company Agreement of Southern Natural Gas Company, L.L.C.
31.B		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
4.A		Seventh Supplemental Indenture dated as of June 7, 2011, among the Issuers and Wilmington Trust Company, as trustee (including the form of 4.40% Note due 2021) (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on June 9, 2011).
32.A		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
4.B		Registration Rights Agreement, dated as of June 7, 2011, among the Issuers and the Initial Purchasers named therein (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on June 9, 2011).
32.B		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.A		Purchase Agreement, dated as of June 2, 2011, among the Issuers, EPP SNG GP Holdings L.L.C., El Paso SNG Holding Company, L.L.C. and the Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 9, 2011).
101.INS		XBRL Instance Document.
*12		Ratio of Earnings to Fixed Charges.
101.SCH		XBRL Schema Document.
*31.A		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
101.CAL		XBRL Calculation Linkbase Document.
*31.B		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
101.LAB		XBRL Labels Linkbase Document.
*32.A		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.PRE		XBRL Presentation Linkbase Document.
*32.B		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS		XBRL Instance Document.
*101.SCH		XBRL Schema Document.
*101.CAL		XBRL Calculation Linkbase Document.
*101.LAB		XBRL Labels Linkbase Document.
*101.PRE		XBRL Presentation Linkbase Document.

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Filing Compare · SOUTHERN NATURAL GAS COMPANY, L.L.C.