Filing Compare · EL PASO NATURAL GAS CO LLC

UNITEDTable STATESof SECURITIES AND EXCHANGE COMMISSIONContents

/dTable =of per day LNG = liquefied natural gas BBtu = billion British thermal units MMcf = million cubic feet Bcf = billion cubic feetContents

•Table providingof outstanding customer service;Contents

ForTable a further discussion of factors impacting our markets and competition, see Item 1A, Risk Factors.Contents

•Table maintenance of accounts and records;Contents

AsTable of February 21, 2011, we had approximately 530 full-time employees, none of whom are subject to a collective bargaining arrangement.Contents

OurTable pipeline business is extensively regulated by the FERC, the U.S. Department of Transportation, the Department of Interior, the U.S. Department of Homeland Security and various state and local regulatory agencies whose actions have the potential to adversely affect our profitability. The FERC regulates most aspects of our business, including the terms and conditions of services offered, our relationships with affiliates, construction and abandonment of facilities and the rates charged by our pipelines (including establishing authorized rates of return). We periodically file to adjust the rates charged to our customers. In 2010, we filed a rate case that will establish new rates in 2011. There is a risk that the FERC may establish rates that are not acceptable to us and have a negative impact on us. In addition, our profitability is influenced by fluctuations in costs and our ability to recover any increases in our costs in the rates charged to our shippers. Our operating results can be negatively impacted to the extent that such costs increase in an amount greater than what we are permitted to recover in our rates or to the extent that there is a lag before we can file and obtain rate increases.Contents

•Table impediments on our ability to acquire rights-of-way or land rights on terms that are acceptable to us;Contents

TheTable price for natural gas could be adversely affected by many factors outside of our control which could negatively affect us.Contents

10Table of Contents

WeTable areof subject to interest rate risks.Contents

AsTable an indirect wholly owned subsidiary of El Paso, subject to limitations in our credit agreements and indentures, El Paso has substantial control over:Contents

Furthermore,Table the indentures governing some of our long-term debt contain cross-acceleration provisions, the most restrictive of which is $25 million. Therefore, if we borrow $25 million or more under El Paso’s $1.5 billion credit agreement and such borrowings are accelerated for any reason, including the default of another party under the credit agreement, our long-term debt that contains these provisions could also be accelerated and, in turn, adversely affect our liquidity position and, in turn, our financial condition.Contents

ITEMTable 7.of MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSContents

15Table of Contents

ReservationTable and Other Services Revenues. For the year ended December 31, 2010, throughput on our EPNG system was down 15 percent compared to 2009 due to lower natural gas and electric generation demand resulting from weak macroeconomic conditions in the southwestern U.S., increased competition in our California and Arizona market areas, including increased activity from an LNG facility, and the nonrenewal of expiring contracts as a result of reduced basis differentials which unfavorably impacted our EBIT by $76 million.Contents

MojaveTable Rate Case. In August 2010, we filed a petition with the FERC to (i) amend our filing requirement previously approved by the FERC and (ii) approve an uncontested rate case settlement that, among other things, would establish new base transportation rates. Under the terms of the agreement, we may not file a new rate case to be effective any earlier than September 1, 2012, but must file a rate case to be effective no later than September 1, 2014. The FERC approved this settlement in October 2010 with an effective date of December 1, 2010.Contents

OurTable primary sources of liquidity are cash flows from operating activities and amounts available to us under El Paso’s cash management program. At December 31, 2010, we had a note receivable from El Paso of approximately $0.8 billion. We do not intend to settle any amounts owed under this note within the next twelve months and therefore, classified it as non-current on our balance sheet. During 2010, we utilized $75 million of our note receivable from the cash management program, net of a $50 million cash contribution from our parent, to pay a dividend to our parent. See Item 8, Financial Statements and Supplementary Data, Note 11, for a further discussion of El Paso’s cash management program. In August 2010, we repaid approximately $54 million cash of our 7.625% notes that matured. Our primary uses of cash are for working capital, capital expenditures and debt service requirements. For the year ended December 31, 2010 compared with 2009, our operating cash flows decreased by approximately $260 million primarily due to lower reservation revenues, payments of rate refunds and income taxes. Our cash capital expenditures for the year ended December 31, 2010 and those planned for 2011 are listed below.Contents

/s/Table Ernstof & Young LLPContents

(InTable millions)of Contents

CONSOLIDATEDTable BALANCEof SHEETSContents

UseTable of EstimatesContents

WeTable establish provisions for losses on accounts receivable and for natural gas imbalances due from shippers and operators if we determine that we will not collect all or part of the outstanding balance. We regularly review collectability and establish or adjust our allowance as necessary using the specific identification method.Contents

ImbalancesTable dueof from others are reported in our balance sheet as either accounts receivable from customers or accounts receivable from affiliates. Imbalances owed to others are reported on the balance sheet as either trade accounts payable or accounts payable to affiliates. We classify all imbalances as current as we expect to settle them within a year.Contents

AssetTable Impairmentsof Contents

PostretirementTable Benefitsof Contents

UnrecognizedTable Taxof Benefits. El Paso files consolidated U.S. federal and certain state tax returns which include our taxable income. In certain states, we file and pay taxes directly to the state taxing authorities. With a few exceptions, we and El Paso are no longer subject to state and local income tax examinations by tax authorities for years prior to 1999 and U.S. income tax examinations for years prior to 2007. For our open tax years, we have no unrecognized tax benefits.Contents

UnamortizedTable Loss on Reacquired Debt. Amount represents the deferred and unamortized portion of losses on reacquired debt which are recovered over the original life of the debt issue through the cost of service.Contents

6.Table Debtof and Credit FacilitiesContents

OtherTable Commercial Commitments. We hold cancelable easements or rights-of-way arrangements from landowners permitting the use of land for the construction and operation of our pipeline systems.Contents

____________ Table of Contents

ActuarialTable Assumptionsof and Sensitivity Analysis. Accumulated postretirement benefit obligations and net benefit costs are based on actuarial estimates and assumptions. The following table details the weighted average actuarial assumptions used in determining our postretirement plan obligations and net benefit costs for 2010, 2009 and 2008:Contents

TheTable following table shows revenues from our major customers for each of the three years ended December 31:Contents

43Table of Contents

PARTTable IIIof Contents

AllTable Otherof FeesContents

TheTable Exhibit Index, which follows the signature page to this report and is hereby incorporated herein by reference, sets forth a list of those exhibits filed herewith, and includes and identifies contracts or arrangements required to be filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.Contents

SIGNATURESTable of Contents

~~Washington,~~UNITED ~~D.C.~~STATES ~~20549~~

~~________________~~SECURITIES AND EXCHANGE COMMISSION

~~Form~~Washington, ~~10-K~~D.C. 20549

~~(Mark~~Form ~~One)~~10-K

R	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2010 OR
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

(Mark One)

~~Commission~~x ~~File~~ANNUAL ~~Number~~REPORT ~~1-2700~~ PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ElFor ~~Paso~~the ~~Natural~~fiscal ~~Gas~~year ~~Company~~ended December 31, 2011

~~(Exact~~OR ~~Name of Registrant as Specified in Its Charter)~~

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

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

~~Telephone~~For ~~Number:~~the ~~(713)~~transition ~~420-2600~~period from to

~~Securities~~Commission ~~registered~~File ~~pursuant~~Number to1-2700 ~~Section 12(b) of the Act: None~~

~~Securities~~El ~~registered~~Paso Natural ~~pursuant~~Gas toCompany ~~Section 12(g) of the Act: None~~

~~Indicate~~(Exact byName ~~check~~of ~~mark~~Registrant ~~if the registrant is a well-known seasoned issuer,~~ as ~~defined~~Specified in ~~Rule~~Its ~~405~~Charter) ~~of the Securities Act.Yes £No R~~

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes £No R


Delaware		74-0608280
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

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

~~Indicate~~Telephone byNumber: ~~check mark whether the registrant~~ (1713) 420-2600 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 R No £

~~Indicate~~Securities byregistered ~~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~~ Section 12 ~~months~~ (orb) ~~for~~of ~~such shorter period that~~ the ~~registrant~~Act: ~~was~~None ~~required to submit and post such files). Yes£ No£~~

~~Indicate~~Securities byregistered ~~check mark if disclosure of delinquent filers~~ pursuant to ~~Item~~Section 12(g) ~~405~~ of ~~Regulation S-K is not contained herein, and will not be contained, to~~ the ~~best~~Act: ofNone ~~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. R~~

Indicate by check mark ~~whether~~if the registrant is a ~~large accelerated filer, an accelerated filer, a non~~well-~~accelerated~~known ~~filer,~~seasoned ~~or a smaller reporting company. See the definitions of “large accelerated filer~~issuer,” ~~“accelerated~~as ~~filer”~~defined ~~and “smaller reporting company”~~ in Rule ~~12b-2~~405 of the ~~Exchange~~ Securities Act. Yes ¨ No x ~~(Check one):~~

~~Large~~Indicate ~~accelerated~~by ~~filer~~check £mark ~~Accelerated~~if ~~filer~~the £registrant ~~Non-accelerated~~is ~~filer~~not Rrequired ~~Smaller~~to ~~reporting~~file ~~company~~reports £pursuant ~~(Do~~to ~~not~~Section 13 ~~check~~or ifSection 15(d) aof ~~smaller~~the Act. Yes ¨ No x ~~reporting company)~~

Indicate by check mark whether the registrant is(1) has afiled ~~shell~~all ~~company~~reports ~~(as~~required ~~defined~~to inbe ~~Rule~~filed ~~12b-2~~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)., ~~Yes~~and £(2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ R

~~State~~Indicate by check mark whether the ~~aggregate~~registrant ~~market~~has ~~value~~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 ~~voting~~preceding ~~stock~~12 ~~held~~months by(or ~~non-affiliates~~for ofsuch shorter period that the registrant: ~~None~~was required to submit and post such files). Yes x No ¨

Indicate ~~the~~by ~~number~~check ofmark ~~shares~~if ~~outstanding~~disclosure of ~~each~~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 ~~classes~~knowledge, ofin ~~common~~definitive ~~stock,~~proxy asor information statements incorporated by reference in Part III of ~~the~~this ~~latest~~Form ~~practicable~~10-K ~~date~~or any amendment to this Form 10-K. x

~~Common~~Indicate ~~Stock~~by check mark whether the registrant is a large accelerated filer, ~~par~~an ~~value~~accelerated $1filer, ~~per~~a ~~share~~non-accelerated filer, or a smaller reporting company. ~~Shares~~See ~~outstanding~~the ondefinitions ~~February~~of 25“large accelerated filer,” ~~2011~~“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): ~~1,000~~

ELLarge ~~PASO~~accelerated ~~NATURAL~~filer ~~GAS~~¨ ~~COMPANY~~Accelerated ~~MEETS~~filer ~~THE~~¨ ~~CONDITIONS~~Non-accelerated OFfiler ~~GENERAL~~x ~~INSTRUCTION I~~(~~1)(a)~~Do ~~AND~~not ~~(b)~~check TOif ~~FORM~~a ~~10-K~~smaller ~~AND~~reporting IScompany) ~~THEREFORE~~Smaller ~~FILING~~reporting ~~THIS~~company ~~REPORT WITH A REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.~~¨

ELIndicate ~~PASO~~by ~~NATURAL~~check ~~GAS~~mark ~~COMPANY~~whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

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

	Caption	Page
	PART I
Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	14
Item 3.	Legal Proceedings	14
Item 4.	(Removed and Reserved)	14
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	*
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 8.	Financial Statements and Supplementary Data	21
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 9A.	Controls and Procedures	44
Item 9B.	Other Information	44
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	*
Item 11.	Executive Compensation	*
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	*
Item 13.	Certain Relationships and Related Transactions, and Director Independence	*
Item 14.	Principal Accountant Fees and Services	45
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	46
	Signatures	47

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

~~____________~~Common Stock, par value $1 per share. Shares outstanding on February 23, 2012: 1,000

*EL WePASO ~~have~~NATURAL ~~not~~GAS ~~included~~COMPANY aMEETS ~~response~~THE toCONDITIONS ~~this~~OF ~~item~~GENERAL inINSTRUCTION ~~this~~I(1)(a) ~~document~~AND ~~since~~(b) TO noFORM ~~response~~10-K isAND ~~required~~IS ~~pursuant~~THEREFORE toFILING ~~the~~THIS REPORT ~~reduced~~WITH ~~disclosure~~A ~~format~~REDUCED ~~permitted~~DISCLOSURE byFORMAT ~~General~~AS ~~Instruction~~PERMITTED IBY toSUCH ~~Form 10-K~~INSTRUCTION.

~~Below~~Documents isIncorporated aby ~~list of terms that are common to our industry and used throughout this document~~Reference: None

~~When~~EL wePASO ~~refer~~NATURAL toGAS ~~cubic~~COMPANY ~~feet measurements, all measurements are at a pressure of 14.73 pounds per square inch.~~

~~When~~TABLE weOF ~~refer~~CONTENTS ~~to “us”, “we”, “our”, “ours” or “the company”, we are describing El Paso Natural Gas Company and/or our subsidiaries.~~

Table of Contents


	Caption	Page

	PART I
Item 1.	Business		1
Item 1A.	Risk Factors		5
Item 1B.	Unresolved Staff Comments		14
Item 2.	Properties		14
Item 3.	Legal Proceedings		14
Item 4.	Mine Safety Disclosures		14

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
Item 6.	Selected Financial Data		*
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		20
Item 8.	Financial Statements and Supplementary Data		21
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		44
Item 9A.	Controls and Procedures		44
Item 9B.	Other Information		44

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance		*
Item 11.	Executive Compensation		*
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		*
Item 13.	Certain Relationships and Related Transactions, and Director Independence		*
Item 14.	Principal Accountant Fees and Services		45

	PART IV
Item 15.	Exhibits and Financial Statement Schedules		46
	Signatures		47

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

~~ITEM~~Below 1.is ~~BUSINESS~~a list of terms that are common to our industry and used throughout this document:

~~Overview~~/d ~~and~~= ~~Strategy~~per day LNG = liquefied natural gas BBtu = billion British thermal units MMcf = million cubic feet Bcf = billion cubic feet NGL = natural gas liquids

WeWhen ~~are~~we arefer ~~Delaware~~to ~~corporation~~cubic ~~incorporated~~feet ~~in 1928~~measurements, ~~and~~all anmeasurements ~~indirect~~are ~~wholly~~at ~~owned~~a ~~subsidiary~~pressure of ~~El Paso Corporation (El Paso)~~14.73 ~~Our~~pounds ~~primary~~per ~~business consists of the interstate transportation and storage of natural gas~~square inch. ~~We conduct our business activities through our natural gas pipeline systems and a storage facility as discussed below.~~

~~Each~~When ofwe ~~our~~refer ~~pipeline~~to ~~systems~~“us,” ~~and~~“we,” “our ~~storage facility operates under tariffs approved by the Federal Energy Regulatory Commission (FERC) that establish rates~~,” ~~cost recovery mechanisms and other terms and conditions of services to our customers. The fees~~ or ~~rates~~“ours,” ~~established~~we ~~under our tariffs~~ are adescribing ~~function~~El ofPaso ~~our~~Natural Gas ~~costs~~Company ofand/or ~~providing services to~~ our ~~customers, including a reasonable return on our invested capital~~subsidiaries.

~~Our~~i ~~strategy is to enhance the value of our transportation and storage business by:~~

•PART ~~developing~~I ~~new growth projects in our market and supply areas;~~

•ITEM 1. ~~maintaining~~BUSINESS ~~the integrity and ensuring the safety of our pipeline systems and other assets;~~

•Overview ~~successfully~~and ~~recontracting~~Strategy ~~expiring contracts for transportation capacity; and~~

•We ~~focusing~~are ona ~~increasing~~Delaware ~~utilization~~corporation incorporated in 1928, and ~~efficiency~~an indirect wholly owned subsidiary of El Paso Corporation (El Paso). Our primary business consists of the interstate transportation and ~~cost~~storage ~~control~~of innatural gas. We conduct our ~~operations~~business activities through our natural gas pipeline systems and a storage facility as discussed below.

~~The~~On October 16, 2011, El Paso ~~Natural~~announced ~~Gas~~a definitive agreement with Kinder Morgan, Inc. (~~EPNG~~KMI) ~~System.~~whereby ~~The~~KMI ~~EPNG~~will ~~system~~acquire ~~consists~~El ofPaso in a transaction that valued El Paso at approximately ~~10,200~~$38 ~~miles~~billion of(based ~~pipeline~~on ~~with~~the aKMI ~~winter~~stock ~~sustainable~~price ~~west-flow~~at ~~capacity~~that date), including the assumption of ~~4,850~~debt. ~~MMcf/d~~The ~~and~~transaction ~~east-end~~has ~~deliverability~~been approved by each company’s board of ~~800~~directors ~~MMcf/d.~~but ~~During~~remains ~~2010,~~subject ~~2009~~to ~~and~~the ~~2008,~~approvals ~~average~~of ~~throughput~~El ~~was~~Paso 3shareholders,~~356~~ ~~BBtu/d,~~the ~~3,937~~Federal ~~BBtu/d~~Trade Commission (FTC) and ~~4,379~~other ~~BBtu/d~~customary regulatory and other approvals. ~~This~~The ~~system~~approval ~~delivers~~of ~~natural~~KMI ~~gas~~shareholders ~~from~~will ~~the~~also ~~San~~be ~~Juan~~required, ~~Permian,~~but ~~and~~a ~~Anadarko~~voting ~~basins~~agreement has tobeen ~~markets~~executed inby ~~California,~~the ~~Arizona,~~majority ~~Nevada,~~of ~~New~~shareholders ~~Mexico,~~of ~~Oklahoma,~~KMI ~~Texas~~to ~~and~~support ~~northern~~the ~~Mexico~~transaction.

~~The~~Our ~~Mojave Pipeline Company (Mojave) System. The Mojave system consists of approximately 500 miles of~~ pipeline ~~with~~systems anand ~~east~~our tostorage facility ~~west~~operate ~~flow~~under ~~design~~tariffs ~~capacity~~approved ofby ~~approximately~~the ~~400~~Federal ~~MMcf/d.~~Energy ~~During~~Regulatory ~~2010,~~Commission ~~2009~~(FERC) ~~and~~that ~~2008,~~establish ~~average throughput was 421 BBtu/d~~rates, ~~379~~cost ~~BBtu/d~~recovery ~~and~~mechanisms ~~349 BBtu/d. Mojave’s 2010, 2009~~ and ~~2008~~other ~~throughput~~terms ~~includes 382 BBtu/d, 334 BBtu/d~~ and ~~306~~conditions ~~BBtu/d~~ of ~~volumes~~services ~~transported~~to onour ~~behalf of the EPNG system~~customers. The ~~Mojave~~fees ~~system~~or ~~connects~~rates ~~with~~established ~~other~~under ~~pipeline~~our ~~systems~~tariffs are ~~including,~~a ~~(i)~~function ~~the~~of ~~EPNG~~our ~~system~~costs ~~near~~of ~~Cadiz,~~providing ~~California,~~services ~~(ii)~~to ~~the~~our ~~EPNG and Transwestern Pipeline Company~~customers, ~~LLC~~including ~~(Transwestern)~~a ~~systems~~reasonable atreturn ~~Topock,~~on ~~Arizona~~our ~~and~~invested ~~(iii) the Kern River Gas Transmission Company system in California~~capital. ~~This system also extends to customers in the vicinity of Bakersfield, California.~~

~~Storage~~Our ~~Facility. In~~strategy ~~addition~~is to ~~our~~enhance ~~pipeline~~the ~~systems,~~value weof ~~utilize~~ our ~~Washington Ranch underground storage facility located in New Mexico to manage our~~ transportation ~~needs~~ and ~~to offer interruptible~~ storage ~~services.~~business ~~This~~by: ~~storage facility has up to approximately 44 Bcf of underground working natural gas storage capacity.~~

~~Markets~~• ~~and~~focusing ~~Competition~~on customer service;

~~Our~~• ~~customers~~developing ~~consist~~growth ofprojects natural gas distribution and industrial companies, electric generation companies, natural gas producers, other natural gas pipelines, and natural gas marketing and trading companies. We provide transportation and storage services in ~~both~~ our ~~natural~~market ~~gas supply~~ and ~~market areas. Our pipeline systems connect with multiple pipelines that provide our customers with access to diverse sources of~~ supply, ~~including supply from unconventional sources, and various natural gas markets.~~areas;

1• maintaining the safety of our pipeline systems and other assets;

~~Table~~• ofsuccessfully ~~Contents~~recontracting expiring contracts for transportation capacity; and

~~The~~• ~~natural~~focusing ~~gas~~on ~~industry is undergoing a major shift in supply sources. Production from conventional sources is declining while production from unconventional sources, such as shales, is rapidly~~ increasing~~. This~~ ~~shift will affect the supply patterns~~utilization, ~~the~~ ~~flows~~efficiency and ~~the~~cost ~~rates~~control ~~that~~in ~~can~~our ~~be charged on pipeline systems~~operations. ~~The impact will vary among pipelines according to the location and the number of competitors attached to these new supply sources.~~

~~Exports~~The toEl ~~Mexico~~Paso ~~are~~Natural ~~increasing~~Gas ~~and~~(EPNG) ~~expected~~System. toThe ~~increase~~EPNG ~~further~~system ~~over~~consists ~~time~~of asapproximately ~~demand~~10,200 ~~growth~~miles ~~exceeds~~of ~~production~~pipeline ~~growth~~with ina ~~that~~winter sustainable ~~country. The~~west-flow ~~increase~~capacity inof ~~demand~~4,850 ~~for~~MMcf/d ~~gas~~ and ~~transportation~~east-end ~~caused~~deliverability ~~by the trends in Mexico could be partially offset by imports~~ of ~~LNG~~800 MMcf/d. ~~Imports~~ ofDuring ~~LNG~~2011, ~~have~~2010 ~~fluctuated~~and in2009, ~~the~~average ~~past~~throughput inwas ~~response~~3,109 toBBtu/d, ~~changing gas prices within North America~~3,356 ~~Europe~~BBtu/d and ~~Asia~~3,937 BBtu/d. ~~LNG~~ ~~terminals~~This ~~and~~system ~~other~~delivers ~~regasification~~natural ~~facilities~~gas ~~can~~from ~~serve~~the asSan ~~alternate sources of supply for pipelines~~Juan, ~~enhancing their delivery capabilities~~ Permian, and ~~operational~~Anadarko ~~flexibility~~basins ~~and~~to ~~complementing~~markets ~~traditional~~in ~~supply~~California, ~~transported~~Arizona, ~~into~~Nevada, ~~market~~New ~~areas.~~Mexico, ~~However~~Oklahoma, ~~these~~Texas ~~LNG~~and ~~delivery~~northern ~~systems may also compete with us for transportation of gas into market areas we serve~~Mexico.

~~Electric~~The ~~power~~Mojave Pipeline ~~generation~~Company ~~has~~(Mojave) ~~been~~System. The ~~the~~Mojave ~~source~~system ofconsists ~~most~~ of ~~the~~approximately ~~growth~~500 inmiles ~~demand~~of ~~for~~pipeline ~~natural~~with ~~gas~~an ~~over~~east ~~the~~to ~~last~~west 10flow ~~years,~~design ~~and~~capacity ~~this~~of ~~trend~~approximately is400 ~~expected~~MMcf/d. toDuring ~~continue~~2011, in2010 ~~the~~and ~~future.~~2009, ~~The~~average ~~growth~~throughput ofwas ~~natural~~377 ~~gas~~BBtu/d, in421 BBtu/d ~~this~~and ~~sector~~379 isBBtu/d. ~~influenced~~Mojave’s by2011, ~~competition~~2010 ~~with coal~~ and ~~increased~~2009 ~~consumption~~throughput ofincludes ~~electricity~~354 asBBtu/d, a382 ~~result~~BBtu/d ofand ~~recent~~334 ~~economic~~BBtu/d ~~growth.~~of ~~Short-term~~volumes ~~market~~transported ~~shifts~~on ~~have~~behalf ~~been~~of ~~driven~~the byEPNG ~~relative~~system. ~~costs~~The ofMojave ~~coal-fired~~system ~~generation~~connects ~~versus~~with ~~gas-fired~~other ~~generation.~~pipeline Asystems ~~long-term~~including, ~~market shift in~~ (i) the EPNG ~~use~~system ofnear ~~coal~~Cadiz, inCalifornia, ~~power~~(ii) the ~~generation~~EPNG ~~could~~and beTranswestern ~~driven~~Pipeline byCompany, ~~environmental~~LLC ~~regulations.~~(Transwestern) ~~The~~systems ~~future~~at ~~demand~~Topock, ~~for~~Arizona ~~natural~~and ~~gas~~(iii) the ~~could~~Kern beRiver ~~increased~~Gas byTransmission ~~regulations~~Company ~~limiting~~system orin ~~discouraging coal use~~California. ~~However,~~This ~~natural~~system ~~gas~~also ~~demand~~extends ~~could~~to customers ~~potentially~~in bethe ~~adversely~~vicinity ~~affected~~of byBakersfield, ~~laws mandating or encouraging renewable power sources~~California.

~~The~~Storage ~~EPNG~~Facility. In ~~system~~addition ~~faces~~to ~~competition~~our inpipeline ~~the~~systems, ~~west~~we utilize ~~and~~our ~~southwest~~Washington ~~from~~Ranch ~~other~~underground ~~existing pipelines, from California~~ storage ~~facilities,~~facility ~~and~~located ~~from~~in ~~alternative~~New ~~energy~~Mexico ~~sources that are used~~ to ~~generate~~manage ~~electricity~~our ~~such~~transportation asneeds ~~hydroelectric~~and ~~power,~~to ~~nuclear~~offer ~~energy,~~interruptible ~~wind,~~storage ~~solar, coal and fuel oil~~services. WeThis ~~also~~storage ~~face~~facility ~~competition~~has ~~from~~up ~~gas~~to ~~imported~~44 ~~into~~Bcf ~~California~~of ~~from~~underground ~~Canada~~working ~~and~~natural ~~from~~gas ~~an LNG facility located in northern Mexico~~storage capacity.

~~The~~1 Mojave system faces competition from other existing pipelines and alternative energy sources that are used to generate electricity such as hydroelectric power, nuclear energy, wind, solar, coal and fuel oil. We also face competition from an LNG facility located in northern Mexico.

~~Customers~~Markets and ~~Contracts~~Competition

~~Our~~We ~~existing~~provide transportation and storage ~~contracts~~services ~~expire at various times and~~ in ~~varying~~both ~~amounts of throughput capacity. Our ability to extend~~ our ~~existing~~natural ~~customer~~gas ~~contracts or remarket expiring contracted capacity is dependent on competitive alternatives, the regulatory environment at the federal, state and local levels and market~~ supply and demand factors at the relevant dates these contracts are extended or expire. The duration of new or renegotiated contracts will be affected by current prices, competitive conditions and judgments concerning future market ~~trends and volatility~~areas. ~~Although~~Our wepipeline ~~attempt~~systems toconnect ~~recontract~~with ormultiple ~~remarket~~pipelines ~~our~~that ~~capacity~~provide ~~at the maximum rates allowed under~~ our ~~tariffs,~~customers wewith ~~frequently~~access ~~enter~~to ~~into~~diverse sources ~~firm~~of ~~transportation~~supply ~~contracts~~and atvarious ~~amounts~~natural ~~that~~gas ~~are less than these maximum allowable rates to remain competitive~~markets.

~~Historically,~~The ~~California~~natural ~~customers~~gas ~~have~~industry ~~been~~has ~~the~~experienced ~~largest~~a ~~holders~~major ofshift ~~capacity~~from onconventional supply ~~our~~sources ~~EPNG~~to ~~system~~unconventional sources, such as shales. ~~Currently~~In addition, ~~California~~the ~~and~~increase ~~Arizona~~in ~~customers~~oil ~~account~~prices ~~for~~has ~~the~~led ~~majority~~to increased production of ~~transportation~~natural ongas found in association with the ~~EPNG~~production ~~system,~~of ~~followed~~oil. byThis ~~Texas~~shift has impacted supply patterns, gas flows and rates ~~New~~that ~~Mexico~~can be charged on pipeline systems. The ~~Mojave~~impact ~~system~~will isvary ~~largely~~among ~~contracted~~pipelines according to ~~EPNG~~the ~~which~~location ~~utilizes~~and the ~~capacity~~number toof ~~provide~~competitors ~~service~~attached to ~~EPNG’s~~these ~~customers~~new supply sources. The ~~EPNG~~Eagle ~~system~~Ford ~~also~~play ~~delivers~~in ~~natural~~south ~~gas~~Texas offers a growing supply source for EPNG. Due to the ~~U.S./Mexico~~economic ~~border~~uplift ~~serving~~from ~~customers~~oil and NGL production in ~~Chihuahua,~~this ~~Sonora~~trend, drilling activity is growing rapidly and ~~Baja~~expected ~~California,~~to ~~which~~do ~~are~~so ~~located~~for inthe ~~Mexico~~next five years.

2Exports to Mexico are increasing and may increase further over time as demand growth exceeds production growth in that country. In addition to this trend in Mexico, imports of LNG to the U.S. have been declining over the last several years in response to increased U.S. shale gas production which has resulted in a decline in U.S. natural gas prices relative to gas prices in Europe and Asia. The projected gas price disparity between U.S. and European/Asian markets suggests that North America could change from a net importer of LNG to a net exporter of LNG before the end of this decade. These factors have led to increased demand for domestic U.S. supplies and related transportation services over the last several years, a trend which is likely to continue.

~~Table~~Electric power generation has been the source of most ~~Contents~~of the demand growth for natural gas over the last 10 years, and this trend is expected to continue. The growth of natural gas in this sector is influenced by competition with coal and economic growth. Short-term market shifts have been driven by relative electric generation costs of coal-fired plants versus gas-fired plants. A long-term market shift in the use of coal in power generation could be driven by environmental regulations. The future demand for natural gas could be increased by regulations limiting or discouraging coal use. However, natural gas demand could potentially be adversely affected by laws mandating or encouraging renewable power sources. Industrial demand has also grown recently with the economic recovery and low natural gas price environment, and this sector offers an opportunity for continued growth. In addition, a potential new and significant demand market for North American natural gas production is for LNG exports to Europe and Asia. Several Gulf Coast projects have received approval from the U.S. Department of Energy to export LNG to global markets beginning in the second half of this decade.

The ~~following~~EPNG ~~table~~system ~~details~~faces ~~our~~competition ~~customer~~in ~~and~~the ~~contract~~west ~~information~~and ~~for~~southwest ~~each~~from ofother ~~our~~existing ~~pipeline~~pipelines, ~~systems~~from asCalifornia ofstorage ~~December 31~~facilities, ~~2010.~~and ~~Firm~~from ~~customers~~alternative ~~reserve~~energy ~~capacity~~sources onthat ~~our pipeline systems and storage facility and~~ are ~~obligated~~used to ~~pay~~generate aelectricity such ~~monthly~~as ~~reservation~~hydroelectric orpower, ~~demand~~nuclear ~~charge~~energy, ~~regardless~~wind, ~~of the amount of natural gas they transport or store~~solar, ~~for~~coal ~~the~~and ~~term~~fuel ~~of their contracts~~oil. ~~Interruptible~~We ~~customers~~also ~~are~~face ~~customers~~competition ~~without~~from ~~reserved~~gas ~~capacity~~imported ~~that~~into ~~pay~~California ~~usage~~from ~~charges~~Canada ~~based~~and onfrom ~~the~~an ~~volume~~LNG offacility ~~gas~~located ~~they~~in ~~transport,~~northern ~~store, inject or withdraw~~Mexico.

Pipeline System	Customer Information	Contract Information
EPNG	Approximately 150 firm and interruptible customers.	Approximately 200 firm transportation contracts. Weighted average remaining contract term of approximately three years.
	Major Customers:
	Southern California Gas Company (SoCal)
	(782 BBtu/d)	Expire in 2011-2014.
	ConocoPhillips Company
	(527 BBtu/d)	Expire in 2011-2012.
	Southwest Gas Corporation
	(485 BBtu/d)	Expire in 2011-2018.
Mojave	Approximately 10 firm and interruptible customers.	Approximately two firm transportation contracts. Weighted average remaining contract term of approximately five years.
	Major Customer:
	EPNG
	(510 BBtu/d)	Expires in 2015.

The Mojave system faces competition from other existing pipelines and alternative energy sources that are used to generate electricity such as hydroelectric power, nuclear energy, wind, solar, coal and fuel oil. We also face competition from an LNG facility located in northern Mexico.

~~Regulatory~~For ~~Environment~~a further discussion of factors impacting our markets and competition, see Item 1A. Risk Factors.

~~Our~~Customers ~~interstate natural gas transmission systems~~ and ~~storage~~Contracts operations are regulated by the FERC under the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978 and the Energy Policy Act of 2005. We operate under tariffs approved by the FERC that establish rates, cost recovery mechanisms and other terms and conditions of services to our customers. The rates established under our tariffs are a function of our costs of providing services to our customers, including a reasonable return on our invested capital. Generally, the FERC’s authority also extends to:

•We ~~rates~~provide natural gas services to a variety of customers, including natural gas distribution and ~~charges~~industrial ~~for~~companies, electric generation companies, natural gas producers, other natural gas pipelines, and natural gas marketing and trading companies. California and Arizona customers account for the majority of transportation on the EPNG system, followed by Texas and ~~storage;~~New Mexico. The EPNG system also delivers natural gas to the U.S.—Mexico border serving customers in Chihuahua, Sonora, and Baja California, which are located in Mexico. The Mojave system is largely contracted to EPNG which utilizes the capacity to provide service to EPNG’s customers.

•Our existing ~~certification~~transportation and ~~construction~~storage contracts expire at various times and in varying amounts of ~~new~~throughput ~~facilities;~~capacity. Our ability to extend our existing customer contracts or remarket expiring contracted capacity is dependent on competitive alternatives, the

•2 ~~extension or abandonment of services and facilities;~~

• regulatory ~~relationships~~environment ~~between~~at ~~pipelines~~the federal, state and ~~certain~~local ~~affiliates;~~levels and market supply and demand factors at the relevant dates these contracts are extended or expire. The duration of new or renegotiated contracts will be affected by current prices, competitive conditions and judgments concerning future market trends and volatility. Although we attempt to recontract or remarket our capacity at the maximum rates allowed under our tariffs, we frequently enter into firm transportation contracts at amounts that are less than these maximum allowable rates to remain competitive.

•The ~~terms~~following table details our customer and ~~conditions~~contract information for each of ~~service;~~our pipeline systems as of December 31, 2011. Firm customers reserve capacity on our pipeline systems and storage facility and are obligated to pay a monthly reservation or demand charge, regardless of the amount of natural gas they transport or store, for the term of their contracts. Interruptible customers are customers without reserved capacity that pay usage charges based on the volume of natural gas they transport, store, inject or withdraw. For a further discussion of factors impacting our contracts, see Item 1A. Risk Factors.

• depreciation and amortization policies;


Pipeline System	Customer Information	Contract Information
EPNG	Approximately 130 firm and interruptible customers.	Approximately 180 firm transportation contracts. Weighted average remaining contract term of approximately three years.

Major Customers:
ConocoPhillips Company
(492 BBtu/d)		Expire in 2012.

MGI Supply, Ltd
(350 BBtu/d)		Expires in 2012.

Southern California Gas Company
(306 BBtu/d)		Expires in 2012.
(207 BBtd/d)		Expire in 2013-2014.

Southwest Gas Corporation
(240 BBtu/d)		Expire in 2013-2018.

Mojave	Five firm and interruptible customers.	Three firm transportation contracts. Weighted average remaining contract term of approximately four years.

Major Customer:
EPNG
(510 BBtu/d)		Expires in 2015.

•Regulatory ~~acquisition~~Environment ~~and disposition of facilities; and~~

•Our ~~initiation~~interstate natural gas transmission systems and ~~discontinuation~~storage operations are regulated by the FERC under the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978 and the Energy Policy Act of 2005. We operate under tariffs approved by the FERC that establish rates, cost recovery mechanisms and other terms and conditions of services to our customers. The rates established under our tariffs are a function of our costs of providing services to our customers, including a reasonable return on our invested capital.

3Generally, the FERC’s authority also extends to:

~~Table~~• ofrates ~~Contents~~and charges for natural gas transportation and storage;

~~Our~~• ~~interstate~~certification ~~pipeline systems are also subject to federal, state~~ and ~~local~~construction ~~safety and environmental statutes and regulations~~ of ~~the~~new ~~U.S. Department of Transportation and the U.S. Department of the Interior. We have ongoing inspection programs designed to keep our~~ facilities in compliance with pipeline safety and environmental requirements and we believe that our systems are in material compliance with the applicable regulations. For a further discussion of the potential impact of regulatory matters on us, see Item 1A, Risk Factors.;

~~Environmental~~• extension or abandonment of services and facilities;

A• ~~description~~maintenance of ~~our~~accounts ~~environmental remediation activities is included in Part II, Item 8, Financial Statements~~ and ~~Supplementary Data, Note 7, and is incorporated herein by reference.~~records;

~~Employees~~3

4• relationships between pipelines and certain affiliates;

~~Table~~• terms and conditions of ~~Contents~~service;

~~ITEM~~• ~~1A.~~depreciation ~~RISK~~and ~~FACTORS~~amortization policies;

~~CAUTIONARY~~• ~~STATEMENT~~acquisition ~~FOR~~and ~~PURPOSES~~disposition OFof ~~THE~~facilities; ~~“SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995~~and

~~This~~• ~~report~~initiation 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 the actual results and ~~such~~discontinuation variances can be material. Where we 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. 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 and other cautionary statements~~services. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date provided. With this in mind, you should consider the risks discussed elsewhere in this report and other documents we file with the Securities and Exchange Commission (SEC) from time to time and the following important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. If any of the following risks were actually to occur, our business, results of operations, financial condition and growth could be materially adversely affected.

~~Risks~~Our ~~Related~~interstate pipeline systems are also subject to ~~Our~~federal, ~~Business~~state and local safety and environmental statutes and regulations of the U.S. Department of Transportation and the U.S. Department of the Interior. We have ongoing inspection programs designed to keep our facilities in compliance with pipeline safety and environmental requirements. For a further discussion of the potential impact of regulatory matters on us, see Item 1A. Risk Factors.

~~The~~Environmental ~~success of our business depends on many factors beyond our control.~~

~~The~~A ~~results~~description of our ~~business~~environmental ~~are~~remediation ~~impacted~~activities inis ~~the~~included ~~long~~in ~~term~~Part byII, ~~the volumes of natural gas we transport or store and the prices we are able to charge for these services~~Item 8. ~~The~~Financial ~~volumes~~Statements ~~we transport~~ and ~~store~~Supplementary ~~depend~~Data, onNote ~~the~~7, ~~actions of third parties that are based on factors beyond our control. Such factors include events that negatively impact our customers’ demand for natural gas~~ and ~~could~~is ~~expose~~incorporated ~~our~~herein ~~pipelines~~by ~~to the risk that we will not be able to renew contracts at expiration or that we will be required to discount our rates significantly upon renewal~~reference. We are also highly dependent on our customers and downstream pipelines to attach new and increased loads on their systems in order to grow our business. Further, state agencies that regulate our local distribution company customers could impose requirements that could impact demand for our services.

~~The~~Employees volume of gas that we transport and store also depends on the availability of natural gas supplies that are attached to our pipeline systems, including the need for producers to continue to develop additional gas supplies to offset the natural decline from existing wells connected to our systems. This requires the development of additional natural gas reserves, obtaining additional supplies from interconnecting pipelines, and the development of LNG facilities on or near our systems. There have been major shifts in supply basins over the last few years, and declining production from conventional sources of supplies. A prolonged decline in energy prices could cause a decrease in these development activities and could cause a decrease in the volume of reserves available for transmission and storage through our systems.

~~Furthermore,~~As ~~our~~of February ~~ability to deliver gas to our shippers is dependent upon their ability to purchase and deliver gas at various receipt points into our system. On occasion~~20, ~~particularly during extreme weather conditions~~2012, ~~the~~we ~~gas~~had ~~delivered~~approximately by525 ~~our~~full-time shippers at the receipt points into our system is less than the gas that they take at delivery points from our system. This can cause operational problems and can negatively impact our ability to meet our shippers’ demand. For exampleemployees, ~~during~~none ~~February~~ of ~~2011,~~whom ~~our~~are ~~south~~subject ~~system experienced operational difficulties for various reasons, primarily due~~ to ~~the~~a ~~shippers’~~collective ~~taking~~bargaining ~~more gas from the system than they had purchased and delivered into receipt points on our pipeline~~arrangement. ~~Various~~ ~~state and federal agencies are reviewing the causes of such outages and it is uncertain what actions, if any, that the agencies will recommend upon completion of their reviews.~~

~~The~~4 ~~agencies that regulate us and our customers could affect our profitability.~~

5ITEM 1A. RISK FACTORS

~~Table~~CAUTIONARY ofSTATEMENT ~~Contents~~FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF

~~Our~~THE ~~existing~~PRIVATE ~~rates~~SECURITIES ~~may~~LITIGATION ~~also~~REFORM beACT ~~challenged~~OF by1995 complaint. The FERC commenced several proceedings in 2009 and 2010 against unaffiliated pipeline systems to reduce the rates they were charging their customers. There is a risk that the FERC or our customers could file similar complaints on us and that a successful complaint against our rates could have an adverse impact on us. For a discussion of our recent rate case filed with the FERC, see Part II, Item 8, Financial Statements and Supplementary Data, Note 7.

~~Certain~~This report contains forward-looking statements within the meaning of ~~our~~the ~~transportation~~Private ~~services~~Securities Litigation Reform Act of 1995. These forward-looking statements are ~~subject~~based on assumptions or beliefs that we believe to ~~negotiated~~be ~~rate~~reasonable; ~~contracts~~however, assumed facts almost always vary from the actual results and such variances can be material. Where we express an expectation or belief as to future results, that ~~may~~expectation ~~not~~or ~~allow~~belief usis expressed in good faith and is believed to ~~recover~~have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur. The words “believe,” “expect,” “estimate,” “anticipate,” and similar expressions will generally identify forward-looking statements. All of our ~~costs~~forward-looking statements, whether written or oral, are expressly qualified by these and other cautionary statements. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date provided. With this in mind, you should consider the risks discussed elsewhere in this report and other documents we file with the Securities and Exchange Commission (SEC) from time to time and the following important factors that could cause actual results to differ materially from those expressed in any of ~~providing~~our forward-looking statements. If any of the ~~services~~following risks were actually to occur, our business, results of operations, financial condition and growth could be materially adversely affected.

~~Under~~Risks ~~FERC~~Related policy, interstate pipelines and their customers may execute contracts at a negotiated rate which may be above or below the FERC regulated recourse rate for that service. These negotiated rate contracts are generally not subject to ~~adjustment~~Our ~~for~~Business increased costs which could occur due to inflation, increases in the cost of capital or taxes or other factors relating to the specific facilities being used to perform the services. It is possible that costs to perform services under negotiated rate contracts will exceed the negotiated rates. Any shortfall of revenue, representing the difference between recourse rates and negotiated rates could result in either losses or lower rates of return in providing such services.

~~Our~~The ~~revenues~~success ~~are~~of ~~generated~~our ~~under~~business ~~contracts~~depends ~~that~~on ~~must~~many befactors ~~renegotiated~~beyond ~~periodically~~our control.

~~Our~~The ~~revenues~~results ~~are~~of ~~generated~~our ~~under~~business ~~transportation~~are ~~and~~impacted ~~storage~~in ~~contracts~~the ~~which~~long ~~expire~~term ~~periodically~~by ~~and~~the ~~must~~volumes beof ~~renegotiated,~~natural ~~extended~~gas we transport or ~~replaced.~~store Ifand the prices we are ~~unable~~ able to ~~extend~~charge orfor ~~replace~~ these ~~contracts~~services. ~~when~~The ~~they~~volumes ~~expire~~we ortransport ~~renegotiate~~and ~~contract~~store ~~terms~~depend ason ~~favorable as~~ the ~~existing~~actions ~~contracts,~~of wethird ~~could~~parties ~~suffer~~that aare ~~material~~based ~~reduction~~on infactors beyond our ~~revenues,~~control. ~~earnings~~Such ~~and~~factors ~~cash~~include ~~flows.~~events ~~For~~that ~~example,~~negatively ~~basis~~impact ~~differentials~~our ~~between~~customers’ ~~receipt~~demand ~~and~~for ~~delivery~~natural ~~points~~gas onand could expose our ~~pipeline~~pipelines ~~systems~~to ~~could~~the ~~decrease~~risk ~~over~~that ~~time~~we ~~and~~will ~~thereby~~not ~~negatively~~be ~~impact~~able ~~our ability~~ to renew contracts at ~~rates~~expiration or that ~~were~~we ~~previously~~will inbe ~~place.~~required ~~Our~~to ~~ability~~discount toour ~~extend~~rates ~~and~~significantly ~~replace~~upon ~~contracts~~renewal. ~~could~~We beare ~~adversely~~also ~~affected~~highly bydependent ~~factors~~on weour ~~cannot~~customers ~~control,~~and asdownstream ~~discussed~~pipelines ~~above.~~to attach Innew ~~addition,~~and ~~changes~~increased loads on their systems in ~~state~~order ~~regulation~~to ofgrow ~~local~~our ~~distribution~~business. ~~companies~~Further, ~~may~~state ~~cause~~agencies ~~them~~that toregulate ~~negotiate~~our ~~short-term~~local ~~contracts~~distribution orcompany ~~turn~~customers ~~back~~could ~~their~~impose ~~capacity~~requirements ~~when~~that ~~their~~could ~~contracts~~impact ~~expire~~demand for our services.

The ~~expansion~~volume of ~~our~~natural gas that we transport and store also depends on the availability of natural gas supplies that are accessible to our pipeline systems, byincluding ~~constructing~~the ~~new~~need for producers to continue to develop additional gas supplies to offset the natural decline from existing wells connected to our systems. This requires the development of additional natural gas reserves, obtaining additional supplies from interconnecting pipelines, and the development of LNG facilities ~~subjects~~on usor near our systems. There have been major shifts in supply basins over the last few years, especially with regard to ~~construction~~the development of new natural gas shale plays and ~~other~~declining ~~risks~~production ~~that~~from ~~may~~conventional ~~adversely~~sources ~~affect~~of ussupplies. A prolonged decline in energy prices could cause a decrease in these development activities and could cause a decrease in the volume of reserves available for transmission and storage through our systems.

WeFurthermore, ~~frequently~~our ~~expand~~ability ~~the~~to ~~capacity~~deliver ofnatural gas to our ~~existing~~shippers ~~pipeline~~is dependent upon their ability to purchase and ~~storage~~deliver ~~facilities~~natural bygas ~~constructing~~at ~~additional~~various ~~facilities~~receipt points into our system. ~~Construction~~On ofoccasion, ~~these~~particularly ~~facilities~~during extreme weather conditions, the natural gas delivered by our shippers at the receipt points into our systems is ~~subject~~less tothan ~~various~~the natural ~~regulatory,~~gas ~~development~~that ~~and~~they take at delivery points from our systems. This can cause operational ~~risks,~~problems ~~including:~~and can negatively impact our ability to meet our shippers’ demand.

•With ~~our~~the ~~ability~~recent torapid ~~obtain~~growth ~~necessary~~of ~~approvals~~shale ~~and~~production ~~permits~~in ~~from~~ the ~~FERC~~U.S. and ~~other~~the ~~regulatory~~subsequent ~~agencies~~drop onin anatural ~~timely~~gas ~~basis~~prices, ~~that~~the ~~are~~need onand ~~terms~~incentive ~~that~~to ~~are~~import ~~acceptable~~LNG to ~~us,~~U.S. ~~including~~regasification ~~the~~terminals ~~potential~~have ~~negative~~greatly ~~impact~~diminished. Actual ofU.S. ~~delays~~LNG ~~and~~imports ~~increased~~are ~~costs~~now ~~caused~~at bytheir ~~general~~lowest ~~opposition~~levels in several years. If shale gas production continues to ~~energy~~grow ~~infrastructure~~as ~~development~~expected, ~~especially~~imports inof ~~environmentally,~~LNG ~~culturally~~to ~~sensitive~~the ~~and~~U.S. ~~more~~will ~~heavily~~remain ~~populated~~at ~~areas;~~minimal levels.

•The ~~the~~agencies ~~ability~~that toregulate ~~access~~us ~~sufficient~~and ~~capital~~our atcustomers ~~reasonable~~could ~~rates~~affect toour ~~fund~~profitability. ~~expansion projects, especially in periods of prolonged economic decline when we may be unable to access the capital markets;~~

•Our business is extensively regulated by the ~~availability~~FERC, ofthe ~~skilled~~U.S. ~~labor~~Department of Transportation, ~~equipment~~the U.S. Department of the Interior, the U.S. Department of Homeland Security and ~~materials~~various state and local regulatory agencies who have the ability to ~~complete~~issue ~~expansion~~regulations ~~projects;~~

•5 ~~potential changes in federal, state and local statutes, regulations, and orders;~~

• or enforcement orders that may adversely affect our ~~ability~~profitability. toThe ~~construct~~FERC ~~projects~~regulates ~~within~~most ~~anticipated~~aspects ~~costs~~of our business, including the ~~risk~~terms ~~that~~and weconditions ~~may~~of ~~incur~~services ~~cost~~offered, ~~overruns~~our ~~resulting~~relationships ~~from~~with affiliates, ~~weather~~construction ~~conditions,~~and ~~geologic~~abandonment ~~conditions,~~of ~~inflation~~facilities orand ~~increased~~the ~~costs~~rates ofcharged ~~equipment,~~by ~~materials~~our pipelines (~~such~~including asestablishing ~~steel~~authorized ~~and~~rates ~~nickel~~of return),. ~~labor,~~We ~~contractor~~periodically ~~productivity,~~file ~~delays~~to inadjust ~~construction~~the ~~due~~rates charged to ~~various~~our ~~factors~~customers. ~~including~~There ~~delays~~is ina ~~obtaining~~risk that after a prescribed regulatory ~~approvals~~process orthe ~~other~~FERC ~~factors~~may ~~beyond~~establish ~~our~~rates ~~control~~that are not acceptable to us and have a negative impact on us. ~~These~~In ~~cost~~addition, ~~overruns~~our ~~could~~profitability beis ~~material~~influenced ~~and~~by wefluctuations ~~may~~in ~~not~~costs beand ~~able~~our ability to recover ~~such~~any ~~excess~~increases in our costs ~~from~~in the rates charged to our ~~customers~~shippers. ~~which~~Our ~~could~~operating results can be negatively ~~impact~~impacted to the ~~return~~extent onthat such costs increase in an amount greater than what we are permitted to recover in our ~~investments~~rates or ~~could~~to ~~result~~the inextent ~~financial~~that ~~impairments;~~there is a lag before we can file and obtain rate increases. For a discussion of our rate cases filed with the FERC, see Part II, Item 8. Financial Statements and Supplementary Data, Note 7.

•Our ~~our~~existing ~~ability~~rates may also be challenged by complaint. The FERC commenced several proceedings against pipeline systems and storage facilities to ~~construct~~reduce ~~projects~~the ~~within~~rates ~~anticipated~~they ~~time~~were ~~frames~~charging their customers. There is a risk that ~~would~~the ~~likely~~FERC ~~delay~~or our ~~collection~~customers ofcould ~~transportation~~file ~~charges~~similar ~~under~~complaints on us and that a successful complaint against our ~~contracts;~~rates could have an adverse impact on us.

•Certain ~~the~~of ~~failure~~our oftransportation ~~suppliers~~services ~~and~~are ~~contractors~~subject to ~~meet~~negotiated ~~their~~rate ~~performance~~contracts ~~and~~that ~~warranty~~may ~~obligations;~~not ~~and~~allow us to recover our costs of providing the services.

•Under FERC policy, interstate pipelines and their customers may execute contracts at a negotiated rate which may be above or below the FERC ~~lack~~regulated recourse rate for that service. These negotiated rate contracts are generally not subject to adjustment for increased costs which could occur due to inflation, increases in the cost of ~~transportation~~capital or taxes or other factors relating to the specific facilities being used to perform the services. It is possible that costs to perform services under negotiated rate contracts will exceed the negotiated rates. Any shortfall of revenue, ~~storage~~representing the difference between recourse rates and negotiated rates could result in either losses or ~~throughput~~lower ~~commitments~~rates of return in providing such services.

6Our revenues are generated under contracts that must be renegotiated periodically.

~~Table~~Our revenues are generated under transportation and storage contracts which expire periodically and must be renegotiated, extended or replaced. If we are unable to extend or replace these contracts when they expire or are terminated or if we are unable to renegotiate contract terms as favorable as the existing contracts, we could suffer a material reduction in our revenues, earnings and cash flows. For example, basis differentials between receipt and delivery points on our pipeline systems could remain low over time and thereby negatively impact our ability to renew contracts at rates that were previously in place. In addition, basis differentials often remain low during periods in which the price for natural gas is low, such as we are currently experiencing. In 2012, contracts representing approximately 40 percent of ~~Contents~~our reservation revenues will expire. At this time we are uncertain how much of the expiring capacity will be recontracted, and if so, at what rates. Our ability to extend and replace contracts could be adversely affected by factors we cannot control, as discussed above. In addition, changes in state regulation of local distribution companies may cause them to negotiate short-term contracts or turn back their capacity when their contracts expire.

~~Any~~We of these risks could prevent a project from proceeding, delay its completion or increase its anticipated costs. There is also the risk that a downturn in the economy and its negative impact upon natural gas demand may ~~result~~not insucceed ~~either slower development~~ in ~~the~~an ~~potential for future~~ expansion ~~projects~~of ~~or adjustments in the contractual commitments supporting such projects. As a result, new facilities may be delayed or may not achieve~~ our ~~expected~~pipeline ~~investment return~~systems.

WeOur ~~depend~~ability onto ~~certain~~engage ~~key~~in ~~customers~~expansion ~~for~~projects awill ~~significant~~be ~~portion~~subject to, among other things, approval of our ~~revenues~~board of directors and ~~the~~numerous business, ~~loss~~economic, ofregulatory, competitive and political uncertainties beyond our control. Therefore, we cannot assure you that any ofadditional ~~these~~expansion ~~key~~projects ~~customers~~will ~~could~~be ~~result~~undertaken inor, aif ~~decline~~undertaken, inwill ~~our~~be ~~revenues~~successful.

We rely on a limited number of customers for a significant portion of our revenues. For the year ended December 31, 2010, ConocoPhillips Company, Southern California Gas Company and Southwest Gas Corporation accounted for approximately 15 percent, 14 percent and 12 percent, respectively of our operating revenues. The ~~loss~~success of ~~any~~expansion ~~material~~projects ~~portion~~may ofdepend the contracted volumes of these customers, as a result of competition, creditworthiness, inability to negotiate extensions, or replacements of contracts or otherwise, could have a material adverse effect on ~~us. For additional information on our revenues from these customers~~, ~~see~~among ~~Part II~~others, ~~Item~~the 8,following ~~Financial~~factors: ~~Statements and Supplementary Data, Note 9.~~

~~The~~• ~~costs~~other toexisting ~~maintain,~~pipelines ~~repair~~may ~~and~~provide ~~replace~~transportation ~~our~~services ~~pipeline~~to ~~systems~~the ~~may~~area ~~exceed~~to ~~our~~which ~~expected~~we ~~levels.~~are expanding;

~~Much~~• ofother our pipeline infrastructure was originally constructed many years ago. The age of these assets may result in them being more costly to maintain and repair. We may also be required to replace certain facilities over time. In additionentities, ~~our~~upon ~~pipeline~~obtaining ~~assets may be subject to~~ the ~~risk~~proper ofregulatory ~~failures or other incidents due to factors outside of our control (including due to third party excavation near our pipelines~~approvals, ~~unexpected~~may ~~degradation~~construct ofnew ~~our~~competing pipelines, ~~as well as design, construction~~ or ~~manufacturing~~increase ~~defects) that could result in personal injury or property damages. Much of our pipeline systems are located in populated areas which increases~~ the ~~level~~capacity of ~~such~~existing ~~risks.~~competing Such incidents could also result in unscheduled outages or periods of reduced operating flows which could result in a loss of our ability to serve our customers and a loss of revenues. Although we are targeted to complete our pipeline integrity program which includes the development and use of in-line inspection tools in high consequence areas by its required completion date at the end of 2012, we will continue to incur substantial expenditures beyond 2012 relating to the integrity and safety of our pipelines. In addition, as indicated above there is a risk that new regulations associated with pipeline safety and integrity issues will be adopted that could require us to incur additional material expenditures in the future.;

We• doa ~~not~~competitor’s ~~own~~new ~~all~~or ofupgraded ~~the~~pipeline ~~land~~could onoffer ~~which~~transportation ~~our~~services ~~pipelines~~that ~~and~~are ~~facilities~~more ~~are~~desirable ~~located~~to shippers because of costs, ~~which~~location, ~~could~~facilities ~~disrupt~~or ~~our~~other ~~operations.~~factors;

We• doshippers ~~not own all of the land on which our pipelines and facilities are located. We are subject to the risk that we do not have valid rights-of-way, that such rights-of-way~~ may ~~lapse or terminate, our facilities may not~~ be ~~properly~~unwilling ~~located~~to ~~within~~sign ~~the boundaries of such rights~~long-~~of-way~~term orfirm ~~the~~transportation ~~landowners~~contracts ~~otherwise~~for ~~interfere~~service ~~with~~which ~~our~~would ~~operations. Our~~make ~~loss~~use of ~~or interference with these rights could have~~ a ~~material~~planned ~~adverse effect on us.~~expansion;

~~There~~• ~~are~~we ~~accounting~~may ~~principles~~be ~~that~~unable ~~are unique~~ to ~~regulated~~obtain ~~interstate~~the ~~pipeline~~requisite ~~assets~~environmental ~~that~~and ~~could~~regulatory ~~materially~~permits ~~impact~~and ~~our~~approvals; ~~recorded earnings.~~and

~~Accounting~~• ~~policies~~the ~~for~~ FERC ~~regulated~~may pipelines are in certain instances different from U.S. generally accepted accounting principles (GAAP) for nonregulated entities. For example, FERC accounting policies permit certain regulatory assets to be recorded on our balance sheet that would not ~~typically~~grant beus ~~recorded for nonregulated entities. In determining whether to account for regulatory assets on each of our pipelines, we consider various factors including regulatory changes and~~ the impact of competition to determine the probability of recovery of these assets. Currently, we have regulatory assets recorded on our balance sheet. If we determine that future recovery is no longer probable, then we could be required tocertificates ~~write~~for ~~off the regulatory assets in the future. In addition, we capitalize a carrying cost (AFUDC) on equity funds related to~~ our ~~construction of long-lived assets. Equity amounts capitalized are included as other income on our income statement. To the extent that one of our~~ expansion projects ~~is not fully subscribed when it goes into service, we may experience a reduction in our earnings once the pipeline is placed into service~~.

~~The~~We ~~supply~~may ~~and~~also ~~demand~~require ~~for~~additional ~~natural~~capital ~~gas~~to fund any expansion project. If we fail to generate sufficient funds in the future, we may have to delay or abandon potential expansion projects which could berequire ~~adversely~~us ~~affected~~to bywrite ~~many~~off ~~factors~~significant ~~outside~~development costs. Moreover, if we are unable to obtain long term firm transportation contracts for volumes that would enable us to cover the costs of ~~our~~any ~~control~~such ~~which~~expansion and provide us with an acceptable rate of return, we may not proceed with such expansion. Also, a potential expansion may cost more than planned to complete and such excess cost may not be recoverable. Our inability to recover any such costs or expenditures could ~~negatively~~materially adversely affect usour business, financial condition, cash flows and results of operations.

~~Our~~We ~~success~~depend ~~depends~~ on ~~the~~certain ~~supply~~key ~~and~~customers ~~demand~~ for ~~natural~~a ~~gas. The~~significant ~~degree~~portion to which our business is impacted by changes in supply or demand varies. For example, we are not significantly impacted in the short-term by reductions in the supply or demand for natural gas since we recover most of our revenues ~~from~~and ~~reservation charges under longer-term contracts that are not dependent on~~ the ~~supply~~loss ~~and~~of ~~demand~~any of ~~natural~~these ~~gas~~key incustomers ~~the~~could result ~~short-term. However, our business can be negatively impacted by sustained downturns~~ in ~~supply~~a ~~and~~decline ~~demand for natural gas. One of the major factors that will impact natural gas demand will be the potential growth of natural gas~~ in ~~the~~our ~~power generation market, particularly driven by the speed and level of existing coal-fired power generation that is replaced with natural gas-fired power generation~~revenues. In ~~addition, the supply and demand for natural gas for our business will depend on many other factors outside of our control, which include, among others:~~

•We ~~adverse~~rely ~~changes~~on ina ~~global~~limited ~~economic~~number ~~conditions~~of customers for a significant portion of our revenues. For the year ended December 31, ~~including~~2011, ~~changes~~ConocoPhillips ~~that~~Company, ~~negatively~~Southern ~~impact~~California ~~general~~Gas ~~demand~~Company and Southwest Gas Corporation accounted for ~~power~~approximately ~~generation~~16 percent, 12 percent and ~~industrial~~11 ~~loads~~percent, respectively of our operating revenues. The creditworthiness of our customers may be adversely impacted by negative effects in the economy, including low natural gas prices which can reduce liquidity and cash flows for some of our customers that produce natural gas;. The loss of any material portion of the contracted volumes of these customers, as a result of competition, creditworthiness, inability to negotiate extensions, or replacements of contracts or otherwise, could have a material adverse effect on us. For additional information on our revenues from these customers, see Part II, Item 8. Financial Statements and Supplementary Data, Note 9.

•The ~~adverse~~costs ~~changes~~to inmaintain, ~~geopolitical~~repair ~~factors,~~and ~~including~~replace ~~unexpected~~our ~~wars,~~pipeline ~~terrorist~~systems ~~activities~~may ~~and~~exceed ~~others~~our ~~acts~~expected oflevels. ~~aggression;~~

•Much ~~technological~~of ~~advancements~~our ~~that~~pipeline infrastructure was originally constructed many years ago. The age of these assets may ~~drive~~result ~~further~~in them being more costly to maintain and repair. We may also be required to replace certain facilities over time. In addition, our pipeline assets may be subject to the risk of failures or other incidents due to factors outside of our control (including due to third party excavation near our pipelines, unexpected degradation of our pipelines, erosion of soil, as well as design, construction or manufacturing defects) that could result in personal injury or property damages. Much of our pipeline systems are located in populated areas which increases the level of such risks. Such incidents could also result in ~~production~~unscheduled ~~from~~outages ~~natural~~or periods of reduced operating flows which could result in a loss of our ability to serve our customers and a loss of revenues. Although we are targeted to complete our pipeline integrity program which includes the development and use of in-line inspection tools in high consequence areas by its required completion date at the end of 2012, we will continue to incur substantial expenditures beyond 2012 relating to the integrity and safety of our pipelines. In addition, as indicated above there is a risk that new regulations or other regulatory actions associated with pipeline safety and integrity issues will be adopted that could require us to incur additional material expenditures in the future. We are also subject to inherent risk associated with our storage operations, including potential risk of gas ~~shales;~~losses and field degradation.

•We ~~competition~~do ~~from~~not ~~imported~~own ~~LNG~~all of the land on which our pipelines and ~~alternate~~other ~~fuels;~~related facilities are located, which could disrupt our operations.

•We ~~increased~~do ~~prices~~not own all of ~~natural~~the ~~gas~~land on which our pipelines and other related facilities are located. We are subject to the risk that we do not have valid rights-of-way, that such rights-of-way may lapse or terminate, our facilities may not be properly located within the boundaries of such rights-of-way or the landowners otherwise interfere with our operations. Any loss of or interference with these rights could ~~negatively~~have ~~impact~~a ~~demand;~~material adverse effect on us.

•There ~~increased~~are ~~costs~~accounting principles that are unique to ~~transport~~regulated ~~natural~~interstate ~~gas;~~pipeline assets that could materially impact our recorded earnings.

•Accounting policies ~~adoption~~for ofFERC regulated pipelines are in certain instances different from U.S. generally accepted accounting principles (GAAP) for nonregulated entities. For example, we are permitted to record certain regulatory assets on our balance sheet that would not typically be recorded under GAAP for nonregulated entities. In determining whether to account for regulatory assets on our pipelines, we consider various ~~energy~~factors ~~efficiency~~including regulatory changes and ~~conservation~~the ~~measures;~~impact ~~and~~of competition to determine the probability of recovery of these assets. Currently, we have regulatory assets recorded on our balance sheet. If we determine that future recovery is no longer probable, then we could be required to write off the regulatory assets in the future. In addition, we capitalize a carrying cost on equity funds related to our construction of long-lived assets. Equity amounts capitalized are included as other income on our income statement. To the extent that one of our expansion projects is not fully subscribed when it goes into service, we may experience a reduction in our earnings once the project is placed into service. We periodically evaluate the applicability of accounting standards

•7 ~~perceptions of customers on the availability and price volatility of natural gas prices over the longer-term.~~

~~Natural~~ related ~~gas prices historically have been volatile and are likely~~ to ~~continue~~regulated ~~to be volatile in the future~~operations, ~~especially given current global geopolitical~~ and ~~economic~~consider ~~conditions.~~factors ~~There~~such is a risk that commodity prices will remain depressed for sustained periods, especially in relation to natural gas prices which are at relatively low levels at this time. The degree to which our business is impacted by lower commodity prices varies. For example, we are not as ~~significantly~~regulatory ~~impacted~~changes inand the ~~short-term~~impact byof ~~changes in natural gas prices~~competition. ~~However,~~ weIf ~~can be negatively impacted in the long~~cost-~~term~~based byregulation ~~sustained~~ends ~~depression~~or incompetition ~~commodity prices for natural gas~~increases, ~~including~~we ~~reductions~~may inhave ~~our ability~~ to ~~renew~~evaluate ~~transportation~~our assets ~~contracts on favorable terms, as well as to construct new pipeline infrastructure. The price~~ for ~~natural~~impairment ~~gas~~and iswrite ~~subject~~off tothe aassociated ~~variety~~regulatory ofassets, ~~additional~~which ~~factors~~could ~~that~~impact ~~are outside of~~ our ~~control,~~future ~~which~~earnings. ~~include, among others:~~

•The supply ~~changes~~and indemand ~~regional~~for ~~and~~natural ~~domestic~~gas ~~supply~~could ~~and~~be ~~demand;~~adversely affected by many factors outside of our control which could negatively affect us.

•Our success depends on the supply and demand for natural gas. The degree to which our business is impacted by changes in ~~basis~~supply ~~differentials~~or ~~among~~demand ~~different~~varies. For example, we are not significantly impacted in the short-term by reductions in the supply ~~basins~~or demand for natural gas since we recover most of our revenues from reservation charges under longer-term contracts that are not dependent on the supply and demand of natural gas in the short-term. However, our business can be negatively impacted by sustained downturns in supply and demand for natural gas. One of the major factors that will impact ~~our~~natural ~~ability~~gas todemand ~~compete~~will ~~with~~be ~~supplies~~the ~~from~~potential ~~other~~growth ~~basins,~~of ~~including~~natural ~~our~~gas ~~ability~~in tothe ~~maintain~~power ~~transportation~~generation ~~revenues~~market, particularly driven by the speed and ~~renew~~level ~~transportation~~of ~~contracts~~which incoal-fired ~~supply~~power ~~basins~~generation is replaced with natural gas-fired power generation. One of the major factors that ~~are~~have ~~not~~been impacting natural gas supplies has been the significant growth in unconventional sources, such as ~~competitive~~from ~~with~~shale plays. In addition, the supply and demand for natural gas for our business will depend on many other ~~alternatives;~~factors outside of our control, which include, among others:

• adverse changes in ~~the~~global ~~costs~~economic ofconditions, ~~transporting~~including changes that negatively impact general demand for power generation and industrial loads for natural gas;

• ~~increased~~adverse ~~federal~~changes in geopolitical factors and ~~state~~unexpected ~~taxes~~wars, ifterrorist ~~any,~~activities onand ~~the~~others ~~transportation~~acts of ~~natural gas~~aggression;

• ~~the~~adverse ~~price~~changes ~~and~~in ~~availability~~domestic ofregulations ~~supplies~~that ofcould ~~alternative~~impact ~~energy~~the ~~sources;~~supply ~~and~~or demand for natural gas;

• ~~the~~technological ~~amount~~advancements ofthat ~~capacity~~may ~~available~~drive tofurther ~~transport~~increases in production from natural gas. shales;

~~Our~~• ~~business is subject to~~ competition from ~~third~~imported ~~parties~~LNG, ~~which~~alternate ~~could~~fuels ~~negatively~~and ~~affect~~renewable ~~us.~~energy sources;

~~The~~• ~~natural~~increased ~~gas~~prices ~~business is highly competitive. We compete with other interstate and intrastate pipeline companies as well as gatherers and storage companies in the transportation and storage~~ of natural gas~~. We~~ ~~also compete with suppliers of alternate sources of energy, including electricity, coal and fuel oil. We frequently have one or more competitors in the supply basins and markets~~ that we are connected to. This includes growing competition in many of the markets that we serve, including Transwestern’s pipeline into Phoenix. There have also been various proposals over time to construct LNG terminals along the east and west coasts that could ~~also~~ negatively impact ~~the~~ demand and the transportation rates that our pipeline systems could charge to the extent the LNG terminals were constructed. For example, our EPNG system experienced a loss of demand when an LNG terminal was completed south of the Mexico – California border.;

8• increased costs to transport natural gas;

~~Table~~• adoption of ~~Contents~~various energy efficiency and conservation measures; and

~~Our~~• ~~operations~~perceptions ~~are~~of ~~subject~~customers toon ~~operational~~the ~~hazards~~availability and ~~uninsured~~price ~~risks~~volatility ~~which~~of ~~could~~natural ~~negatively~~gas ~~affect~~prices usover the longer-term.

~~Our~~The ~~operations~~price ~~are~~for ~~subject to a number of inherent risks including fires, earthquakes, adverse weather conditions (such as extreme cold or heat, tornadoes, lightning and flooding) and other~~ natural ~~disasters;~~gas ~~terrorist~~could ~~activity~~be oradversely ~~acts~~affected ~~of aggression; the collision of equipment of third parties on our infrastructure (such as damage caused to our underground pipelines~~ by ~~third~~many ~~party~~factors ~~excavation~~outside ~~or construction); explosions, pipeline failures, mechanical and process safety failures, events causing our facilities to operate below expected levels~~ of capacity or efficiency; uncontrollable flows of natural gas, release of pollution or contaminants into the environment (including discharges of toxic gases or substances) and other environmental hazards. Each of these risks could result in (a) damage or destruction of our ~~facilities,~~control ~~(b) damages and injuries to persons and property or (c) business interruptions while damaged energy infrastructure is repaired or replaced, each of~~ which could ~~cause~~negatively usaffect ~~to suffer substantial losses~~us. In addition, although the potential effects of climate change on our operations (such as flooding, etc.) are uncertain at this time, changes in climate patterns as a result of global emissions of greenhouse gas (GHG) could have a negative impact upon our operations in the future.

~~While~~Natural wegas ~~maintain~~prices ~~insurance~~historically ~~against~~have ~~some~~been ofvolatile ~~these~~and ~~risks in amounts that we believe~~ are ~~reasonable,~~likely ~~our~~to ~~insurance~~continue ~~coverages~~to ~~have~~be ~~material~~volatile ~~deductibles,~~in ~~self-insurance~~the ~~levels~~future, ~~limits~~especially given oncurrent ~~our~~global ~~maximum~~geopolitical ~~recovery~~ and doeconomic ~~not~~conditions. ~~cover~~There ~~all~~is ~~risks. For~~a ~~example,~~risk wethat docommodity ~~not~~prices, ~~carry~~which or are ~~unable~~at torelatively ~~obtain~~low ~~insurance~~levels ~~coverage~~at onthis ~~terms~~time, ~~that~~could weremain ~~find~~depressed ~~acceptable~~ for ~~certain~~sustained ~~exposures~~periods. ~~including,~~The ~~but~~degree ~~not limited~~ to ~~certain~~which ~~environmental~~our ~~exposures~~business ~~(including~~is ~~potential~~impacted ~~environmental~~by ~~fines~~lower commodity ~~and~~prices ~~penalties),~~varies. ~~business~~For ~~interruption~~example, ~~named~~we ~~windstorm~~are ~~exposures,~~not ~~and~~significantly impacted in ~~limited~~the ~~circumstances,~~short-term ~~certain~~by ~~political~~changes ~~risk~~in ~~exposures.~~natural ~~The~~gas ~~premiums~~prices. ~~and~~However, ~~deductibles~~ we ~~pay~~can ~~for~~be ~~certain~~negatively ~~insurance~~impacted ~~policies~~in ~~are~~the ~~also~~long-term ~~subject~~by tosustained ~~the~~depression ~~risk~~in ofcommodity ~~substantial~~prices ~~increases~~for ~~over~~natural ~~time~~gas, including ~~that~~reductions ~~could~~in ~~negatively~~differentials ~~impact~~between ~~our~~receipt ~~financial~~and ~~results.~~delivery Inpoints ~~addition,~~on weour ~~may~~system ~~not~~and bein ~~able~~our ability to renew ~~existing~~transportation ~~insurance~~contracts ~~policies or procure desirable insurance~~ on ~~commercially~~favorable ~~reasonable~~ terms~~. There~~, isas ~~also~~well aas ~~risk~~to ~~that~~construct ~~our~~new ~~insurers~~pipeline ~~may~~infrastructure. ~~default~~The onprice ~~their~~for ~~coverage~~natural ~~obligations.~~gas Asis subject to a ~~result,~~variety weof ~~could~~additional befactors ~~adversely~~that ~~affected~~are ifoutside aof ~~significant~~our ~~event~~control, ~~occurs~~which ~~that~~include, isamong ~~not~~others: ~~fully covered by insurance.~~

We• ~~are~~changes ~~subject~~in toregional ~~a complex set of laws~~ and ~~regulations~~domestic ~~that~~supply ~~regulate the energy industry for which we have to incur substantial compliance~~ and ~~remediation costs.~~demand;

~~Our~~• ~~operations~~changes ~~are~~in ~~subject~~basis todifferentials aamong ~~complex~~different ~~set~~supply ofbasins ~~federal, state and local laws and regulations~~ that ~~tend~~can tonegatively ~~change~~impact ~~from~~our ~~time~~ability to ~~time~~compete ~~and~~with ~~generally~~supplies ~~are~~from ~~becoming~~other ~~increasingly more stringent. In addition to laws and regulations affecting our business~~basins, ~~there are various laws and regulations that regulate various market practices in the industry,~~ including antitrust laws and laws that prohibit fraud and manipulation in the markets in which we operate. The authority of the Federal Trading Commission and the FERC to impose penalties for violations of laws or regulations has generally increased over the last few years. In addition, our ~~business~~ability ~~is subject~~ to laws and regulations that govern environmental, health and safety matters. These regulations include compliance obligations for air emissions, water quality, wastewater discharge and solid and hazardous waste disposal, as well as regulations designed for the protection of human health and safety and threatened or endangered species. Compliance obligations can result in significant costs to install and maintain ~~pollution~~transportation ~~controls,~~revenues and torenew ~~maintain~~transportation ~~measures~~contracts ~~to address personal and process safety and protection of the environment and animal habitat near our operations. We are often obligated to obtain permits or approvals~~ in ~~our~~supply ~~operations~~basins ~~from various federal, state and local authorities, which permits and approvals can be denied or delayed. In addition, we are exposed to fines and penalties to the extent~~ that we fail to comply with the applicable laws and regulations, as well as the potential for limitations to be imposed on our operations. These regulations often impose remediation obligations associated with the investigation or clean-up of contaminated properties, as well as damage claims arising out of the contamination of properties or impact on natural resources. Finally, many of our assets are ~~located~~not and operate on federal, state, local or tribal lands and are typically regulated by one or more federal, state or local agencies. For example, we operate assets that are located on federal lands , which are regulated by the Department of the Interior, particularly by the Bureau of Land Management (BLM). We also have operations on Native American tribal lands, which are regulated by the Department of the Interior, particularly by the Bureau of Indian Affairs, as ~~well~~competitive as ~~local~~other tribal authorities. Operations on these properties are often subject to additional regulations and compliance obligations, which can delay our access to such lands and impose additional compliance costs.alternatives;

9• changes in the costs of transporting natural gas;

~~Table~~• increased federal and state taxes, if any, on the transportation of ~~Contents~~natural gas;

~~The~~• ~~laws and regulations (and~~ the ~~interpretations~~price ~~thereof) that are applicable to our business could materially change in the future~~ and ~~increase~~availability ~~the~~of ~~cost~~supplies of ~~our~~alternative ~~operations~~energy orsources; ~~otherwise negatively impact us.~~and

~~The~~• ~~regulatory framework affecting our business is frequently subject to change, with~~ the ~~risk~~amount ~~that~~of ~~either~~capacity ~~new~~available laws and regulations may be enacted or existing laws and regulation may be amended. Such new or amended laws and regulations can materially affect our operations and our financial results. In this regard, there have been proposals to ~~implement~~transport ornatural ~~amend federal, state, local and tribal laws and regulations that could negatively impact our business, which includes among others:~~gas.

•Our ~~Climate~~business Change and other Emissions. There have been various legislative and regulatory proposals at the federal and state levels to address climate change and to regulate GHG emissions. The Environmental Protection Agency (EPA) and several state environmental agencies have already adopted regulations to regulate GHG emissions. Although natural gas as a fuel supply for power generation has the least GHG emissions of any fossil fuel, it is uncertain at this time what impact the existing and proposed regulations will have on the demand for natural gas and on our operations. This will largely depend on what regulations are ultimately adopted, including the level of any emission standards; the amount and costs of allowances, offsets and credits granted; and incentives and subsidies provided to other fossil fuels, nuclear power and renewable energy sources. Although the EPA has adopted a tailoring rule to regulate GHG emissions, it is not expected to materially impact our operations until 2016. However, the tailoring rule is subject to ~~judicial~~competition reviews and such reviews could result in the EPA being required to regulate GHG emissions at lower levels that could subject us to regulation prior to 2016. There have also been various legislative and regulatory proposals at the federal and state levels to address various emissions from ~~coal-fired~~third ~~power~~parties ~~plants.~~which Although such proposals will generally favor the use of natural gas fired power plants over coal-fired power plants, it remains uncertain what regulations will ultimately be adopted and when they will be adopted. Finally, there have been other various environmental regulatory proposals that could ~~increase~~negatively ~~the~~affect cost of our environmental liabilities as well as increase our future compliance costs. For example, the EPA has proposed more stringent ozone standards, as well as implemented more stringent emission standards with regard to certain combustion engines on our pipeline systems. It is uncertain what impact new environmental regulations might have on us ~~until further definition is provided in the various legislative, regulatory and judicial branches~~. In addition, any regulations would likely increase our costs of compliance by requiring us to monitor emissions, install additional equipment to reduce carbon emissions and possibly to purchase emission credits, as well as potentially delay the receipt of permits and other regulatory approvals. While we may be able to include some or all of the costs associated with our environmental liabilities and environmental compliance in the rates charged by our pipelines, our ability to recover such costs is uncertain and may depend on events beyond our control including the outcome of future rate proceedings before the FERC and the provisions of any final regulations and legislation.

•The ~~Renewable~~natural /gas ~~Conservation~~business ~~Legislation.~~is ~~There~~highly have been various legislative and regulatory proposals at the federal and state levels to provide incentives and subsidies to (a) shift more power generation to renewable energy sources and (b) support technological advances to drive less energy consumptioncompetitive. ~~These~~We ~~incentives~~compete ~~and~~with ~~subsidies~~other ~~could~~interstate ~~have a negative impact on natural gas consumption~~ and ~~thus~~intrastate ~~have~~pipeline ~~negative~~companies ~~impacts~~as onwell ~~our~~as ~~operations and financial results.~~

•8 Pipeline Safety. Various legislative and regulatory reforms associated with pipeline safety and integrity issues have been recently proposed, including reforms that would require increased periodic inspections, installation of additional valves and other equipment on our pipelines and subjecting additional pipelines (including gathering and intrastate pipeline facilities) to more stringent regulation. It is uncertain what reforms, if any, will be adopted and what impact they might ultimately have on our operations or financial results.

~~Table~~ gatherers and storage companies for the transportation and storage of ~~Contents~~natural gas, as well as with suppliers of alternative energy sources used to generate electricity, such as coal and fuel oil. We frequently have one or more competitors in the supply basins and markets that we are connected to. This includes growing competition in many of the markets that we serve, including Transwestern’s pipeline into Phoenix. In addition, our EPNG system experienced a loss of demand when an LNG terminal was completed south of the Mexico—California border.

WeOur operations are ~~exposed~~subject to ~~the~~operational ~~credit~~hazards ~~risk of our counterparties~~ and ~~our~~uninsured ~~credit~~risks ~~risk~~which ~~management~~could ~~may~~negatively ~~not~~affect ~~be adequate to protect against such risk~~us.

WeOur ~~are~~operations are subject to ~~the~~a ~~risk~~number ~~that~~of ~~our~~inherent ~~counterparties~~operational ~~fail~~hazards to make payments to us within the time required under our contracts. Our current largest exposures are associated with shippers under long-term transportation contracts on our pipeline systems. Our credit procedures and ~~policies~~uninsured ~~may not be adequate to fully eliminate counterparty credit risk. In addition, in certain situations, we may assume certain additional credit~~ risks ~~for~~such ~~competitive~~as: reasons or otherwise. If our existing or future counterparties fail to pay and/or perform, we could be adversely affected. For example, we may not be able to effectively remarket capacity or enter into new contracts at similar terms during and after insolvency proceedings involving a customer.

We• ~~are~~Adverse ~~exposed~~weather toconditions, ~~the~~natural ~~credit~~disasters, and/or ~~performance~~other ~~risk~~climate related matters—including extreme cold or heat, lightning and flooding, fires, earthquakes, tornadoes and other natural disasters. Although the potential effects of climate change on our ~~key~~operations ~~contractors~~(such ~~and~~as ~~suppliers~~flooding, etc.) are uncertain at this time, changes in climate patterns as a result of global emissions of greenhouse gas (GHG) could also have a negative impact upon our operations in the future.

As• anActs ~~owner~~ of aggression on critical energy infrastructure—including ~~facilities~~terrorist ~~with~~activity ~~significant~~or ~~capital~~“cyber ~~expenditures,~~security” weevents. ~~rely~~We onare ~~contractors~~subject ~~for~~to ~~certain~~the ~~construction~~ongoing ~~and~~risk wethat ~~rely~~one onof ~~suppliers~~these ~~for~~incidents ~~key~~may ~~materials,~~occur ~~supplies~~which ~~and~~could ~~services,~~significantly ~~including~~impact ~~steel~~our ~~mills~~business ~~and~~operations ~~pipe~~ and/or ~~tubular~~financial ~~manufacturers~~results. ~~There~~Should isone aof ~~risk~~these ~~that~~events ~~such~~occur ~~contractors~~in ~~and~~the ~~suppliers~~future, ~~may~~it ~~experience~~could ~~credit~~impact ~~and~~our ~~performance~~ability ~~issues~~to ~~that~~operate ~~could~~or ~~adversely~~control ~~impact~~our ~~their~~pipeline ~~ability~~assets, toour ~~perform~~operations ~~their~~could ~~contractual~~be ~~obligations with us~~disrupted, ~~including~~property ~~their~~could ~~performance~~be damaged and/or ~~warranty~~customer ~~obligations.~~information ~~This~~ could ~~result~~be stolen resulting in ~~delays~~substantial loss of revenues, increased costs to respond or ~~defaults~~other infinancial ~~performing~~loss, ~~such~~damage ~~contractual~~to ~~obligations~~reputation, increased regulation and ~~increased~~litigation ~~costs~~and/or inaccurate information reported from our operations to ~~seek~~our ~~replacement~~financial ~~contractors~~applications, ~~each~~to ~~which~~our ~~could~~customers ~~adversely~~and ~~impact~~to usregulatory entities.

~~Our~~• ~~business~~Other ~~requires~~hazards—including the ~~retention~~collision of third party equipment with our infrastructure (such as damage caused to our underground pipelines by third party excavation); explosions, pipeline failures, mechanical and ~~recruitment~~process safety failures, events causing our facilities to operate below expected levels of acapacity ~~skilled~~or ~~workforce~~efficiency; ~~and~~uncontrollable ~~the~~flows ~~loss~~of natural gas, release of ~~employees~~pollution ~~could~~or ~~result~~contaminants ininto the ~~failure~~environment to(including ~~implement~~discharges ~~our~~of ~~business~~toxic ~~plans~~gases or substances) and other environmental hazards.

~~Our~~Each ~~business~~of ~~requires~~these ~~the~~risks ~~retention~~could ~~and~~result ~~recruitment~~in of (a) damage ~~skilled~~or ~~workforce~~destruction ~~including~~of ~~engineers~~our facilities, ~~technical~~(b) damages ~~personnel~~and injuries to persons and ~~other~~property ~~professionals~~or (c) business interruptions while damaged energy and/or technology infrastructure is repaired or replaced, each of which could cause us to suffer substantial losses. WeWhile ~~compete~~we ~~with~~maintain ~~other~~insurance ~~companies~~against some of these risks in ~~the~~amounts ~~energy~~that ~~industry~~we ~~for~~believe ~~this~~are ~~skilled~~reasonable, ~~workforce. In~~our ~~addition~~insurance coverages have material deductibles, ~~many~~self-insurance oflevels, limits on our ~~current~~maximum ~~employees~~recovery ~~are~~and ~~retirement~~do ~~eligible~~not cover all risks. For example, ~~which~~from ~~have~~time ~~significant~~to ~~institutional~~time ~~knowledge~~we ~~that~~may ~~must~~not carry, or may be ~~transferred~~unable to ~~other~~obtain ~~employees. If~~on terms that we ~~are~~find ~~unable~~acceptable, insurance coverage for certain exposures including, but not limited to, certain environmental exposures (aincluding potential environmental fines and penalties), ~~retain~~business interruption and named windstorm exposures. The premiums and deductibles we pay for certain insurance policies are also subject to the risk of substantial increases over time that could negatively impact our ~~current~~financial ~~employees~~results. In addition, ~~(b)~~we ~~successfully~~may ~~complete~~not be able to renew existing insurance policies or procure desirable insurance on commercially reasonable terms. There is also a risk that our ~~knowledge~~insurers ~~transfer~~may ~~and/~~default on their coverage obligations or ~~(c)~~that ~~recruit~~amounts ~~new~~for ~~employees~~which we are insured, or that the proceeds of ~~comparable~~such ~~knowledge~~insurance ~~and~~will ~~experience,~~not ~~our~~compensate ~~business~~us ~~could~~fully befor ~~negatively~~our ~~impacted~~losses. In ~~addition~~As a result, we could ~~experience~~be ~~increased~~adversely ~~costs~~affected toif ~~retain~~a significant ~~and~~event ~~recruit~~occurs ~~these~~that ~~professionals~~is not fully covered by insurance.

We ~~have~~are ~~certain~~subject ~~contingent~~to ~~liabilities~~a complex set of laws and regulations that ~~could~~regulate ~~exceed~~the ~~our~~energy ~~estimates~~industry for which we have to incur substantial compliance and remediation costs.

WeOur ~~have~~operations ~~certain~~are ~~contingent~~subject ~~liabilities~~to ~~associated~~a ~~with~~complex ~~litigation~~set of federal, ~~regulatory~~state and ~~environmental~~local ~~matters~~laws and regulations that tend to change from time to time and generally are becoming increasingly more stringent. In ~~this~~addition ~~regard,~~to ~~although~~the welaws ~~have~~and ~~greatly~~regulations ~~reduced~~affecting our ~~litigation~~business, ~~regulatory~~there are various laws and ~~environmental exposures~~regulations ~~over~~that ~~the~~regulate ~~last~~various ~~several~~market ~~years~~practices in the industry, including antitrust laws and laws that prohibit fraud and manipulation in the markets in which we ~~continue~~operate. The authority of the FTC and the FERC to ~~have~~impose ~~contingent~~penalties ~~liabilities~~for ~~(see~~violations ~~Part~~of ~~II,~~laws ~~Item~~or 8,regulations ~~Financial~~has ~~Statements~~generally ~~and~~increased ~~Supplementary~~over ~~Data,~~the ~~Note~~last 7)few years. ~~Although~~In weaddition, ~~believe~~our ~~that~~business weis ~~have~~subject to ~~established~~laws ~~appropriate~~and ~~reserves~~regulations ~~for~~that ~~our~~govern ~~litigation~~environmental, ~~regulatory~~health and ~~environmental~~safety matters,. weThese ~~could~~regulations beinclude ~~required~~compliance toobligations ~~accrue~~for ~~additional~~air ~~amounts~~emissions, inwater ~~the~~quality, ~~future~~wastewater discharge and ~~these~~solid ~~amounts~~and ~~could~~hazardous bewaste ~~material.~~disposal, as well as regulations designed for the protection of human health

We9 have also sold assets and either retained certain liabilities or indemnified certain purchasers against future liabilities related to assets sold, including liabilities associated with environmental and other representations that we have provided. Although we believe that we have established appropriate reserves for these liabilities, we could be required to accrue additional amounts in the future and these amounts could be material. We have experienced substantial reductions and turnover in the workforce that previously supported the ownership and operation of such assets which could result in difficulties in managing these retained liabilities, including a reduction in historical knowledge of the assets and business that is required to effectively manage these liabilities or defend any associated litigation or regulatory proceedings.

~~Although~~ and asafety ~~substantial~~and ~~portion~~threatened or endangered species. Compliance obligations can result in significant costs to install and maintain pollution controls, and to maintain measures to address personal and process safety and protection of the environment and animal habitat near our ~~debt~~operations. ~~capital~~We ~~structure~~are ~~has~~often ~~fixed~~obligated ~~interest~~to ~~rates,~~obtain ~~changes~~permits or approvals in ~~market~~our ~~conditions~~operations from various federal, state and local authorities, which permits and approvals (including renewals thereof) can be denied or delayed. In addition, we are exposed to fines and penalties to the extent that we fail to comply with the applicable laws and regulations, as well as the potential ~~increases~~for inlimitations to be imposed on our operations. These regulations often impose remediation obligations associated with the ~~deficits~~investigation or clean-up of ~~foreign~~contaminated properties, as well as damage claims arising out of the contamination of properties or impact on natural resources. Finally, many of our assets are located and operate on federal, state, local or tribal lands and are typically regulated by one or more federal, state ~~governments~~or local agencies. For example, ~~could~~we ~~have~~operate aassets ~~negative~~that ~~impact~~are located on ~~interest~~federal ~~rates~~lands, ~~that~~which ~~could~~are regulated ~~cause~~by ~~our~~the ~~financing~~U.S. ~~costs~~Department toof ~~increase~~the Interior, particularly by the Bureau of Land Management. ~~Since~~We ~~interest~~also ~~rates~~have ~~are~~operations aton ~~historically~~Native ~~low~~American ~~levels~~tribal lands, itwhich isare ~~anticipated~~regulated ~~that~~by ~~they~~the ~~will~~Department ~~increase~~of inthe Interior, particularly by the ~~future~~Bureau of Indian Affairs, as well as local tribal authorities. Operations on these properties are often subject to additional regulations and compliance obligations, which can delay our access to such lands and impose additional compliance costs.

11The laws and regulations (and the interpretations thereof) that are applicable to our business could materially change in the future and increase the cost of our operations or otherwise negatively impact us.

~~Table~~The ofregulatory ~~Contents~~framework affecting our business is frequently subject to change, with the risk that either new laws and regulations may be enacted or existing laws and regulations may be amended. Such new or amended laws and regulations can materially affect our operations and our financial results. In this regard, there have been proposals to adopt or amend federal, state, local and tribal laws and regulations that could negatively impact our business, which includes among others:

~~Risks~~• ~~Related~~Climate Change and other Emissions. The Environmental Protection Agency (EPA) and several state environmental agencies have adopted regulations to ~~Our~~regulate ~~Affiliation~~GHG emissions. It is uncertain at this time what impact the existing and proposed regulations will have on the demand for natural gas and on our operations. This will largely depend on what regulations are ultimately adopted; how the requirements of these regulations are implemented; and incentives and subsidies provided to other fossil fuels, nuclear power and renewable energy sources. Although the EPA has adopted a tailoring rule to regulate GHG emissions, it is not expected to materially impact our existing operations until 2016. However, the tailoring rule is subject to judicial reviews and such reviews could result in the EPA being required to regulate GHG emissions at lower levels that could subject us to regulation prior to 2016. There have also been various legislative and regulatory proposals and final rules at the federal and state levels to address air emissions from power plants and industrial boilers. Although such rules and proposals will generally favor the use of natural gas over other fossil fuels such as coal, it remains uncertain what regulations will ultimately be adopted and when they will be adopted. Finally, there have been various other environmental regulatory proposals that could increase the cost of our environmental liabilities as well as increase our future compliance costs. For example, the EPA has implemented more stringent emission standards with Elregard ~~Paso~~to certain natural gas operations that will affect our business. It is uncertain what impact new environmental regulations might have on us until further definition is provided by the various legislative, regulatory and judicial branches. In addition, any regulations would likely increase our costs of compliance by potentially delaying the receipt of permits and other regulatory approvals; requiring us to monitor emissions, install additional equipment or modify facilities to reduce GHG and other emissions; purchase air emission credits; and utilize electric-driven compression at facilities to obtain regulatory permits and approvals in a timely manner. While we may be able to include some or all of the costs associated with our environmental liabilities and environmental compliance in the rates charged by our pipelines, our ability to recover such costs is uncertain and may depend on events beyond our control including the outcome of future rate proceedings before the FERC and the provisions of any final regulations and legislation.

El• ~~Paso~~Renewable ~~files~~/ ~~reports,~~Conservation ~~proxy~~Legislation. ~~statements~~There ~~and~~have ~~other~~been ~~information~~various ~~with~~legislative ~~the~~and ~~SEC~~regulatory ~~under~~proposals at the ~~Securities~~federal ~~Exchange~~and ~~Act~~state oflevels ~~1934,~~and aslegislation ~~amended.~~enacted ~~Each~~in ~~prospective~~certain ~~investor~~states ~~should~~to ~~consider~~provide ~~this~~incentives ~~information~~ and ~~the~~subsidies ~~matters~~to ~~disclosed~~(a) ~~therein~~shift inmore ~~addition~~power generation to ~~the~~renewable ~~matters~~energy ~~described~~sources inand ~~this~~(b) ~~report~~support technological advances to drive less energy consumption. ~~Such~~These ~~information~~incentives isand ~~not~~subsidies ~~included~~could ~~herein~~have ora ~~incorporated~~negative byimpact ~~reference~~on ~~into~~natural ~~this~~gas ~~report~~consumption and thus have negative impacts on our operations and financial results.

We10 ~~are an indirect wholly owned subsidiary of El Paso.~~

• ~~our~~Pipeline ~~payment~~Safety. ofNew ~~dividends;~~federal •legislation ~~decisions~~was onenacted ~~our~~in ~~financing~~December 2011 associated with pipeline safety and ~~capital~~integrity ~~raising~~issues, ~~activities;~~including •changes ~~mergers~~that orrequire ~~other~~installation ~~business~~of ~~combinations;~~additional •valves and other equipment on our ~~acquisitions~~pipelines orand ~~dispositions~~potential expansion of ~~assets;~~high consequence areas. The legislation requires the U.S. Department of Transportation Pipeline and •Hazardous ~~our~~Materials ~~participation~~Safety Administration to conduct various studies, which may ultimately result in Eladditional ~~Paso’s~~regulations ~~cash~~that ~~management~~could ~~program~~negatively affect our operations.

ElWe ~~Paso~~are ~~may~~exposed ~~exercise~~to ~~such~~the ~~control~~credit inrisk ~~its~~of ~~interests~~our counterparties and ~~not~~our ~~necessarily~~credit inrisk ~~the~~management ~~interests~~may ofnot usbe oradequate ~~the~~to ~~holders~~protect ofagainst ~~our~~such ~~long-term debt~~risk.

We are subject to the risk that our counterparties fail to make payments to us within the time required under our contracts. Our ~~relationship~~current largest exposures are associated with Elshippers ~~Paso~~under long-term transportation contracts on our pipeline systems. Our credit procedures and ~~its~~policies ~~financial~~may ~~condition~~not ~~subjects~~be usadequate to ~~potential~~fully eliminate counterparty credit risk. In addition, in certain situations, we may assume certain additional credit risks ~~that~~for ~~are~~competitive ~~beyond~~reasons or otherwise. If our ~~control~~existing or future counterparties fail to pay and/or perform, we could be adversely affected. For example, we may not be able to effectively remarket capacity or enter into new contracts at similar terms during and after insolvency proceedings involving a customer.

~~Due~~We to our relationship with El Paso, adverse developments or announcements concerning El Paso or its other subsidiaries could adversely affect our financial condition, even if we have not suffered any similar development. The ratings assigned to El Paso’s senior unsecured indebtedness are exposed below investment grade, currently rated Ba3 with a stable outlook by Moody’s Investor Service, BB- with a stable outlook by Standard & Poor’s and BB+ with a stable outlook by Fitch Ratings. The ratings assigned to ~~our~~the ~~senior~~credit ~~unsecured indebtedness are currently investment grade, with a Baa3 rating by Moody’s Investor Service~~ and aperformance ~~BBB-~~risk ~~rating by Fitch Ratings. Standard & Poor’s has assigned a below investment grade rating~~ of ~~BB to~~ our ~~senior~~key ~~unsecured~~contractors ~~indebtedness. There is a risk that these credit ratings may be adversely affected in the future as credit rating agencies review their general credit requirements as well as review our~~ and ~~El Paso’s leverage, liquidity and credit profile~~suppliers. ~~Any reduction in our or El Paso’s credit ratings could impact our ability to access the capital markets as well as our cost of capital.~~

ElAs ~~Paso~~an ~~provides~~owner ~~cash~~of ~~management~~energy ~~and~~infrastructure facilities ~~other~~with ~~corporate~~significant ~~services~~capital ~~for~~expenditures, ~~us.~~we ~~Pursuant~~rely toon Elcontractors ~~Paso’s~~for ~~cash~~certain ~~management~~construction ~~program,~~and we ~~transfer~~rely ~~surplus~~on ~~cash~~suppliers ~~to El Paso in exchange~~ for ankey ~~affiliated~~materials, ~~note~~supplies ~~receivable.~~and ~~In addition~~services, weincluding ~~conduct~~steel ~~commercial~~mills ~~transactions~~and ~~with~~pipe ~~some~~and oftubular ~~our affiliates~~manufacturers. IfThere Elis ~~Paso~~a orrisk that such contractors ~~affiliates~~and ~~are~~suppliers ~~unable to meet their respective liquidity needs, we~~ may ~~not~~experience becredit ~~able~~and toperformance ~~access~~issues ~~cash~~that ~~under~~could ~~the~~adversely ~~cash~~impact ~~management~~their ~~program,~~ability ~~or our affiliates may not be able~~ to ~~pay~~perform their contractual obligations towith us~~. However~~, weincluding ~~might~~their ~~still~~performance beand ~~required~~warranty ~~to satisfy affiliated payables we have established~~obligations. ~~Our~~This ~~inability~~could toresult ~~recover~~in ~~any~~delays ~~affiliated~~or defaults ~~receivables~~in ~~owed~~performing tosuch uscontractual ~~could~~obligations ~~adversely affect our financial position~~ and ~~cash~~increased ~~flows.~~costs ~~For~~to aseek ~~further~~replacement ~~discussion of these matters~~contractors, ~~see~~each ~~Part~~which ~~II,~~could ~~Item~~adversely 8,impact ~~Financial Statements and Supplementary Data, Note 11~~us.

IfOur Elbusiness ~~Paso~~requires isthe ~~unable~~retention toand ~~renew~~recruitment ~~its~~of ~~revolving~~a ~~credit~~skilled ~~facility~~workforce ~~that~~and ~~expires~~the inloss ~~November~~of ~~2012,~~employees ~~then~~could itresult ~~could~~in ~~negatively~~the ~~impact~~failure usto implement our business plan.

WeOur ~~are~~business arequires ~~party~~the toretention Eland ~~Paso’s~~recruitment ~~$1.5~~of ~~billion~~a ~~credit~~skilled ~~agreement. We~~workforce ~~are~~including ~~only liable~~engineers, ~~however~~technical ~~for~~personnel ~~our~~and ~~borrowings~~other professionals. ~~under~~We ~~the~~compete ~~credit~~with ~~agreement,~~other ~~which~~companies ~~were~~in ~~zero~~the atenergy ~~December~~industry ~~31,~~for ~~2010. El~~this ~~Paso’s~~skilled ~~credit agreement is due to expire November of 2012~~workforce. ~~Prior~~ toIn ~~maturity~~addition, Elmany ~~Paso~~of ~~plans~~our tocurrent ~~renew~~employees orare ~~extend~~retirement ~~this~~eligible, ~~credit~~which ~~facility. The~~have ~~amount~~significant ofinstitutional ~~credit~~knowledge ~~capacity~~that Elmust ~~Paso~~be istransferred ~~able~~ to ~~obtain~~other employees. ~~and~~If ~~the~~we ~~cost~~are ofunable ~~such~~to ~~credit~~(a) retain ~~could~~our ~~have~~current aemployees, ~~negative~~(b) successfully ~~impact~~complete on our ~~liquidity~~knowledge ~~position~~transfer and/or ~~financial~~(c) recruit ~~results. In~~new ~~addition,~~employees ~~the~~of ~~financial~~comparable ~~covenants~~knowledge ~~set~~and ~~forth~~experience, inour ~~any~~business ~~new~~could ~~facility may~~ be ~~more~~negatively ~~restrictive~~impacted. ~~than~~In addition, ~~the~~we ~~current~~could ~~facility~~experience ~~and~~increased ~~could~~costs ~~reduce~~to ~~our~~retain ~~financial~~ and ~~operating~~recruit ~~flexibility~~these professionals.

12We have certain contingent liabilities that could exceed our estimates.

~~Table~~We ofhave ~~Contents~~certain contingent liabilities associated with litigation, regulatory and environmental matters and although we believe that we have established appropriate reserves for these matters, we could be required to accrue additional amounts in the future and these amounts could be material (see Part II, Item 8. Financial Statements and Supplementary Data, Note 7).

AWe ~~default~~have ~~under~~also Elsold ~~Paso’s~~assets ~~$1.5~~and ~~billion~~either ~~credit~~retained ~~agreement~~certain liabilities byor ~~any~~indemnified ~~party~~certain ~~could~~purchasers ~~accelerate~~against ~~our~~ future ~~borrowings,~~liabilities ifrelated ~~any~~to assets sold, ~~under~~including ~~the~~liabilities ~~credit~~associated ~~agreement~~with environmental and ~~our~~other ~~long-term~~representations ~~debt~~that we have provided. Although we believe that we have established appropriate reserves for these liabilities, ~~which~~we could ~~adversely~~be ~~affect~~required ~~our~~to ~~liquidity~~accrue ~~position~~additional amounts in the future and these amounts could be material.

~~Under~~11 the credit agreement, a default by El Paso, or any other borrower could result in the acceleration of repayment of all outstanding borrowings, including the borrowings of any non-defaulting party. The acceleration of repayments of borrowings, if any, or the inability to borrow under the credit agreement, could adversely affect our liquidity position and, in turn, our financial condition.

We ~~may~~are be subject to ainterest ~~change~~rate ~~of control if an event of default occurs under El Paso’s credit agreement~~risks.

~~Under~~Although ~~El Paso’s $1.5 billion credit agreement,~~ our ~~common~~debt ~~stock~~capital ~~and~~structure ~~the~~has ~~common~~fixed ~~stock~~interest ofrates, ~~one~~changes ofin Elmarket ~~Paso’s~~conditions, ~~other~~including ~~subsidiaries~~potential ~~are~~increases ~~pledged~~in asthe ~~collateral.~~deficits of ~~As a result~~foreign, ~~our~~federal ~~ownership~~and isstate ~~subject~~governments, tocould ~~change~~have ~~if there is~~ a ~~default~~negative ~~under~~impact ~~the~~on ~~credit~~interest ~~agreement~~rates ~~and~~that Elcould ~~Paso’s~~cause ~~lenders~~our ~~exercise~~future ~~rights~~financing ~~over~~costs ~~their~~to ~~collateral, even if we do not have any borrowings outstanding under the credit agreement~~increase. ~~For~~Since ~~additional~~interest ~~information~~rates ~~concerning~~are Elat ~~Paso’s~~historically ~~credit~~low ~~facility~~levels, ~~see~~it ~~Part~~is ~~II,~~anticipated ~~Item~~that 8,they ~~Financial~~will ~~Statements~~increase ~~and~~in ~~Supplementary Data, Note 6~~the future.

13Risks Related to Our Affiliation with El Paso

~~Table~~El Paso files reports and other information with the SEC under the Securities Exchange Act of ~~Contents~~1934, as amended. Each prospective investor should consider this information and the matters disclosed therein in addition to the matters described in this report. Such information is not included herein or incorporated by reference into this report.

~~ITEM~~We ~~1B.~~are ~~UNRESOLVED~~an ~~STAFF~~indirect ~~COMMENTS~~wholly owned subsidiary of El Paso.

WeAs ~~have~~an ~~not~~indirect ~~included~~wholly aowned ~~response~~subsidiary of El Paso, subject to ~~this~~limitations ~~item~~in ~~since~~our nocredit ~~response~~agreements isand ~~required~~indentures, ~~under~~El ~~Item~~Paso 1Bhas ofsubstantial control ~~Form~~over: ~~10-K.~~

~~ITEM~~• 2.our ~~PROPERTIES~~payment of dividends;

A• ~~description~~decisions ofon our ~~properties~~financing ~~is included in Item 1, Business,~~ and iscapital ~~incorporated~~raising ~~herein by reference.~~activities;

We• ~~believe~~mergers that we have satisfactory title to the properties owned and used in our business, subject to liens for taxes not yet payable, liens incident to minor encumbrances, liens for credit arrangements and easements and restrictions that do not materially detract from the value of these properties, our interests in these properties or ~~the~~other ~~use of these properties in our~~ business. ~~We believe that our properties are adequate and suitable for the conduct of our business in the future.~~combinations;

~~ITEM~~• 3.our ~~LEGAL~~acquisitions ~~PROCEEDINGS~~or dispositions of assets; and

A• ~~description of~~ our ~~material~~participation ~~legal proceedings is included~~ in ~~Part~~El ~~II,~~Paso’s ~~Item~~cash 8,management ~~Financial Statements and Supplementary Data, Note 7, and is incorporated herein by reference~~program.

~~ITEM~~El 4.Paso ~~(REMOVED~~may ~~AND~~exercise ~~RESERVED)~~such control in its interests and not necessarily in the interests of us or the holders of our long-term debt.

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

~~ITEM~~Due 5to our relationship with El Paso, adverse developments or announcements concerning El Paso or its other subsidiaries could adversely affect our financial condition, even if we have not suffered any similar development. ~~MARKET~~There ~~FOR~~is ~~REGISTRANT~~a risk that El Paso’Ss ~~COMMON~~or ~~EQUITY~~our credit ratings may be adversely affected in the future as the credit rating agencies continue to review our and El Paso’s leverage, ~~RELATED~~liquidity, ~~STOCKHOLDER~~credit ~~MATTERS~~profile ~~AND~~and ~~ISSUER~~potential ~~PURCHASES~~transactions. OFFollowing ~~EQUITY~~the ~~SECURITIES~~announcement of El Paso’s proposed merger with KMI, Moody’s and Fitch adjusted their view of El Paso to a negative outlook, and Moody’s adjusted their view of us to a negative outlook. Any reduction in our or El Paso’s credit ratings could impact our ability to access the capital markets, as well as our cost of capital.

~~All~~Below ofare ~~our~~the ~~common~~ratings ~~stock,~~assigned ~~par~~to ~~value~~our $1and ~~per share, is owned by a subsidiary of~~ El Paso’s ~~and,~~senior ~~accordingly,~~unsecured ~~our~~indebtedness ~~stock~~at isDecember 31, ~~not~~2011: ~~publicly traded.~~

We pay dividends on our common stock from time to time from legally available funds that have been approved for payment by our Board of Directors. During 2010 and 2009, we utilized $75 million, net of a $50 million cash contribution from our parent, and $200 million of our note receivable from the cash management program to pay dividends to our parent. No common stock dividends were declared or paid in 2008.


	Rating Agency
	Moody’s Investor Service	Standard & Poor’s	Fitch Ratings
	Credit Rating
EPNG	Baa3⁽¹⁾	BB⁽²⁾	BBB-⁽¹⁾
El Paso	Ba3⁽²⁾	BB-⁽²⁾	BB+⁽²⁾

~~ITEM~~(1) 6.Investment ~~SELECTED FINANCIAL DATA~~grade.

~~Information~~(2) ~~has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction I to Form 10~~Non-KInvestment grade.

14El Paso provides cash management and other corporate services for us. Pursuant to El Paso’s cash management program, we transfer surplus cash to El Paso in exchange for an affiliated note receivable. In addition, we conduct commercial transactions with some of our affiliates. If El Paso or such affiliates are unable to meet their respective liquidity needs, we may not be able to access cash under the cash management program, or our affiliates may not be able to pay their obligations to us. However, we might still be required to satisfy any affiliated payables we have established. Our inability to recover any affiliated receivables owed to us could adversely affect our financial position and cash flows. For a further discussion of our affiliated transactions, see Part II, Item 8. Financial Statements and Supplementary Data, Note 11.

~~Table~~12 ~~of Contents~~

~~The~~A ~~information~~default ~~required~~under byEl ~~this Item is presented in a reduced disclosure format pursuant to General Instruction I to Form 10-K. Our Management~~Paso’s ~~Discussion~~$1.25 ~~and~~billion ~~Analysis~~revolving ~~(MD&A)~~credit ~~should~~agreement beby ~~read~~any inparty could ~~conjunction~~accelerate ~~with~~ our ~~consolidated~~future ~~financial~~borrowings, ~~statements~~if ~~and~~any, ~~the~~under ~~accompanying footnotes. MD&A includes forward-looking statements that are subject to risks and uncertainties that may result in actual results differing from~~ the ~~statements~~credit weagreement ~~make. These risks~~ and ~~uncertainties~~our ~~are~~long-term ~~discussed~~debt, ~~further~~which incould ~~Part~~adversely I,affect ~~Item~~our ~~1A,~~liquidity ~~Risk Factors~~position.

~~Overview~~We are a party to El Paso’s $1.25 billion revolving credit agreement. We are only liable, however for our borrowings under the credit agreement, which were zero at December 31, 2011. Under the credit agreement, a default by El Paso, or any other borrower, could result in the acceleration of repayment of all outstanding borrowings, including the borrowings of any non-defaulting party. The acceleration of repayments of borrowings, if any, or the inability to borrow under the credit agreement, could adversely affect our liquidity position and, in turn, our financial condition.

~~Our~~Furthermore, ~~primary~~the ~~business~~indentures ~~consists~~governing some of ~~the~~our ~~interstate~~long-term ~~transportation~~debt ~~and~~contain ~~storage~~cross-acceleration provisions, the most restrictive of ~~natural~~which ~~gas~~is $25 million. WeTherefore, ~~face~~if ~~varying~~we ~~degrees~~borrow of$25 ~~competition~~million ~~from~~or ~~other~~more ~~existing~~under ~~and~~El Paso’s ~~proposed~~$1.25 ~~pipelines~~billion revolving credit agreement and ~~LNG~~such ~~facilities,~~borrowings asare ~~well~~accelerated asfor ~~from~~any ~~alternative~~reason, ~~energy~~including ~~sources~~the ~~used~~default toof ~~generate~~another ~~electricity~~party ~~such~~under asthe ~~hydroelectric~~credit ~~power~~agreement, ~~nuclear~~our ~~energy,~~long-term ~~wind~~debt that contains these provisions could also be accelerated and, ~~solar~~in turn, ~~coal~~adversely affect our liquidity position and, ~~fuel~~in ~~oil~~turn, our financial condition. ~~Our~~For ~~revenues~~additional ~~from~~information ~~transportation~~concerning El Paso’s credit facility and ~~storage~~our ~~services~~long-term ~~consist~~debt, ofsee ~~the~~Part ~~following~~II, ~~types~~Item 8. Financial Statements and Supplementary Data, Note 6.

Type	Description	Percent of 2010 Revenues
Reservation	Reservation revenues are from customers (referred to as firm customers) that reserve capacity on our pipeline systems and storage facility. These firm customers are obligated to pay a monthly reservation or demand charge, regardless of the amount of natural gas they transport or store, for the term of their contracts.	89
Usage and Other	Usage revenues are from both firm customers and interruptible customers (those without reserved capacity) that pay usage charges based on the volume of gas actually transported, stored, injected or withdrawn. We also earn revenue from other miscellaneous sources.	11

We may be subject to a change of control if an event of default occurs under El Paso’s credit agreement.

~~The~~Under ~~FERC~~El ~~regulates~~Paso’s ~~the rates we can charge our customers~~$1.25 ~~These~~billion ~~rates~~credit ~~are generally a function of the cost of providing services to our customers~~agreement, ~~including a reasonable return on~~ our ~~invested~~common ~~capital.~~stock ~~Because of our regulated nature~~ and the ~~high~~member ~~percentage~~interest of ~~our~~one of ~~revenues~~El ~~attributable~~Paso’s toother ~~reservation~~subsidiaries ~~charges,~~are ~~our~~pledged ~~revenues~~as ~~have~~collateral. ~~historically~~As ~~been~~a ~~relatively stable. However~~result, our ~~financial~~ownership ~~results~~is ~~can be~~ subject to ~~volatility~~change ~~due~~if tothere ~~factors~~is ~~such~~a asdefault ~~changes~~under inthe ~~natural~~credit ~~gas~~agreement ~~prices, changes in supply~~ and ~~demand,~~El ~~regulatory~~Paso’s ~~actions,~~lenders ~~competition,~~exercise ~~declines~~rights inover ~~the~~their ~~creditworthiness of our customers and weather. In addition~~collateral, ~~our~~even ~~future~~if ~~earnings~~we ~~may~~do benot ~~impacted~~have any byborrowings ~~both~~outstanding ~~positive and negative fluctuations in gas prices related to the revaluation of our fuel~~ under ~~or over recoveries, imbalances and system encroachments. Our tariffs continue to provide that~~ the ~~difference~~credit ~~between the quantity of fuel retained and fuel used in operations and lost and unaccounted for will be flowed-through or charged to shippers~~agreement. ~~These fuel trackers remove the impact of over or under collecting fuel and lost and unaccounted for gas from our operational gas costs.~~

We13 continue to manage the process of renewing expiring contracts to limit the risk of significant impacts on our revenues. Our ability to extend our existing customer contracts or remarket expiring contracted capacity is dependent on competitive alternatives, the regulatory environment at the federal, state and local levels and the market supply and demand factors at the relevant dates these contracts are extended or expire. The duration of new or renegotiated contracts will be affected by current prices, competitive conditions and judgments concerning future market trends and volatility. Subject to regulatory requirements, we attempt to recontract or remarket our capacity at the maximum rates allowed under our tariffs, although at times, we enter into firm transportation contracts at amounts that are less than these maximum allowable rates to remain competitive.

~~Our existing contracts expire at various times and in varying amounts of throughput capacity~~ITEM 1B. ~~The~~UNRESOLVED ~~weighted~~STAFF ~~average~~COMMENTS remaining contract term for our active contracts is approximately three years as of December 31, 2010. Below are the contract expiration portfolio and the associated revenue expirations for our firm transportation contracts as of December 31, 2010, including those with terms beginning in 2011 or later.

	Contracted Capacity		Percent of Contracted Capacity		Reservation Revenue		Percent of Reservation Revenue
	(BBtu/d) (1)				(In millions)
2011		2,099		41	$	126		28
2012		889		18		110		25
2013		707		14		63		14
2014		257		5		16		4
2015		330		6		53		12
2016 and beyond		808		16		77		17
Total		5,090		100	$	445		100

We have not included a response to this item since no response is required under Item 1B of Form 10-K.

~~____________~~ ITEM 2. PROPERTIES

~~(1)~~A ~~Excludes~~description ~~EPNG~~of ~~contracted~~our ~~capacity~~properties onis ~~the~~included ~~Mojave~~in ~~system~~Item 1. Business, and is incorporated herein by reference.

~~Results~~We believe that we have satisfactory title to the properties owned and used in our business, subject to liens for taxes not yet payable, liens incident to minor encumbrances, liens for credit arrangements and easements and restrictions that do not materially detract from the value of ~~Operations~~these properties, our interests in these properties or the use of these properties in our business. We believe that our properties are adequate and suitable for the conduct of our business in the future.

~~Our management uses earnings before interest expense and income taxes (EBIT) as a measure to assess the operating results and effectiveness of our business~~ITEM 3. WeLEGAL ~~believe~~PROCEEDINGS EBIT is useful to investors to provide them with the same measure used by El Paso to evaluate our performance and so that investors may evaluate our operating results without regard to our financing methods. We define EBIT as net income adjusted for items such as (i) interest and debt expense, (ii) affiliated interest income, and (iii) income taxes. EBIT may not be comparable to measures used by other companies. Additionally, EBIT should be considered in conjunction with net income, income before income taxes and other performance measures such as operating income or operating cash flows. Below is a reconciliation of our EBIT to net income, our throughput volumes and an analysis and discussion of our results for the year ended December 31, 2010 compared with 2009.

~~Operating~~A ~~Results:~~description of our material legal proceedings is included in Part II, Item 8. Financial Statements and Supplementary Data, Note 7, and is incorporated herein by reference.

	2010			2009
	(In millions,
	except for volumes)
Operating revenues	$	517		$	593
Operating expenses		(313	)		(314	)
Operating income		204			279
Other income, net		3			2
EBIT		207			281
Interest and debt expense		(92	)		(93	)
Affiliated interest income, net		15			19
Income tax expense		(47	)		(79	)
Net income	$	83		$	128
Throughput volumes (BBtu/d)(1)		3,395			3,982

ITEM 4. MINE SAFETY DISCLOSURES

~~____________~~ Not applicable.

~~(1)~~PART ~~Throughput~~II ~~volumes exclude throughput transported on the Mojave system on behalf of the EPNG system.~~

~~EBIT~~ITEM 5. ~~Analysis:~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

	Revenue			Expense			Other		Total
	Favorable/(Unfavorable)
	(In millions)
Reservation and other services revenues	$	(76	)	$	—			—	$	(76	)
Operational gas and revaluations		—			(4	)		—		(4	)
Operating and general and administrative expenses		—			12			—		12
Other (1)		—			(7	)		1		(6	)
Total impact on EBIT	$	(76	)	$	1			1	$	(74	)

All of our common stock, par value $1 per share, is owned by a subsidiary of El Paso and, accordingly, our stock is not publicly traded.

~~____________~~We pay dividends on our common stock from time to time as approved by our Board of Directors. During 2011, 2010 and 2009, we paid dividends to our parent of $103 million, $75 million, net of a $50 million cash contribution from our parent, and $200 million.

~~(1)~~ ITEM 6. ~~Consists~~SELECTED ofFINANCIAL ~~individually~~DATA ~~insignificant items.~~

16Information has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction I to Form 10-K.

~~Table~~14 ~~of Contents~~

Although approximately 89 percent of our 2010 revenues are derived from reservation charges, lower throughput can affect our short-term results or be an indication of the risks we may face when seeking to recontract or renew any of our existing firm transportation contractsITEM 7. ~~Continuing~~MANAGEMENT’S ~~negative~~DISCUSSION ~~economic~~AND ~~impacts~~ANALYSIS onOF ~~demand,~~FINANCIAL asCONDITION AND ~~well~~RESULTS asOF ~~adverse~~OPERATIONS shifting sources of supply, could negatively impact basis differentials and our ability to renew firm transportation contracts that are expiring on our system or our ability to renew such contracts at current rates. Additionally, we may be required to further discount certain transportation rates in order to renew certain firm transportation contracts should these conditions continue.

IfOverview we determine there is sufficient change in our revenues, costs or billing determinants, we have the option to file a rate case with the FERC to provide an opportunity to recover our prudently incurred costs. In September 2010, we filed a rate case with the FERC proposing an increase in base tariff rates due, in part, to a change in our billing determinants. The change in gas flows, contractual commitments and the outcome of our rate case can impact the financial performance of our pipeline. For additional information regarding our rate cases see “Regulatory Matters” discussed below.

~~Gas~~The ~~Not~~information ~~Used~~required inby ~~Operations. In~~this ~~October~~Item ~~2009,~~is wepresented ~~received~~in ana ~~order~~reduced ~~from~~disclosure ~~the~~format ~~FERC~~pursuant ~~directing~~to usGeneral Instruction I to ~~remove~~Form ~~the~~10-K. ~~cost~~Our Management’s Discussion and ~~revenue~~Analysis ~~components~~(MD&A) ofshould ~~the~~be ~~fuel~~read ~~tracker~~in conjunction onwith our ~~EPNG~~consolidated ~~system~~financial statements and the accompanying footnotes. ~~Our~~ ~~compliance~~MD&A ~~filing~~includes toforward-looking ~~remove~~statements ~~the~~that ~~cost~~are subject to risks and ~~revenue~~uncertainties ~~component~~that ~~was~~may ~~approved~~result in actual results differing from the ~~fourth~~statements ~~quarter~~we ofmake. These ~~2009~~risks and weuncertainties ~~recorded~~are discussed further in Part I, Item 1A. Risk Factors. We have included a ~~favorable~~discussion ~~adjustment~~in tothis ~~reflect~~MD&A ~~the~~of ~~impact~~our business, results of ~~unwinding~~operations, ~~these~~liquidity ~~components~~and capital resources and a discussion of ~~our~~factors ~~fuel~~that ~~tracker~~may impact us as we operate in the future.

~~Operating~~On ~~and~~October 16, ~~General~~2011, ~~and~~El ~~Administrative~~Paso ~~Expenses.~~announced ~~For~~a definitive agreement with KMI whereby KMI will acquire El Paso in a transaction that valued El Paso at approximately $38 billion (based on the ~~year~~KMI ~~ended~~stock ~~December~~price ~~31,~~at ~~2010~~that date), ~~our~~including ~~operating~~the ~~and~~assumption ~~general~~of ~~and~~debt. ~~administrative~~The ~~expenses~~transaction ~~were~~has ~~lower~~been ~~than~~approved inby ~~2009~~each bycompany’s ~~approximately~~board ~~$12~~of ~~million~~directors ~~primarily~~but remains ~~due~~subject to ~~lower~~the ~~payroll~~approvals of El Paso shareholders, ~~benefits~~the FTC and ~~contractor~~other ~~costs~~customary ~~partially~~regulatory ~~offset~~and byother ~~higher~~approvals. ~~allocated~~The ~~costs~~approval ~~from~~of ~~our~~KMI ~~affiliates~~shareholders ~~related~~will toalso ~~our~~be ~~shared~~required, ~~pipeline~~but ~~services~~a voting agreement has been executed by the majority of the shareholders of KMI to support the transaction.

~~Regulatory~~Our ~~Matters~~Business

~~EPNG~~Our ~~Rate~~primary ~~Case. In~~business ~~April~~consists ~~2010,~~of the ~~FERC~~interstate ~~approved~~transportation anand ~~uncontested~~storage ~~partial offer~~ of ~~settlement~~natural ~~which~~gas. ~~increased~~We ~~our~~face ~~base~~varying ~~tariff~~degrees ~~rates effective January 1, 2009. As part~~ of ~~the~~competition ~~settlement~~from other weexisting ~~made~~and ~~refunds~~proposed ofpipelines ~~approximately~~and ~~$76~~LNG ~~million~~facilities, ~~plus~~as ~~interest,~~well inas ~~2010. The~~from ~~settlement~~alternative ~~resolved~~energy ~~all~~sources ~~but~~used ~~four~~to ~~issues~~generate inelectricity ~~the~~such ~~proceeding. In~~as ~~January~~hydroelectric ~~2011~~power, ~~the~~nuclear ~~Presiding~~energy, ~~Administrative~~wind, ~~Law~~solar, ~~Judge~~coal ~~issued~~and ~~her~~fuel ~~decision that for the most part found against us on the four issues~~oil. We ~~will~~Our ~~appeal~~revenues ~~those~~from ~~decisions~~transportation ~~to the FERC~~ and storage ~~may~~services ~~also~~consist ~~seek review~~ of ~~any of~~ the ~~FERC’s~~following ~~decisions to the U~~types.S. ~~Court of Appeals. Although the final outcome is not currently determinable, we believe our accruals established for this matter are adequate.~~

In September 2010, we filed a new rate case with the FERC proposing an increase in base tariff rates as permitted under the settlement of the previous rate case. These new base tariff rates would increase revenue by approximately $107 million annually over previously effective tariff rates. In October 2010, the FERC issued an order accepting and suspending the effective date of the proposed rates to April 1, 2011, subject to refund, the outcome of a hearing and other proceedings. At this time, the outcome of this matter is not currently determinable.


Type	Description	Percent of 2011 Revenues
Reservation	Reservation revenues are from customers (referred to as firm customers) that reserve capacity on our pipeline systems and storage facility. These firm customers are obligated to pay a monthly reservation or demand charge, regardless of the amount of natural gas they transport or store, for the term of their contracts.	91

Usage and Other	Usage revenues are from both firm customers and interruptible customers (those without reserved capacity) that pay usage charges based on the volume of gas actually transported, stored, injected or withdrawn. We also earn revenue from other miscellaneous sources.	9

InThe ~~October~~FERC ~~2010,~~regulates ~~we filed with~~ the ~~FERC~~rates towe ~~permanently~~can ~~abandon~~charge ~~two~~our ~~compressor~~customers. ~~stations~~These ~~and~~rates ~~temporarily~~are ~~idle~~generally ~~seven~~a ~~compressor~~function ~~stations~~of ~~along~~the cost ~~our~~of ~~south~~providing ~~mainline~~services ~~system~~to inour ~~2011. This~~customers, ~~was~~including ~~done~~a toreasonable ~~better~~return ~~align~~on our ~~capacity~~invested tocapital. ~~the~~Our ~~current~~financial ~~lower~~results ~~level~~can ofbe ~~contract~~subject ~~demand~~to ~~resulting~~volatility ~~from,~~due into ~~part,~~factors ~~the~~such ~~weakened~~as ~~economic~~changes ~~conditions~~in ~~along~~natural ~~this~~gas ~~line. Our~~prices, ~~intent~~changes isin tosupply ~~bring~~and ~~the~~demand, ~~idled~~regulatory actions, ~~facilities~~competition, ~~back~~declines ~~into~~in ~~service over~~ the ~~next~~creditworthiness ~~several~~of ~~years~~our ascustomers ~~market~~and ~~demand improves~~weather. In addition, our ~~2011~~future ~~rate~~earnings ~~case,~~may webe ~~did~~impacted ~~not~~by ~~seek~~both topositive ~~earn~~and anegative ~~return~~fluctuations onin ~~the~~gas ~~original~~prices ~~investment~~related into the ~~idled~~revaluation ~~facilities. We~~of ~~will continue~~our ~~to incur~~fuel ~~related~~under ~~operating~~or ~~costs~~over recoveries, imbalances and ~~depreciation~~system ~~expense~~encroachments. Our ~~until~~tariffs ~~the~~continue ~~compressor~~to ~~stations~~provide ~~are~~that ~~idled~~the ~~once~~difference ~~approved~~between by the ~~FERC. The~~quantity ~~impact~~ of ~~both~~fuel ~~the~~retained ~~permanent~~and ~~abandonment~~fuel ~~and~~used ~~the~~in ~~idling~~operations ofand ~~the~~lost ~~seven~~and ~~compressor~~unaccounted ~~stations~~for towill ~~our~~be ~~pre~~flowed-~~tax~~through ~~income~~or ~~would~~charged beto ~~approximately~~shippers. These ~~$15~~fuel ~~million~~trackers ~~annually. These~~remove ~~filings~~the ~~have~~impact ~~been~~of ~~protested~~over byor ~~certain~~under ~~interveners~~collecting fuel and ~~the~~lost ~~result~~and isunaccounted ~~uncertain~~for atgas ~~this~~from ~~time~~our operational gas costs.

17We continue to manage the process of renewing expiring contracts to limit the risk of significant impacts on our revenues. Our ability to extend our existing customer contracts or remarket expiring contracted capacity is dependent on competitive alternatives, the regulatory environment at the federal, state and local levels and the market supply and demand factors at the relevant dates these contracts are extended or expire. The duration of new or renegotiated contracts will be affected by current prices, competitive conditions and judgments concerning future market trends and volatility. Subject to regulatory requirements, we attempt to recontract or remarket our capacity at the maximum rates allowed under our tariffs, although at times, we enter into firm transportation contracts at amounts that are less than these maximum allowable rates to remain competitive.

~~Table~~15 ~~of Contents~~

~~Although~~Our ~~these~~existing ~~rate~~contracts ~~cases~~mature ~~are~~at ~~intended~~various times and in varying amounts of throughput capacity. We attempt to ~~address~~sell all of our capacity under long term contracts and market any remaining open positions under shorter term contracts as market demand permits. Currently, we face recontracting risk in our market areas. In 2012, a significant ~~factors~~amount ~~leading~~of contracted capacity will expire on our EPNG system. Certain customers who hold capacity on the EPNG system under contract terms of one year also hold renewal rights, and often renew their contracts on a year to year basis. We are currently remarketing the ~~loss~~expiring incapacity ~~revenues~~on our EPNG system to serve either its existing customers or ~~increased~~to ~~costs~~serve new customers. At this time, ~~they~~we are uncertain how much of the expiring capacity will ~~not~~be ~~eliminate~~recontracted, ~~all~~and ~~ongoing~~if ~~business~~so, ~~risks~~at what rates. The weighted average remaining contract term for our active contracts is approximately three years as of December 31, 2011. Below are the contract expiration portfolio and the associated revenue expirations for our firm transportation contracts as of December 31, 2011, including those with terms beginning in 2012 or later.

Affiliated Interest Income, Net


	Contracted Capacity		Percent of Contracted Capacity		Reservation Revenue		Percent of Reservation Revenue
	(BBtu/d)⁽¹⁾				(In millions)
2012		1,743		45	$	164		40
2013		673		17		72		18
2014		370		10		23		5
2015		335		9		64		16
2016		137		3		12		3
2017 and beyond		643		16		73		18

Total		3,901		100	$	408		100

~~Affiliated~~(1) ~~interest~~Excludes ~~income,~~EPNG ~~net~~contracted ~~for~~capacity ~~the year ended December 31, 2010, was $4 million lower than in 2009 primarily due to lower average short-term interest rates~~ on ~~average advances to El Paso under its cash management program. The following table shows~~ the ~~average~~Mojave ~~advances due from El Paso and the average short-term interest rates for the year ended December 31:~~system.

	2010			2009
	(In billions, except for rates)
Average advance due from El Paso	$	1.0		$	1.1
Average short-term interest rate		1.5	%		1.7	%

Results of Operations

~~Income~~Our ~~Taxes~~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. 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 (i) interest and debt expense, (ii) affiliated interest income, and (iii) income taxes. Segment EBIT may not be comparable to measures used by other companies. Additionally, Segment EBIT should be considered in conjunction with net income, income before income taxes and other performance measures such as operating income or operating cash flows. Below is a reconciliation of our Segment EBIT to net income, our throughput volumes and an analysis and discussion of our results for the year ended December 31, 2011 compared with 2010.

~~Our~~Operating ~~effective~~Results: tax rate of 36 percent and 38 percent for the years ended December 31, 2010 and 2009 was higher than the statutory rate of 35 percent in both periods due to the effect of state income taxes. For a reconciliation of the statutory rate to the effective tax rates, see Item 8, Financial Statements and Supplementary Data, Note 2.


	2011			2010
	(In millions,
	except for volumes)
Operating revenues	$	509		$	517
Operating expenses		(329	)		(313	)

Operating income		180			204
Other income, net		2			3

Segment EBIT		182			207
Interest and debt expense		(88	)		(92	)
Affiliated interest income, net		17			15
Income tax expense		(42	)		(47	)

Net income	$	69		$	83

Throughput volumes (BBtu/d)⁽¹⁾		3,132			3,395

~~Table~~(1) Throughput volumes exclude throughput transported on the Mojave system on behalf of ~~Contents~~the EPNG system.

~~Liquidity~~16 ~~and Capital Resources~~

	2010		Expected 2011
	(In millions)
Maintenance	$	80	$	94
Expansion		—		2
Total	$	80	$	96

Segment EBIT Analysis:

Our expected 2011 maintenance capital expenditures relate to maintaining and improving the integrity of our pipeline, complying with regulations and ensuring the safe and reliable delivery of natural gas to our customers. Our expansion capital expenditures primarily relate to expanding the capacity and services of our pipeline systems.

		000000			000000			000000			000000
	Variance
	Operating Revenue			Operating Expense			Other			Total
	Favorable/(Unfavorable)
	(In millions)
Reservation and usage revenues	$	(7	)	$	—		$	—		$	(7	)
Operating and general and administrative expenses		—			(13	)		—			(13	)
Other ⁽¹⁾		(1	)		(3	)		(1	)		(5	)

Total impact on Segment EBIT	$	(8	)	$	(16	)	$	(1	)	$	(25	)

~~Although~~(1) ~~financial~~Consists ~~market conditions have improved, continued volatility in the financial markets could impact our longer-term access to capital for future growth projects as well as the cost~~ of ~~such~~individually ~~capital.~~insignificant ~~Additionally, although the impacts are difficult to quantify at this point, a prolonged recovery of the global economy could have adverse impacts on natural gas consumption and demand~~items. However, we believe our exposure to changes in natural gas consumption and demand is partially mitigated by a revenue base that is significantly comprised of long-term contracts that are based on firm demand charges and are less affected by a potential reduction in the actual usage or consumption of natural gas.

WeReservation ~~believe we have adequate liquidity available to us to meet our capital requirements~~ and ~~our~~Usage ~~existing operating needs through cash flows from operating activities and amounts available to us under El Paso’s cash management program~~Revenues. In ~~addition~~For to the ~~cash~~year ~~management~~ended ~~program~~December 31, ~~above~~2011, weour ~~are~~reservation ~~eligible~~and tousage ~~borrow~~revenues ~~amounts~~were ~~available under El Paso’s~~ $~~1.5 billion~~7 ~~credit~~million ~~agreement~~lower ~~and~~as ~~are~~compared ~~only~~to ~~liable for amounts we directly borrow~~2010. AsThe ofdecline ~~December~~was ~~31,~~driven ~~2010,~~by Elreduced ~~Paso~~demand ~~had~~due to ~~approximately~~high ~~$0.9~~natural ~~billion~~gas ofstorage ~~capacity~~levels ~~remaining~~ and ~~available~~increased tohydroelectric usgeneration ~~and~~in our ~~affiliates~~California ~~under this credit agreement~~market, ~~and~~nonrenewal ~~none~~ of ~~the~~certain ~~amount~~expiring ~~outstanding~~contracts, ~~under~~ the ~~facility~~sale ~~was~~of ~~issued~~open orcapacity ~~borrowed~~at bylower ~~us. While~~prices wedue ~~do not anticipate a need~~ to ~~directly~~lower ~~access~~basis ~~the~~differentials ~~financial~~and ~~markets~~lower inrevenues ~~2011~~related ~~for~~to certain ~~any~~interruptible ofservices, ~~our~~partially ~~operating~~offset ~~activities~~by orhigher ~~expansion~~rates ~~capital~~effective ~~needs based on liquidity available to us~~April 1, ~~market conditions may impact our ability to act opportunistically~~2011.

~~For~~During ~~further~~2011 ~~detail~~our onthroughput decreased by 8 percent when compared to 2010. Declines in throughput can affect our ~~risk~~short-term ~~factors~~results ~~including~~or ~~potential~~be ~~adverse~~an ~~general~~indication of the risks we may face when seeking to recontract or renew any of our existing firm transportation contracts. Continuing negative economic ~~conditions~~impacts ~~including~~on demand, as well as adverse shifting sources of supply, could negatively impact basis differentials and our ability to ~~access~~renew ~~financial~~firm ~~markets~~transportation ~~which~~contracts ~~could~~that ~~impact~~are expiring on our ~~operations~~system ~~and~~or ~~liquidity,~~our ~~see~~ability ~~Part~~to I,renew ~~Item~~such contracts 1Aat current rates. Additionally, ~~Risk~~we ~~Factors~~may be required to further discount certain transportation rates in order to renew certain firm transportation contracts should these conditions continue.

~~Commitments~~Operating and ~~Contingencies~~General and Administrative Expenses. For the year ended December 31, 2011, our operating and general and administrative expenses were higher than in 2010 by approximately $13 million primarily due to higher payroll, benefits and contractor costs.

~~For~~Regulatory aMatters ~~further discussion of our commitments and contingencies, see Item 8, Financial Statements and Supplementary Data, Note 7 which is incorporated herein by reference.~~

19EPNG Rate Cases. We periodically file for changes in our rates, which are subject to approval by the FERC. Changes in rates and other tariff provisions resulting from these regulatory proceedings have the potential to positively or negatively impact our profitability.

~~Table~~• 2010 Rate Case. In September 2010, we filed a new rate case with the FERC proposing an increase in base tariff rates which would increase revenues by approximately $100 million annually over previously effective tariff rates. In October 2010, the FERC issued an order accepting and suspending the effective date of ~~Contents~~the proposed rates to April 1, 2011, subject to refund, the outcome of a hearing and other proceedings. A hearing commenced in late October 2011 and concluded in December 2011. A decision is due in May 2012. It is uncertain whether such an increase will be achieved in the context of any settlement between us and our customers or following the outcome of the hearing in the rate case. Although the final outcome is not currently determinable, we believe our accruals established for this matter are adequate.

~~ITEM~~• 7A2008 Rate Case. ~~QUANTITATIVE~~In ~~AND~~April ~~QUALITATIVE~~2010, ~~DISCLOSURES~~the ~~ABOUT~~FERC ~~MARKET~~approved ~~RISK~~an offer of settlement which increased our base tariff rates effective January 1, 2009. As part of the settlement we made refunds of approximately $76 million, plus interest, in 2010. The settlement resolved all but four issues in the rate proceeding. In January 2011, the Presiding Administrative Law Judge issued a decision that for the most part found against us on the four issues. We have appealed those decisions to the FERC and may also seek review of any of the FERC’s decisions to the U.S. Court of Appeals. Although the final outcome is not currently determinable, we believe our accruals established for this matter are adequate.

WeAlthough ~~are~~these ~~exposed to the risk of changing interest rates. At December 31, 2010, we had an interest bearing note receivable from El Paso of approximately $0.8 billion, with a variable interest~~ rate ofcases ~~1.5% that is due upon demand. While we~~ are ~~exposed~~intended to address ~~changes~~significant infactors ~~interest~~leading ~~income based on changes~~ to the ~~variable~~loss ~~interest~~in ~~rate,~~revenues ~~the~~or ~~fair~~increased ~~value~~costs, ofthey ~~this~~will ~~note~~not ~~receivable~~eliminate ~~approximates~~all ~~the~~ongoing ~~carrying~~business ~~value due to the note being due on demand and the market-based nature of the interest rate~~risks.

~~The~~17 table below shows the carrying value, the related weighted-average effective interest rates on our non-affiliated fixed rate long-term debt securities and the estimated fair value of these securities based on quoted market prices for the same or similar issues.

	December 31, 2010
	Expected Fiscal Year of Maturity of Carrying Amounts									December 31, 2009
		2011-2015	Thereafter			Total		Fair Value		Carrying Amount		Fair Value
	(In millions, except for rates)
Liabilities:
Long-term debt — fixed rate	$	—	$	1,113		$	1,113	$	1,258	$	1,167	$	1,300
Average effective interest rate				7.5	%

20Other Regulatory Matters. In October 2010, we filed with the FERC to permanently abandon two compressor stations and temporarily idle nine compressor stations along our south mainline system in 2011. This was done to better align our capacity to the current lower level of contract demand resulting from, in part, the weakened economic conditions along this line. Our intent was to bring the idled facilities back into service over the next several years as market demand improves. In our 2010 rate case, we did not initially seek to earn a return on the original investment in the idled facilities. We will continue to incur related operating costs and depreciation expense until the compressor stations are idled. In April 2011, the FERC denied our request to temporarily idle the nine compressor stations. We have appealed the FERC’s decision and the outcome is uncertain. In September 2011, the FERC issued an order approving the abandonment of the two compressor stations, which we abandoned in December 2011.

~~Table~~In ofJanuary ~~Contents~~2012, we filed with the FERC to permanently abandon two additional compressor stations and four compressor units on our north mainline and San Juan triangle. We requested an order by December 31, 2012.

~~ITEM~~Interest 8.and ~~FINANCIAL~~Debt ~~STATEMENTS~~Expense ~~AND SUPPLEMENTARY DATA~~

~~MANAGEMENT’S~~Our ~~ANNUAL~~interest ~~REPORT~~and ONdebt ~~INTERNAL~~expense ~~CONTROL~~decreased ~~OVER~~for ~~FINANCIAL~~the ~~REPORTING~~year ended December 31, 2011 compared to 2010 primarily due to the repayment of $54 million of our 7.625% notes that matured in August 2010.

~~Our~~Affiliated ~~management~~Interest ~~is responsible for establishing and maintaining adequate internal control over financial reporting~~Income, asNet defined by the Securities and Exchange Commission (SEC) rules adopted under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It consists of policies and procedures that:

•The ~~pertain~~following totable shows the ~~maintenance~~average ofadvances ~~records~~due ~~that,~~from inEl ~~reasonable~~Paso ~~detail, accurately~~ and ~~fairly~~the ~~reflect~~average ~~the~~short-term ~~transactions~~interest ~~and~~rates ~~dispositions~~for ofthe ~~our~~year ~~assets;~~ended December 31:

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and


	2011			2010
	(In millions, except for rates)
Average advance due from El Paso	$	889		$	1,002
Average short-term interest rate		2.0	%		1.5	%

•Income ~~provide~~Taxes ~~reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.~~

~~Under~~Our ~~the~~effective ~~supervision~~tax ~~and~~rates ~~with the participation~~ of ~~management,~~38 ~~including~~percent ~~the President~~ and ~~Chief~~36 ~~Financial~~percent ~~Officer,~~for ~~we made an assessment of~~ the ~~effectiveness~~years ofended ~~our internal control over financial reporting as of~~ December 31, ~~2010.~~2011 Inand ~~making~~2010 ~~this~~were ~~assessment,~~higher wethan ~~used~~ the ~~criteria~~statutory ~~established~~rate inof ~~Internal~~35 ~~Control~~percent —primarily ~~Integrated~~due ~~Framework~~to ~~issued by~~ the ~~Committee~~effect of ~~Sponsoring~~state ~~Organizations of the Treadway Commission~~income taxes. ~~Based~~For ona ~~our~~reconciliation ~~evaluation,~~of wethe ~~concluded~~statutory ~~that~~rate ~~our~~to ~~internal~~the ~~control~~effective ~~over~~tax ~~financial~~rates, ~~reporting~~see ~~was~~Item 8. ~~effective~~Financial asStatements ofand ~~December~~Supplementary 31Data, ~~2010~~Note 2.

21Liquidity and Capital Resources

~~Table~~Our primary sources of ~~Contents~~liquidity are cash flows from operating activities and amounts available to us under El Paso’s cash management program while our primary uses of cash are for working capital and capital expenditures. At December 31, 2011, we had a note receivable from El Paso of $873 million. We do not intend to settle any amounts owed under this note within the next twelve months and therefore, classified it as non-current on our balance sheet. We periodically evaluate our operating cash flows, after consideration of our capital and other requirements, to determine potential discretionary dividends to our parent. Based on our evaluation, during 2011, we paid a dividend to our parent of $103 million.

~~Report~~For the year ended December 31, 2011 compared with 2010, our operating cash flows increased by $170 million primarily due to payments of rate ~~Independent~~refunds ~~Registered~~and ~~Public~~income ~~Accounting~~taxes ~~Firm~~during 2010.

~~The~~Our ~~Board~~cash ofcapital ~~Directors~~expenditures ~~and~~for ~~Stockholder~~the ofyear Elended ~~Paso~~December 31, ~~Natural~~2011 ~~Gas~~are ~~Company~~listed below.

We have audited the accompanying consolidated balance sheets of El Paso Natural Gas Company (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15(a) for each of the three years in the period ended December 31, 2010. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.


	(In millions)
Maintenance	$	87
Expansion		1

Total	$	88

WeAlthough ~~conducted~~financial ~~our~~market ~~audits~~conditions inhave ~~accordance~~improved, ~~with~~continued ~~the~~volatility ~~standards~~in of the ~~Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the~~ financial ~~statements~~markets ~~are~~could impact ~~free~~our oflonger-term ~~material~~access ~~misstatement. We were not engaged~~ to ~~perform~~capital anfor ~~audit~~future ofgrowth ~~the~~projects ~~Company’s~~as ~~internal~~well ~~control over financial reporting. Our audits included consideration of internal control over financial reporting~~ as ~~a basis for designing audit procedures that are appropriate in~~ the ~~circumstances,~~cost ~~but not for the purpose~~ of ~~expressing~~such ~~an opinion on the effectiveness of the Company’s internal control over financial reporting~~capital. ~~Accordingly~~Additionally, wealthough ~~express~~the noimpacts ~~such~~are ~~opinion.~~difficult Anto ~~audit~~quantify ~~also~~at ~~includes~~this ~~examining~~point, on a ~~test~~prolonged ~~basis,~~recovery ~~evidence~~of ~~supporting~~ the ~~amounts~~global ~~and~~economy ~~disclosures~~could inhave ~~the~~adverse impacts ~~financial~~on ~~statements,~~natural ~~assessing~~gas ~~the~~consumption ~~accounting principles used~~ and ~~significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.~~

In18 our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of El Paso Natural Gas Company at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

~~Houston~~ demand. However, ~~Texas~~we believe our exposure to changes in natural gas consumption and demand is partially mitigated by a revenue base that is significantly comprised of long-term contracts that are based on firm demand charges and are less affected by a potential reduction in the actual usage or consumption of natural gas.

~~February~~We believe we have adequate liquidity available to us to meet our capital requirements and our existing operating needs through cash flows from operating activities and amounts available to us under El Paso’s cash management program. In addition, we are eligible to borrow amounts available under El 28Paso’s $1.25 billion revolving credit agreement and are only liable for amounts we directly borrow. During the first half of 2011, El Paso refinanced this credit facility and its collateral restrictions under the facility were modified providing El Paso’s master limited partnership the ability to acquire up to 100 percent ownership interests in us or another El Paso subsidiary, or some combination thereof. This credit facility provides for an elimination of collateral support upon El Paso achieving investment grade status by one of the rating agencies. Additionally, our cost to borrow under the El Paso credit facility has increased to LIBOR plus 2.25 percent. As of December 31, 2011, El Paso had approximately $620 million of capacity remaining and available to us and our affiliates under this credit agreement, and none of the amount outstanding under the facility was issued or borrowed by us. For a further discussion of the credit facility, see Item 8. Financial Statements and Supplementary Data, Note 6. While we do not anticipate a need to directly access the financial markets in 2012 for any of our operating activities or capital needs based on liquidity available to us, market conditions may impact our or El Paso’s ability to act opportunistically. Our future plans could also be impacted by the completion of El Paso’s announced acquisition by KMI.

22For further detail on our risk factors including potential adverse general economic conditions including our ability to access financial markets which could impact our operations and liquidity, see Part I, Item 1A. Risk Factors.

~~Table~~Commitments ofand ~~Contents~~Contingencies

ELFor ~~PASO~~a ~~NATURAL~~further ~~GAS~~discussion ~~COMPANY~~of our commitments and contingencies, see Item 8. Financial Statements and Supplementary Data, Note 7, which is incorporated herein by reference.

~~CONSOLIDATED~~19 ~~STATEMENTS OF INCOME~~

	Year Ended December 31,
	2010			2009			2008
Operating revenues	$	517		$	593		$	590
Operating expenses
Operation and maintenance		193			202			213
Depreciation and amortization		88			83			80
Loss on long-lived assets		—			—			14
Taxes, other than income taxes		32			29			26
		313			314			333
Operating income		204			279			257
Other income, net		3			2			5
Interest and debt expense		(92	)		(93	)		(90	)
Affiliated interest income, net		15			19			46
Income before income taxes		130			207			218
Income tax expense		47			79			83
Net income	$	83		$	128		$	135

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~See~~We ~~accompanying~~are ~~notes~~exposed to the risk of changing interest rates. At December 31, 2011, we had an interest bearing note receivable from El Paso of approximately $873 million, with a variable interest rate of 2.5% that is due upon demand. While we are exposed to changes in interest income based on changes to the variable interest rate, the fair value of this note receivable approximates the carrying value due to the note being due on demand and the market-based nature of the interest rate.

23The table below shows the carrying value, the related weighted-average effective interest rate on our non-affiliated fixed rate long-term debt securities and the estimated fair value of these securities which is based on quoted market prices for the same or similar issues.

Table of Contents


	December 31, 2011									December 31, 2010
	Expected Fiscal Year of Maturity of Carrying Amounts
	2012-2016		Thereafter			Total		Fair Value		Carrying Amount		Fair Value
	(In millions, except for rates)
Liabilities:
Long-term debt — fixed rate	$	—	$	1,113		$	1,113	$	1,348	$	1,113	$	1,258
Average effective interest rate				7.5	%

EL20 ~~PASO NATURAL GAS COMPANY~~

~~(In~~ITEM 8. ~~millions,~~FINANCIAL ~~except~~STATEMENTS ~~for~~AND ~~share~~SUPPLEMENTARY ~~amounts)~~DATA

	December 31,
	2010		2009
ASSETS
Current assets
Cash and cash equivalents	$	—	$	—
Accounts and note receivable
Customer, net of allowance of $2 in 2010 and 2009		4		56
Affiliates		6		111
Other		20		3
Materials and supplies		48		47
Deferred income taxes		9		35
Prepaids		15		15
Other		11		11
Total current assets		113		278
Property, plant and equipment, at cost		3,970		3,899
Less accumulated depreciation and amortization		1,484		1,409
Total property, plant and equipment, net		2,486		2,490
Other assets
Note receivable from affiliate		836		886
Other		110		110
		946		996
Total assets	$	3,545	$	3,764
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Accounts payable
Trade	$	82	$	83
Affiliates		25		42
Other		11		14
Current maturities of long-term debt		—		54
Taxes payable		28		103
Accrued interest		18		21
Accrued liabilities		24		82
Other		27		47
Total current liabilities		215		446
Long-term debt, less current maturities		1,113		1,113
Other liabilities
Deferred income taxes		408		408
Other		75		71
		483		479
Commitments and contingencies (Note 7)
Stockholder’s equity
Common stock, par value $1 per share; 1,000 shares authorized, issued and outstanding		—		—
Additional paid-in capital		1,268		1,268
Retained earnings		466		458
Total stockholder’s equity		1,734		1,726
Total liabilities and stockholder’s equity	$	3,545	$	3,764

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

~~See~~Our ~~accompanying~~management ~~notes~~is responsible for establishing and maintaining adequate internal control over financial reporting, as defined by the Securities and Exchange Commission (SEC) rules adopted under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It consists of policies and procedures that:

24• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

~~Table~~• provide reasonable assurance that transactions are recorded as necessary to permit preparation of ~~Contents~~the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

EL• ~~PASO~~provide ~~NATURAL~~reasonable ~~GAS~~assurance ~~COMPANY~~regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

~~CONSOLIDATED~~Under ~~STATEMENTS~~the OFsupervision ~~CASH~~and ~~FLOWS~~with the participation of management, including the President and Chief Financial Officer, we made an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, we used the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2011.

~~(In~~21 ~~millions)~~

	Year Ended December 31,
	2010			2009			2008
Cash flows from operating activities
Net income	$	83		$	128		$	135
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		88			83			80
Deferred income tax expense (benefit)		26			(3	)		14
Loss on long-lived assets		—			—			14
Other non-cash income items		22			(6	)		12
Asset and liability changes
Accounts receivable		50			10			3
Change in deferred purchase price from accounts receivable sales		(13	)		—			—
Accounts payable		(21	)		55			(65	)
Taxes payable		(66	)		12			24
Other current assets		(2	)		(4	)		(13	)
Other current liabilities		(103	)		80			(13	)
Non-current assets		(18	)		(55	)		56
Non-current liabilities		5			8			8
Net cash provided by operating activities		51			308			255
Cash flows from investing activities
Capital expenditures		(80	)		(116	)		(186	)
Net change in note receivable from affiliate		152			(3	)		127
Proceeds from disposal of property		4			14			—
Other		2			(3	)		4
Net cash provided by (used in) investing activities		78			(108	)		(55	)
Cash flows from financing activities
Dividends paid to parent, net of contribution		(75	)		(200	)		(200	)
Payments to retire long-term debt		(54	)		—			—
Net cash used in financing activities		(129	)		(200	)		(200	)
Net change in cash and cash equivalents		—			—			—
Cash and cash equivalents
Beginning of period		—			—			—
End of period	$	—		$	—		$	—
Supplemental cash flow information
Interest paid, net of amounts capitalized	$	87		$	88		$	88
Income tax payments		87			71			45

~~See~~Report ~~accompanying~~of ~~notes.~~Independent Registered Public Accounting Firm

25The Board of Directors and Stockholder of El Paso Natural Gas Company

~~Table~~We have audited the accompanying consolidated balance sheets of ~~Contents~~El Paso Natural Gas Company (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of income and comprehensive income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a) for each of the three years in the period ended December 31, 2011. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

ELWe ~~PASO~~conducted ~~NATURAL~~our ~~GAS~~audits ~~COMPANY~~in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~CONSOLIDATED~~In ~~STATEMENTS~~our OFopinion, ~~STOCKHOLDER’~~the financial statements referred to above present fairly, in all material respects, the consolidated financial position of El Paso Natural Gas Company at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. ~~EQUITY~~generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

~~(In~~/s/ ~~millions,~~Ernst & ~~except~~Young ~~for~~LLP ~~share amounts)~~

	Common Stock				Additional					Total
	Shares		Amount		Paid-in Capital		Retained Earnings			Stockholder’s Equity
January 1, 2008		1,000	$	—	$	1,268	$	594		$	1,862
Net income								135			135
Dividend paid to parent								(200	)		(200	)
Adoption of accounting standard updates related to postretirement benefits, net of income tax of less than $1 (Note 8)								1			1
December 31, 2008		1,000		—		1,268		530			1,798
Net income								128			128
Dividend paid to parent								(200	)		(200	)
December 31, 2009		1,000		—		1,268		458			1,726
Net income								83			83
Dividend paid to parent, net of contribution								(75	)		(75	)
December 31, 2010		1,000	$	—	$	1,268	$	466		$	1,734

Houston, Texas

~~See~~February 27, ~~accompanying~~2012 ~~notes.~~

2622

EL PASO NATURAL GAS COMPANY

~~NOTES~~CONSOLIDATED TOSTATEMENTS ~~CONSOLIDATED~~OF ~~FINANCIAL~~INCOME ~~STATEMENTS~~AND COMPREHENSIVE INCOME

1.(In ~~Summary~~millions) ~~of Significant Accounting Policies~~

Basis of Presentation and Principles of Consolidation


	Year Ended December 31,
	2011			2010			2009
Operating revenues	$	509		$	517		$	593

Operating expenses
Operation and maintenance		206			193			202
Depreciation and amortization		92			88			83
Taxes, other than income taxes		31			32			29

		329			313			314

Operating income		180			204			279
Other income, net		2			3			2
Interest and debt expense		(88	)		(92	)		(93	)
Affiliated interest income, net		17			15			19

Income before income taxes		111			130			207
Income tax expense		42			47			79

Net income		69			83			128
Other comprehensive income
Unrealized actuarial gains on postretirement benefit obligations (net of income taxes of $3 in 2011)		3			—			—

Comprehensive income	$	72		$	83		$	128

WeSee ~~are~~accompanying ~~a Delaware corporation incorporated in 1928, and an indirect wholly owned subsidiary of El Paso Corporation (El Paso)~~notes. Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include the accounts of all consolidated subsidiaries after the elimination of intercompany accounts and transactions.

We23 consolidate entities when we have the ability to control or direct the operating and financial decisions of the entity or when we have a significant interest in the entity that gives us the ability to direct the activities that are significant to that entity. The determination of our ability to control, direct or exert significant influence over an entity involves the use of judgment.

~~The~~EL ~~preparation~~PASO ofNATURAL ~~our~~GAS ~~financial~~COMPANY statements requires the use of estimates and assumptions that affect the amounts we report as assets, liabilities, revenues and expenses and our disclosures in these financial statements. Actual results can, and often do, differ from those estimates.

~~Regulated~~CONSOLIDATED ~~Operations~~BALANCE SHEETS

~~Our natural gas pipelines and storage operations are subject to the jurisdiction of the Federal Energy Regulatory Commission~~ (~~FERC)~~In ~~and follow the Financial Accounting Standards Board’s (FASB) accounting standards for regulated operations. Under these standards~~millions, weexcept ~~record regulatory assets and liabilities that would not be recorded~~ for ~~non-regulated~~share ~~entities.~~amounts) Regulatory assets and liabilities represent probable future revenues or expenses associated with certain charges or credits that are expected to be recovered from or refunded to customers through the rate making process. Items to which we apply regulatory accounting requirements include certain postretirement employee benefit plan costs, loss on reacquired debt, taxes related to an equity return component on regulated capital projects and other costs included in, or expected to be included in, future rates.

Cash and Cash Equivalents


	December 31,
	2011		2010
ASSETS
Current assets
Cash and cash equivalents	$	—	$	—
Accounts and note receivable
Customer, net of allowance of $2 in 2010		3		4
Affiliates		3		6
Other		24		20
Materials and supplies		48		48
Deferred income taxes		12		9
Prepaids		16		15
Regulatory assets		8		7
Other		—		4

Total current assets		114		113

Property, plant and equipment, at cost		3,993		3,970
Less accumulated depreciation and amortization		1,525		1,484

Total property, plant and equipment, net		2,468		2,486

Other long-term assets
Note receivable from affiliate		873		836
Other		101		110

		974		946

Total assets	$	3,556	$	3,545

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Accounts payable
Trade	$	68	$	82
Affiliates		20		25
Other		9		11
Taxes payable		35		28
Accrued interest		19		18
Accrued liabilities		29		24
Regulatory liabilities		16		7
Contractual deposits		21		15
Other		6		5

Total current liabilities		223		215

Long-term debt		1,113		1,113

Other long-term liabilities
Deferred income taxes		439		408
Other		78		75

		517		483

Commitments and contingencies (Note 7)
Stockholder’s equity
Common stock, par value $1 per share; 1,000 shares authorized, issued and outstanding		—		—
Additional paid-in capital		1,268		1,268
Retained earnings		432		466
Accumulated other comprehensive income		3		—

Total stockholder’s equity		1,703		1,734

Total liabilities and stockholder’s equity	$	3,556	$	3,545

WeSee ~~consider~~accompanying ~~short-term investments with an original maturity of less than three months to be cash equivalents~~notes.

~~Allowance~~24 ~~for Doubtful Accounts~~

~~Materials~~EL ~~and~~PASO ~~Supplies~~NATURAL GAS COMPANY

WeCONSOLIDATED ~~value~~STATEMENTS ~~materials~~OF ~~and~~CASH ~~supplies~~FLOWS ~~at the lower of cost or market value with cost determined using the average cost method.~~

~~Natural~~(In ~~Gas~~millions) ~~Imbalances~~

Natural gas imbalances occur when the amount of natural gas delivered from or received by a pipeline system or storage facility differs from the contractual amount to be delivered or received. We value these imbalances due to or from shippers and operators utilizing current index prices. Imbalances are settled in cash or in-kind, subject to the terms of our tariff.


	Year Ended December 31,
	2011			2010			2009
Cash flows from operating activities
Net income	$	69		$	83		$	128
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		92			88			83
Deferred income tax expense (benefit)		21			26			(3	)
Other non-cash income items		13			22			(6	)
Asset and liability changes
Accounts receivable		9			50			10
Change in deferred purchase price from accounts receivable sales		(8	)		(13	)		—
Accounts payable		(20	)		(21	)		55
Income taxes payable		(3	)		(66	)		12
Other asset changes		14			(20	)		(59	)
Other liability changes		34			(98	)		88

Net cash provided by operating activities		221			51			308

Cash flows from investing activities
Capital expenditures		(88	)		(80	)		(116	)
Net change in note receivable from affiliate		(37	)		152			(3	)
Proceeds from sale of assets		—			4			14
Other		7			2			(3	)

Net cash provided by (used in) investing activities		(118	)		78			(108	)

Cash flows from financing activities
Payments to retire long-term debt		—			(54	)		—
Dividends paid to parent, net of contribution		(103	)		(75	)		(200	)

Net cash used in financing activities		(103	)		(129	)		(200	)

Net change in cash and cash equivalents		—			—			—
Cash and cash equivalents
Beginning of period		—			—			—

End of period	$	—		$	—		$	—

Supplemental cash flow information
Interest paid, net of amounts capitalized	$	83		$	87		$	88
Income tax payments		23			87			71

27See accompanying notes.

~~Table~~25 ~~of Contents~~

~~Property,~~EL ~~Plant~~PASO ~~and~~NATURAL ~~Equipment~~GAS COMPANY

~~Our~~CONSOLIDATED ~~property,~~STATEMENTS ~~plant~~OF ~~and~~STOCKHOLDER’S ~~equipment~~EQUITY is recorded at its original cost of construction or, upon acquisition, at either the fair value of the assets acquired or the cost to the entity that first placed the asset in service. For assets we construct, we capitalize direct costs, such as labor and materials, and indirect costs, such as overhead, interest and an equity return component, as allowed by the FERC. We capitalize major units of property replacements or improvements and expense minor items.

~~We use the composite~~ (~~group)~~In ~~method to depreciate property~~millions, ~~plant~~except and equipment. Under this method, assets with similar useful lives and other characteristics are grouped and depreciated as one asset. We apply the depreciation rate approved in our rate settlements to the total cost of the group until its net book value equals its salvage value. We re-evaluate depreciation rates each time we file with the FERC for anshare ~~increase or decrease in our transportation and storage rates. The majority of our property, plant and equipment are on our El Paso Natural Gas Company (EPNG~~amounts) ~~system which has depreciation rates ranging from one percent to 50 percent. The depreciation rates on our Mojave Pipeline Company (Mojave) system range from two percent to 33 percent per year.~~

When we retire property, plant and equipment, we charge accumulated depreciation and amortization for the original cost of the assets in addition to the cost to remove, sell or dispose of the assets, less their salvage value. We do not recognize a gain or loss unless we sell an entire operating unit, as defined by the FERC. We include gains or losses on dispositions of operating units in operation and maintenance expense in our income statements.


	Common Stock				Additional Paid-in		Retained			Accumulated Other Comprehensive		Total Stockholder’s
	Shares		Amount		Capital		Earnings			Income		Equity
January 1, 2009		1,000	$	—	$	1,268	$	530		$	—	$	1,798
Net income								128					128
Dividend paid to parent								(200	)				(200	)

December 31, 2009		1,000		—		1,268		458			—		1,726
Net income								83					83
Dividend paid to parent, net of contribution								(75	)				(75	)

December 31, 2010		1,000		—		1,268		466			—		1,734
Net income								69					69
Dividend paid to parent								(103	)				(103	)
Other comprehensive income											3		3

December 31, 2011		1,000	$	—	$	1,268	$	432		$	3	$	1,703

~~Included~~See inaccompanying ~~our property balances are additional acquisition costs, which represent the excess purchase costs associated with purchase business combinations allocated to us~~notes. ~~These~~ ~~costs are amortized on a straight-line basis and are not recoverable in our rates under current FERC policies.~~

We26 capitalize a carrying cost (an allowance for funds used during construction or AFUDC) on debt and equity funds related to the construction of long-lived assets. This carrying cost consists of a return on the investment financed by debt and a return on the investment financed by equity. The debt portion is calculated based on the average cost of debt. Interest costs capitalized are included as a reduction to interest and debt expense on our income statements. The equity portion is calculated based on the most recent FERC approved rate of return. Equity amounts capitalized are included in other income on our income statements.

WeEL ~~evaluate~~PASO ~~assets~~NATURAL ~~for~~GAS ~~impairment~~COMPANY when events or circumstances indicate that their carrying values may not be recovered. These events include market declines that are believed to be other than temporary, changes in the manner in which we intend to use a long-lived asset, decisions to sell an asset and adverse changes in the legal or business environment such as adverse actions by regulators. If an event occurs, we evaluate the recoverability of our carrying value based on the long-lived asset’s ability to generate future cash flows on an undiscounted basis. If an impairment is indicated, or if we decide to sell a long-lived asset or group of assets, we adjust the carrying value of the asset downward, if necessary, to its estimated fair value. Our fair value estimates are generally based on market data obtained through the sales process or an analysis of expected discounted cash flows.

~~During~~NOTES ~~2008,~~TO weCONSOLIDATED ~~recorded~~FINANCIAL ~~impairments~~STATEMENTS ~~of approximately $14 million due to declining real estate values related to our Arizona storage projects, which we are no longer developing.~~

281. Basis of Presentation and Significant Accounting Policies

~~Table~~Basis of ~~Contents~~Presentation

~~Revenue~~We ~~Recognition~~are a Delaware corporation incorporated in 1928, and an indirect wholly owned subsidiary of El Paso Corporation (El Paso). Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include the accounts of all consolidated subsidiaries after the elimination of intercompany accounts and transactions. Our financial statements for prior periods include reclassifications that were made to conform to the current year presentation, none of which impacted our reported net income, stockholder’s equity or cash flows from operating activities.

~~Our~~On ~~revenues~~October 16, ~~are~~2011, ~~primarily~~El ~~generated~~Paso ~~from~~announced ~~natural~~a ~~gas~~definitive ~~transportation~~agreement ~~and~~with ~~storage~~Kinder ~~services~~Morgan, Inc. ~~Revenues~~(KMI) ~~for~~whereby ~~all~~KMI ~~services~~will ~~are~~acquire ~~based~~El onPaso ~~the~~in ~~thermal~~a ~~quantity~~transaction ofthat ~~gas~~valued ~~delivered~~El orPaso ~~subscribed~~ at aapproximately ~~price~~$38 ~~specified~~billion in(based on the ~~contract.~~KMI ~~For~~stock ~~our~~price ~~transportation~~at ~~and~~that ~~storage services~~date), weincluding ~~recognize reservation revenues on firm contracted capacity ratably over~~ the ~~contract~~assumption ~~period~~of debt. ~~For~~The ~~interruptible~~transaction orhas ~~volumetric-based~~been ~~services,~~approved weby ~~record~~each ~~revenues~~company’s ~~when~~board ~~physical deliveries~~ of ~~natural~~directors ~~gas~~but ~~are~~remains ~~made~~subject atto the ~~agreed~~approvals ~~upon~~of ~~delivery~~El ~~point~~Paso orshareholders, ~~when gas is injected or withdrawn from~~ the ~~storage~~Federal ~~facility.~~Trade ~~For~~Commission ~~contracts~~(FTC) ~~with~~and other ~~step-up~~customary orregulatory ~~step-down~~and ~~rate~~other ~~provisions~~approvals. ~~that~~The ~~are~~approval ~~not related to changes in levels~~ of ~~service,~~KMI weshareholders ~~recognize~~will ~~reservation~~also ~~revenues~~be ~~ratably over the contract life. We are subject to FERC regulations and~~required, asbut a ~~result,~~voting ~~revenues~~agreement wehas ~~collect~~been ~~may~~executed beby ~~subject~~the tomajority ~~refund~~of inthe ashareholders ~~rate~~of ~~proceeding.~~KMI Weto ~~establish~~support ~~reserves~~the ~~for these potential refunds~~transaction.

~~Environmental~~Principles ~~Costs~~of ~~and~~Consolidation ~~Other Contingencies~~

~~Environmental Costs.~~ We ~~record~~consolidate ~~liabilities~~entities ~~at their undiscounted amounts on our balance sheet as other current and long-term liabilities~~ when ~~environmental~~we ~~assessments~~have ~~indicate that remediation efforts are probable and~~ the ~~costs~~ability ~~can~~to becontrol ~~reasonably~~or ~~estimated.~~direct ~~Estimates of our liabilities are based on currently available facts, existing technology and presently enacted laws and regulations, taking into consideration~~ the ~~likely~~operating ~~effects of other societal~~ and ~~economic~~financial ~~factors,~~decisions ~~and include estimates~~ of ~~associated~~the ~~legal~~entity ~~costs.~~or ~~These~~when ~~amounts~~we ~~also~~have ~~consider~~a ~~prior~~significant ~~experience~~interest in ~~remediating~~the ~~contaminated~~entity ~~sites,~~that ~~other~~gives ~~companies’~~us ~~clean-up~~the ~~experience~~ability ~~and~~to direct ~~data released by~~ the ~~Environmental~~activities ~~Protection~~that ~~Agency (EPA) or other organizations. Our estimates~~ are ~~subject~~significant to ~~revision~~that ~~in future periods based on actual costs or new circumstances~~entity. WeThe ~~capitalize~~determination ~~costs~~of ~~that~~our ~~benefit~~ability ~~future~~to ~~periods~~control, ~~and~~direct weor ~~recognize~~exert asignificant ~~current~~influence ~~period~~over ~~charge~~an inentity ~~operation~~involves ~~and~~the ~~maintenance~~use ~~expense~~of ~~when clean-up efforts do not benefit future periods~~judgment.

WeUse ~~evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements~~ of ~~remediation~~Estimates costs from third parties, including insurance coverage, separately from our liability. Recovery is evaluated based on the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and report an asset separately from the associated liability on our balance sheet.

~~Other~~The ~~Contingencies.~~preparation ~~We recognize liabilities for other contingencies when we have an exposure that indicates it is both probable that a liability has been incurred and the amount~~ of ~~loss~~our ~~can~~financial bestatements ~~reasonably~~requires ~~estimated. Where~~ the use ~~most likely outcome~~ of aestimates ~~contingency~~and ~~can~~assumptions ~~be reasonably estimated, we accrue a liability for~~ that ~~amount.~~affect ~~Where~~ the ~~most~~amounts ~~likely~~we ~~outcome~~report ~~cannot~~as beassets, ~~estimated~~liabilities, arevenues ~~range~~and ofexpenses ~~potential losses is established~~ and ifour nodisclosures ~~one amount~~ in ~~that~~these ~~range~~financial isstatements. ~~more~~Actual ~~likely~~results ~~than any other~~can, ~~the~~and ~~low~~often ~~end~~do, ofdiffer ~~the~~from ~~range~~those ~~is accrued~~estimates.

~~Income~~Regulated ~~Taxes~~Operations

ElOur ~~Paso~~natural ~~maintains~~gas apipelines ~~tax~~and ~~accrual~~storage ~~policy~~operations are subject to ~~record~~the ~~both~~jurisdiction ~~regular~~of the Federal Energy Regulatory Commission (FERC) and follow ~~alternative~~the ~~minimum~~Financial ~~taxes~~Accounting Standards Board’s accounting standards for ~~companies~~regulated ~~included~~operations. Under inthese ~~its~~standards, ~~consolidated~~we ~~federal~~record regulatory assets and ~~state~~liabilities ~~income~~that ~~tax~~would ~~returns.~~not ~~The~~be ~~policy~~recorded ~~provides,~~for ~~among~~non-regulated ~~other~~entities. ~~things,~~Regulatory ~~that (i)~~assets and ~~each~~liabilities ~~company~~represent inprobable afuture ~~taxable~~revenues ~~income~~or ~~position~~expenses ~~will~~associated ~~accrue~~with acertain ~~current~~charges ~~expense~~or ~~equivalent~~credits that are expected to ~~its~~be ~~federal~~recovered ~~and~~from ~~state~~or ~~income~~refunded ~~taxes,~~to ~~and~~customers ~~(ii)~~through ~~each~~the ~~company~~rate inmaking aprocess. ~~tax~~Items ~~loss~~to ~~position~~which ~~will~~we ~~accrue~~may record a ~~benefit~~regulatory asset toor ~~the~~liability ~~extent~~include ~~its~~certain ~~deductions,~~postretirement ~~including~~employee ~~general~~benefit ~~business~~plan ~~credits~~costs, ~~can~~loss beon ~~utilized~~reacquired indebt, ~~the~~taxes ~~consolidated~~related ~~returns.~~to Elan ~~Paso~~equity ~~pays~~return ~~all~~component ~~consolidated~~on ~~U.S.~~regulated ~~federal~~capital projects and ~~state~~certain ~~income~~costs ~~taxes~~related ~~directly~~ to ~~the~~gas ~~appropriate~~not ~~taxing~~used ~~jurisdictions~~in operations and other costs included in, ~~under~~or aexpected ~~separate~~to ~~tax~~be ~~billing~~included ~~agreement~~in, El ~~Paso~~future ~~may~~rates. ~~bill~~For orfurther ~~refund~~details ~~its~~of ~~subsidiaries~~our ~~for~~regulatory ~~their~~assets ~~portion~~and ofliabilities, ~~these~~see ~~income~~Note ~~tax payments~~4.

~~We record income taxes on a separate return basis. Pursuant to El Paso’s policy, we record current income taxes based on our taxable income~~ Cash and weCash ~~provide~~Equivalents for deferred income taxes to reflect estimated future tax payments and receipts. Deferred taxes represent the tax impacts of differences between the financial statement and tax bases of assets and liabilities and carryovers at each year end. We account for tax credits under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. We reduce deferred tax assets by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in the recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances.

29We consider short-term investments with an original maturity of less than three months to be cash equivalents.

~~Table~~Allowance offor ~~Contents~~Doubtful Accounts

~~Accounting~~We establish provisions for ~~Asset~~losses ~~Retirement~~on ~~Obligations~~accounts receivable and for natural gas imbalances due from shippers and operators if we determine that we will not collect all or part of the outstanding balance. We regularly review collectability and establish or adjust our allowance as necessary using the specific identification method.

We27 record a liability for legal obligations associated with the replacement, removal or retirement of our long-lived assets in the period the obligation is incurred. Our asset retirement liabilities are initially recorded at their estimated fair value with a corresponding increase to property, plant and equipment. This increase in property, plant and equipment is then depreciated over the useful life of the asset to which that liability relates. An ongoing expense is recognized for changes in the value of the liability as a result of the passage of time, which we record as depreciation and amortization expense in our income statement. We have the ability to recover certain of these costs from our customers and have recorded an asset (rather than expense) associated with the accretion of the liabilities described above.

WeMaterials maintain a postretirement benefit plan covering certain of our former employees. This plan requires us to make contributions to fund the benefits to be paid under the plan. These contributions are invested until the benefits are paid to plan participants. The net benefit cost of this plan is recorded in our income statement and isSupplies a function of many factors including benefits earned during the year by plan participants (which is a function of factors such as the level of benefits provided under the plan, actuarial assumptions and the passage of time), expected returns on plan assets and amortization of certain deferred gains and losses. For a further discussion of our policies with respect to our postretirement benefit plan, see Note 8.

InWe ~~accounting~~value ~~for~~materials ~~our~~and ~~postretirement~~supplies ~~benefit~~at ~~plan, we record an asset or liability based on~~ the ~~over~~lower ~~funded or under funded status~~ of ~~the~~cost ~~plan. Any deferred amounts related to unrecognized gains and losses~~ or ~~changes~~market invalue ~~actuarial~~with ~~assumptions~~cost ~~are~~determined ~~recorded~~using asthe ~~either~~average acost ~~regulatory asset or liability~~method.

2.Natural ~~Income~~Gas ~~Taxes~~Imbalances

~~Components~~Natural gas imbalances occur when the amount of natural ~~Income~~gas ~~Tax~~delivered ~~Expense.~~from ~~The~~or ~~following~~received ~~table~~by ~~reflects~~a pipeline system or storage facility differs from the ~~components~~contractual ofamount ~~income~~to ~~tax~~be ~~expense~~delivered ~~included~~or received. We value these imbalances due to or from shippers and operators utilizing current index prices. Imbalances are settled in ~~net~~cash ~~income~~or ~~for~~in-kind, ~~each~~subject ofto the ~~three~~terms ~~years~~of ~~ended~~our ~~December~~tariff. ~~31:~~

	2010		2009			2008
	(In millions)
Current
Federal	$	19	$	72		$	61
State		2		10			8
		21		82			69
Deferred
Federal		26		(3	)		12
State		—		—			2
		26		(3	)		14
Total income tax expense	$	47	$	79		$	83

Imbalances due from others are reported in our balance sheet as either accounts receivable from customers or accounts receivable from affiliates. Imbalances owed to others are reported on the balance sheet as either trade accounts payable or accounts payable to affiliates. We classify all imbalances as current as we expect to settle them within a year.

~~Effective~~Property, ~~Tax~~Plant ~~Rate~~and ~~Reconciliation.~~Equipment ~~Our income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35 percent for the following reasons for each of the three years ended December 31:~~

	2010			2009			2008
	(In millions, except for rates)
Income tax expense at the statutory federal rate of 35%	$	46		$	72		$	76
State income taxes, net of federal income tax effect		1			7			7
Income tax expense	$	47		$	79		$	83
Effective tax rate		36	%		38	%		38	%

Our property, plant and equipment is recorded at its original cost of construction or, upon acquisition, at either the fair value of the assets acquired or the cost to the entity that first placed the asset in service. For assets we construct, we capitalize direct costs, such as labor and materials, and indirect costs, such as overhead, interest and an equity return component, as allowed by the FERC. We capitalize major units of property replacements or improvements and expense minor items.

30We use the composite (group) method to depreciate property, plant and equipment. Under this method, assets with similar useful lives and other characteristics are grouped and depreciated as one asset. We apply the depreciation rate approved in our rate settlements to the total cost of the group until its net book value equals its salvage value. We re-evaluate depreciation rates each time we file with the FERC for an increase or decrease in our transportation and storage rates. The majority of our property, plant and equipment are on our El Paso Natural Gas Company (EPNG) system which has depreciation rates ranging from one percent to 50 percent. The depreciation rates on our Mojave Pipeline Company (Mojave) system range from two percent to 33 percent per year.

~~Table~~When we retire property, plant and equipment, we charge accumulated depreciation and amortization for the original cost of ~~Contents~~the assets in addition to the cost to remove, sell or dispose of the assets, less their salvage value. We do not recognize a gain or loss unless we sell an entire operating unit, as determined by the FERC. We include gains or losses on dispositions of operating units in operation and maintenance expense in our income statements.

~~Deferred~~Included ~~Tax~~in ~~Assets~~our property ~~and~~balances ~~Liabilities~~are additional acquisition costs, which represent the excess purchase costs associated with purchase business combinations allocated to us. ~~The~~These ~~following~~costs are ~~the~~amortized ~~components~~on ofa ~~our~~straight-line ~~net~~basis ~~deferred~~and ~~tax~~are ~~liability~~not atrecoverable ~~December~~in ~~31:~~our rates under current FERC policies.

	2010		2009
	(In millions)
Deferred tax liabilities
Property, plant and equipment	$	483	$	482
Regulatory and other assets		29		28
Total deferred tax liability		512		510
Deferred tax assets
U.S. net operating loss and tax credit carryovers		77		77
Regulatory and other reserve		12		33
Other liabilities		24		27
Total deferred tax asset		113		137
Net deferred tax liability	$	399	$	373

Also included in our property balances are base gas and working gas at our storage facilities. We periodically evaluate natural gas volumes at our storage facilities for gas losses. When events or circumstances indicate a loss has occurred, we recognize a loss in our income statement or defer the loss as a regulatory asset on our balance sheet if deemed probable of recovery through future rates charged to our customers.

We ~~believe~~capitalize ita iscarrying ~~more~~cost ~~likely~~(an allowance ~~than~~for ~~not~~funds ~~that~~used weduring ~~will~~construction ~~realize~~or AFUDC) on debt and equity funds related to the ~~benefit~~construction of ~~our~~long-lived ~~deferred~~assets. ~~tax~~This ~~assets~~carrying ~~due~~cost consists of a return on the investment financed by debt and a return on the investment financed by equity. The debt portion is calculated based on the average cost of debt. Interest costs capitalized are included as a reduction to ~~expected~~interest ~~future~~and ~~taxable~~debt expense on our income, ~~including~~statements. The equity portion is calculated based on the ~~effect~~most ofrecent ~~future~~FERC approved ~~reversals~~rate of ~~existing~~return. ~~taxable~~Equity ~~temporary~~amounts ~~differences~~capitalized ~~primarily~~are ~~related~~included toin ~~depreciation~~other income on our income statements.

~~Tax~~28 Credits and Carryovers. As of December 31, 2010, we had approximately $19 million of alternative minimum tax credits that carryover indefinitely. We also have approximately $167 million of net operating loss carryovers that expire between 2021 and 2028. Usage of our carryovers is subject to the limitations provided under Sections 382 and 383 of the Internal Revenue Code as well as the separate return limitation year rules of IRS regulations.

3.Asset ~~Fair~~Impairments ~~Value of Financial Instruments~~

AtWe ~~December~~evaluate ~~31,~~assets ~~2010~~for ~~and~~impairment ~~2009,~~when ~~the~~events or circumstances indicate that their carrying ~~amounts~~values ofmay ~~cash~~not ~~and~~be ~~cash~~recovered. ~~equivalents~~These ~~and~~events ~~trade~~include ~~receivables~~market ~~and~~declines ~~payables~~that ~~represented~~are ~~fair~~believed ~~value~~to ~~because~~be ofother ~~the~~than ~~short-term~~temporary, changes ~~nature~~in ofthe ~~these~~manner ~~instruments.~~in Atwhich ~~December~~we ~~31,~~intend ~~2010~~to ~~and~~use ~~2009~~a long-lived asset, wedecisions ~~had~~to sell an ~~interest~~asset ~~bearing~~and ~~note~~adverse ~~receivable~~changes ~~from~~in Elthe ~~Paso~~legal ofor ~~approximately~~business ~~$0.8~~environment ~~billion~~such ~~and~~as $1adverse actions by regulators.0 ~~billion~~If ~~due~~an ~~upon~~event ~~demand~~occurs, ~~with~~we aevaluate ~~variable~~the ~~interest~~recoverability ~~rate~~ of ~~1.5%.~~our carrying ~~While~~value webased ~~are~~on ~~exposed~~the tolong-lived ~~changes~~asset’s inability ~~interest~~to ~~income~~generate ~~based~~future cash flows on ~~changes~~an undiscounted basis. If an impairment is indicated, or if we decide to ~~the~~sell ~~variable~~a ~~interest~~long-lived ~~rate~~asset or group of assets, we adjust the ~~fair~~carrying value of ~~this~~the asset ~~note~~downward, ~~receivable~~if ~~approximates~~necessary, ~~the~~to ~~carrying~~its estimated fair value. ~~due~~Our tofair ~~the~~value ~~note~~estimates ~~being~~are ~~due~~generally based on ~~demand~~assumptions ~~and~~market ~~the~~participants would use, including market~~-based~~ ~~nature~~data ofobtained through the ~~interest~~sales ~~rate~~process or an analysis of expected discounted cash flows.

InRevenue ~~addition,~~Recognition ~~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 at December 31:~~

	2010				2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
Long-term debt, including current maturities	$	1,113	$	1,258	$	1,167	$	1,300

Our revenues are primarily generated from natural gas transportation and storage services. Revenues for all services are based on the thermal quantity of gas delivered or subscribed at a price specified in the contract. For our transportation and storage services, we recognize reservation revenues on firm contracted capacity ratably over the contract period. For interruptible or volumetric-based services, we record revenues when physical deliveries of natural gas are made at the agreed upon delivery point or when gas is injected or withdrawn from the storage facility. For contracts with step-up or step-down rate provisions that are not related to changes in levels of service, we recognize reservation revenues ratably over the contract life. We are subject to FERC regulations and, as a result, revenues we collect may be subject to refund in a rate proceeding. We establish reserves for these potential refunds.

31Environmental Costs and Other Contingencies

~~Table~~Environmental Costs. We record liabilities at their undiscounted amounts on our balance sheet as other current and long-term liabilities when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of ~~Contents~~our liabilities are based on currently available facts, existing technology and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations. Our estimates are subject to revision in future periods based on actual costs or new circumstances. We capitalize costs that benefit future periods and we recognize a current period charge in operation and maintenance expense when clean-up efforts do not benefit future periods.

4We evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements of remediation costs from third parties, including insurance coverage, separately from our liability. ~~Regulatory~~Recovery ~~Assets~~is evaluated based on the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and ~~Liabilities~~report an asset separately from the associated liability on our balance sheet.

~~Our~~Other ~~regulatory~~Contingencies. ~~assets~~We ~~and~~recognize liabilities ~~are~~for ~~included~~other incontingencies ~~other~~when ~~current/non-current~~we ~~assets~~have an exposure that indicates it is both probable that a liability has been incurred and ~~liabilities~~the onamount ~~our~~of ~~balance~~loss ~~sheets~~can be reasonably estimated. ~~Our~~ ~~regulatory~~Where ~~asset~~the ~~and~~most ~~liability~~likely ~~balances~~outcome ~~are~~of ~~recoverable~~a orcontingency ~~reimbursable~~can ~~over~~be ~~various~~reasonably ~~periods~~estimated, we accrue a liability for that amount. ~~Below~~ ~~are~~Where the ~~details~~most likely outcome cannot be estimated, a range of ~~our~~potential ~~regulatory~~losses ~~assets~~is established and ~~liabilities~~if atno ~~December~~one amount ~~31:~~in that range is more likely than any other, the low end of the range is accrued.

	2010		2009
	(In millions)
Current regulatory assets
Difference between gas retained and gas consumed in operations	$	5	$	7
Other		2		3
Total current regulatory assets		7		10
Non-current regulatory assets
Taxes on capitalized funds used during construction		22		24
Unamortized loss on reacquired debt		21		24
Postretirement benefits		6		8
Other		9		9
Total non-current regulatory assets		58		65
Total regulatory assets	$	65	$	75
Current regulatory liabilities
Property and plant depreciation	$	1	$	3
Difference between gas retained and gas consumed in operations		5		5
Other		1		9
Total current regulatory liabilities		7		17
Non-current regulatory liabilities
Property and plant depreciation		24		30
Postretirement benefits		17		15
Other		2		2
Total non-current regulatory liabilities		43		47
Total regulatory liabilities	$	50	$	64

Income Taxes

El Paso maintains a tax accrual policy to record both regular and alternative minimum taxes for companies included in its consolidated federal and state income tax returns. The ~~significant~~policy ~~regulatory~~provides, ~~assets~~among other things, that (i) each company in a taxable income position will accrue a current expense equivalent to its federal and ~~liabilities~~state ~~include:~~income taxes, and (ii) each company in a tax loss position will accrue a benefit to the extent its deductions, including general business credits, can be utilized in the consolidated returns. El Paso pays all consolidated U.S. federal and state income taxes directly to the appropriate taxing jurisdictions and, under a separate tax billing agreement, El Paso may bill or refund its subsidiaries for their portion of these income tax payments.

~~Difference~~We ~~Between~~record ~~Gas~~income ~~Retained~~taxes ~~and~~on ~~Gas~~a ~~Consumed~~separate inreturn ~~Operations~~basis. ~~These~~ Pursuant ~~amounts~~to ~~reflect~~El ~~the~~Paso’s ~~value~~policy, ofwe ~~the~~record ~~volumetric~~current ~~difference~~income ~~between~~taxes ~~the gas~~based ~~retained~~on ~~and consumed in~~ our ~~operations. These~~taxable ~~amounts~~income ~~are~~and ~~not~~we ~~included~~provide infor ~~the~~deferred ~~rate~~income ~~base,~~taxes ~~but given our tariffs, are expected~~ to bereflect estimated ~~recovered~~future ~~from~~tax ~~our~~payments ~~customers~~and orreceipts. ~~returned~~Deferred totaxes ~~our customers in subsequent fuel filing periods.~~

~~Taxes~~29 on Capitalized Funds Used During Construction. Regulatory asset balance established to offset the deferred tax for the equity component of the allowance for funds used during the construction of long-lived assets. Taxes on capitalized funds used during construction and the offsetting deferred income taxes are included in the rate base and are recovered over the depreciable lives of the long-lived asset to which they relate.

~~Postretirement~~ represent ~~Benefits. Represents~~the ~~unrecognized~~tax ~~gains~~impacts ~~and~~of ~~losses~~differences orbetween ~~changes~~the infinancial ~~actuarial~~statement ~~assumptions~~and ~~related~~tax tobases ~~our~~of ~~postretirement~~assets ~~benefit~~and ~~plan~~liabilities and ~~differences~~carryovers inat ~~the~~each ~~postretirement~~year ~~benefit~~end. ~~related~~We ~~amounts~~account ~~expensed~~for ~~and~~tax credits under the ~~amounts~~flow-through method, ~~recovered~~which reduces the provision for income taxes in ~~rates~~the year the tax credits first become available. ~~Postretirement~~ ~~benefit~~We ~~amounts~~reduce ~~have~~deferred ~~been~~tax ~~included~~assets by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in the ~~rate~~recognition ~~base~~of ~~computations~~deferred ~~and~~tax assets are ~~recoverable~~subject to revision, either up or down, in ~~such~~future periods asbased ~~benefits~~on ~~are~~new ~~funded~~facts or circumstances.

~~Property~~Accounting ~~and Plant Depreciation. Amounts represent the deferral of customer-funded amounts~~ for ~~costs~~Asset ofRetirement ~~future~~Obligations ~~asset retirements.~~

32We record a liability for legal obligations associated with the replacement, removal or retirement of our long-lived assets in the period the obligation is incurred and estimable. Our asset retirement liabilities are initially recorded at their estimated fair value with a corresponding increase to property, plant and equipment. This increase in property, plant and equipment is then depreciated over the useful life of the asset to which that liability relates. An ongoing expense is recognized for changes in the value of the liability as a result of the passage of time, which we record as depreciation and amortization expense in our income statement. We have the ability to recover certain of these costs from our customers and have recorded an asset (rather than expense) associated with the accretion of the liabilities described above.

~~Table~~Postretirement ofBenefits ~~Contents~~

5We maintain a postretirement benefit plan covering certain of our former employees. ~~Property~~This plan requires us to make contributions to fund the benefits to be paid under the plan. These contributions are invested until the benefits are paid to plan participants. The net benefit cost of this plan is recorded in our income statement and is a function of many factors including benefits earned during the year by plan participants (which is a function of factors such as the level of benefits provided under the plan, ~~Plant~~actuarial assumptions and ~~Equipment~~the passage of time), expected returns on plan assets and amortization of certain deferred gains and losses.

~~Additional~~In ~~Acquisition~~accounting ~~Cost. Included in~~ for our ~~property~~postretirement ~~balances~~benefit ~~are~~plan, ~~additional~~we ~~acquisition~~record ~~costs~~an ~~assigned~~asset toor ~~utility~~liability ~~plant,~~based ~~which~~on ~~represent~~ the ~~excess~~over offunded ~~allocated~~or ~~purchase~~under ~~costs~~funded ~~over~~status ~~the historical costs~~ of the ~~facilities~~plan. At ~~December~~Any ~~31,~~deferred ~~2010~~amounts ~~and~~related ~~2009, additional acquisition costs assigned~~ to ~~utility~~unrecognized ~~plant~~gains ~~was approximately $151 million~~ and ~~accumulated~~losses ~~depreciation~~or ~~was~~changes ~~approximately~~in ~~$99~~actuarial ~~million~~assumptions ~~and $96 million, respectively. These additional acquisition costs~~ are ~~being~~recorded ~~amortized~~in accumulated onother acomprehensive ~~straight-line~~income, ~~basis over~~ a ~~remaining~~component ~~life~~ of 22stockholder’s ~~years~~equity, ~~and~~until ~~are~~those ~~not~~gains ~~recoverable~~and inlosses ~~our~~are ~~rates~~recognized ~~under~~in ~~current~~the ~~FERC~~income ~~policies~~statement. ~~Our~~ ~~amortization~~For ~~expense~~a ~~related~~further todiscussion ~~additional~~of ~~acquisition~~our ~~cost~~policy ~~assigned~~with respect to ~~utility~~our ~~plant~~postretirement ~~was~~benefit ~~approximately $2 million for the years ended December 31~~plan, ~~2010,~~see ~~2009 and 2008~~Note 8.

~~Capitalized Costs During Construction~~2. ~~Interest~~ ~~costs~~Income ~~capitalized~~Taxes were less than $1 million during the years ended December 31, 2010 and 2009 and $1 million during the year ended December 31, 2008. Equity amounts capitalized were $1 million, $1 million and $3 million (exclusive of taxes) during the years ended December 31, 2010, 2009 and 2008.

~~Construction~~Components ~~Work-In-Progress. At~~of ~~December~~Income ~~31,~~Tax ~~2010~~Expense. ~~and~~The ~~2009,~~following wetable ~~had~~reflects ~~$36~~the ~~million~~components ~~and~~of ~~$63~~income ~~million~~tax ofexpense ~~construction~~included ~~work-~~in~~-progress~~ net ~~included~~income infor ~~our~~each ~~property,~~of ~~plant~~the ~~and~~three ~~equipment.~~years ended December 31:

Asset Retirement Obligations. We have legal obligations associated with the retirement of our natural gas pipelines, transmission facilities and storage wells. We have obligations to plug storage wells when we no longer plan to use them and when we abandon them. Our legal obligations associated with our natural gas transmission facilities primarily involve purging and sealing the pipeline if it is abandoned. We also have obligations to remove hazardous materials associated with our natural gas transmission facilities if they are ever demolished or replaced. We continue to evaluate our asset retirement obligations and future developments could impact the amounts we record.


	2011		2010		2009
	(In millions)
Current
Federal	$	19	$	19	$	72
State		2		2		10

		21		21		82


Deferred
Federal		19		26		(3	)
State		2		—		—

		21		26		(3	)

Total income tax expense	$	42	$	47	$	79

We30 are required to operate and maintain our natural gas pipelines and storage system, and intend to do so as long as supply and demand for natural gas exists, which we expect for the foreseeable future. Therefore, we believe that we cannot reasonably estimate the asset retirement obligation for the substantial majority of our natural gas pipelines and storage system assets because these assets have indeterminate lives. Our asset retirement liabilities as of December 31, 2010 and 2009, were not material to our financial statements. We continue to evaluate our asset retirement obligations and future developments could impact the amounts we record.

~~Debt~~Effective Tax Rate Reconciliation. Our ~~long-term~~income ~~debt~~tax ~~consisted~~expense differs from the amount computed by applying the statutory federal income tax rate of 35 percent for the following atreasons ~~December~~for each of the three years ended December 31:

	2010			2009
	2011			2010			2009
	(In millions)
	(In millions, except for rates)
7.625% Notes due August 2010	$	—		$	54
Income tax expense at the statutory federal rate of 35%	$	39		$	46		$	72
5.95% Notes due April 2017		355			355
State income taxes, net of federal income tax effect		3			1			7
8.625% Debentures due January 2022		260			260
Income tax expense	$	42		$	47		$	79
7.50% Debentures due November 2026		200			200
Effective tax rate		38	%		36	%		38	%
8.375% Notes due June 2032		300			300
		1,115			1,169
Less: Current maturities		—			54
Unamortized discount		2			2
Total long-term debt	$	1,113		$	1,113

InDeferred ~~August~~Tax ~~2010,~~Assets weand ~~repaid~~Liabilities. ~~approximately~~The ~~$54~~following ~~million~~are the components of our ~~7.625%~~net ~~notes~~deferred ~~that~~tax ~~matured.~~liability at December 31:


	2011		2010
	(In millions)
Deferred tax liabilities
Property, plant and equipment	$	512	$	483
Regulatory and other assets		34		29

Total deferred tax liability		546		512

Deferred tax assets
U.S. net operating loss and tax credit carryovers		77		77
Regulatory and other liabilities		42		36

Total deferred tax asset		119		113

Net deferred tax liability	$	427	$	399

~~Table~~We believe it is more likely than not that we will realize the benefit of ~~Contents~~our deferred tax assets due to expected future taxable income, including the effect of future reversals of existing taxable temporary differences primarily related to depreciation.

~~Credit~~Tax ~~Facility.~~Credits Weand ~~are~~Carryovers. ~~eligible~~As toof ~~borrow~~December 31, ~~amounts~~2011, ~~available~~we ~~under~~had Elapproximately ~~Paso’s~~ $~~1.5~~19 ~~billion~~million ~~credit~~of ~~agreement~~alternative ~~and~~minimum ~~are~~tax ~~only~~credits ~~liable~~that ~~for~~carryover ~~amounts we directly borrow~~indefinitely. AsWe ofalso ~~December~~have ~~31, 2010, El Paso had~~ approximately $~~0.9~~167 ~~billion~~million of net ~~capacity~~operating ~~remaining~~loss ~~and~~carryovers ~~available~~that toexpire usbetween 2019 and ~~our~~2028. ~~affiliates~~Usage ~~under~~of ~~this~~our ~~credit~~carryovers ~~agreement,~~is ~~and~~subject ~~none~~to of the ~~amount~~limitations ~~outstanding~~provided under ~~the~~Sections ~~facility~~382 ~~was~~and ~~issued~~383 orof ~~borrowed~~the byInternal ~~us.~~Revenue ~~Our~~Code ~~common~~as ~~stock~~well ~~and~~as the ~~common~~separate ~~stock~~return oflimitation ~~another~~year Elrules ~~Paso~~of ~~subsidiary~~Internal Revenue ~~are~~Service ~~pledged as collateral under the credit agreement~~regulations.

~~Under~~Unrecognized ElTax ~~Paso’s $1~~Benefits.5 ~~billion~~El ~~credit~~Paso ~~agreement~~files ~~and~~consolidated ~~our~~U.S. ~~indentures,~~federal ~~we are subject to a number of restrictions~~ and ~~covenants.~~certain ~~The~~state ~~most~~tax returns ~~restrictive~~which ~~of these~~ include ~~(i)~~our ~~limitations~~taxable onincome. ~~the~~In ~~incurrence~~certain ~~of additional debt~~states, ~~based~~we onfile aand ~~ratio~~pay oftaxes ~~debt~~directly to ~~EBITDA (as defined in~~ the ~~agreements),~~state ~~which~~taxing ~~shall~~authorities. ~~not~~With ~~exceed~~a 5few ~~to 1; (ii) limitations on the use of proceeds from borrowings; (iii) limitations~~exceptions, inwe ~~some~~and ~~cases,~~El onPaso ~~transactions~~are ~~with~~no ~~our~~longer ~~affiliates;~~subject ~~(iv) limitations on the incurrence of liens; (v) potential limitations on our ability~~ to ~~declare~~state and ~~pay~~local ~~dividends;~~income ~~and~~tax ~~(vi)~~examinations ~~potential~~by ~~limitations~~tax onauthorities for ~~our~~years ~~ability~~prior to ~~participate~~2001 inand ~~the El Paso’s cash management program~~U.S. ~~The~~income ~~indentures~~tax ~~governing~~examinations ~~some~~for ofyears ~~our~~prior ~~long-term~~to ~~debt contain cross-acceleration provisions, the most restrictive of which is $25 million~~2007. For ~~the~~our ~~year~~open ~~ended~~tax ~~December 31~~years, ~~2010,~~ we ~~were~~have inno ~~compliance~~unrecognized ~~with~~tax ~~our debt-related covenants~~benefits.

73. ~~Commitments~~Financial ~~and~~Instruments ~~Contingencies~~

~~Legal~~At ~~Proceedings~~December 31, 2011 and 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 December 31, 2011 and 2010, we had an interest bearing note receivable from El Paso of approximately $873 million and $836 million due upon demand, with a variable interest rate of 2.5% and 1.5%. While we are exposed to changes in interest income based on changes to the variable interest rate, the fair value of this note receivable approximates the carrying value due to the note being due on demand and the market-based nature of the interest rate.

~~Bank~~In ~~of America. We are a named defendant~~addition, ~~along~~the ~~with~~carrying ~~Burlington~~amounts ~~Resources, Inc. (Burlington), now a subsidiary~~ of ~~ConocoPhillips~~our ~~Company,~~long-term indebt ~~a class action lawsuit styled Bank of America, et al. v. El Paso Natural Gas~~ and ~~Burlington~~their ~~Resources~~estimated fair ~~Oil and Gas Company~~values, ~~L.P.,~~which ~~filed~~are inprimarily ~~October~~based ~~2003~~on inquoted ~~the~~market District Court of Kiowa County, Oklahoma asserting royalty underpayment claims related to specified shallow wells in Oklahoma, Texas and New Mexico. The Plaintiffs assert that royalties were underpaid starting in the 1980s when the purchase price of gas was lowered below the Natural Gas Policy Act maximum lawful prices~~. The~~ ~~Plaintiffs~~for ~~have not alleged an amount of damages against any defendant. We believe that our actions in~~ the ~~1980s~~same ~~were~~or ~~proper~~similar inissues ~~light~~(Level of2 afair ~~declining~~value ~~market. We~~measurement), ~~also contend that we~~ are entitled to an indemnity from Burlington under our 1992 separation agreement for all claims related to royalty payments, which Burlington denies. The Plaintiffs assert that royalties were further underpaid by Burlington as afollows ~~result~~at ofDecember 31: post-production cost deductions taken starting in the late 1990s. We have no liability for the post-production claims as they pertain to periods after our separation from Burlington. This action was transferred to Washita County District Court in 2004. A tentative settlement reached in November 2005 was rejected by the court in June 2007. A class certification hearing occurred in April 2009. The court certified a Texas and Oklahoma class of royalty owners and stayed the claims pertaining to New Mexico wells. The class certification has been appealed to the Oklahoma Court of Appeals. The Plaintiffs have proceeded with discovery of the post-production claims against Burlington. Our costs and legal exposure related to this lawsuit are not currently determinable.

In addition to the above proceeding, 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, including those discussed above, 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 December 31, 2010, we had approximately $4 million accrued, which has not been reduced by $4 million of related insurance receivables, for our outstanding legal proceedings.


	2011				2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
Long-term debt	$	1,113	$	1,348	$	1,113	$	1,258

3431

~~Environmental~~4. ~~Matters~~Regulatory Assets and Liabilities

WeOur ~~are~~regulatory ~~subject~~asset ~~to federal, state~~ and ~~local~~liability ~~laws~~balances ~~and~~are ~~regulations~~recoverable ~~governing~~or ~~environmental~~reimbursable ~~quality~~over ~~and~~various ~~pollution control~~periods. Below ~~These~~are ~~laws and regulations require us to remove or remedy~~ the details ~~effect~~ of ~~the~~our ~~disposal~~regulatory orassets ~~release of specified substances at current~~ and ~~former~~liabilities operating sites. At December 31, 2010 and 2009, we had accrued approximately $16 million and $19 million for expected remediation costs and associated onsite, offsite and groundwater technical studies and for related environmental legal costs; however, we estimate that our exposure could be as high as $30 million at December 31,: ~~2010. Our accrual at December 31, 2010 includes $15 million for environmental contingencies related to properties we previously owned.~~

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.

		$0000.0		$0000.0
	2011		2010
	(In millions)
Current regulatory assets
Difference between gas retained and gas consumed in operations	$	6	$	5
Other		2		2

Total current regulatory assets		8		7

Non-current regulatory assets
Taxes on capitalized funds used during construction		21		22
Unamortized loss on reacquired debt		18		21
Postretirement benefits		8		6
Other		9		9

Total non-current regulatory assets⁽¹⁾		56		58

Total regulatory assets	$	64	$	65


Current regulatory liabilities
Property and plant depreciation	$	1	$	1
Difference between gas retained and gas consumed in operations		12		5
Other		3		1

Total current regulatory liabilities		16		7

Non-current regulatory liabilities
Property and plant depreciation		25		24
Postretirement benefits		8		17
Other		2		2

Total non-current regulatory liabilities⁽¹⁾		35		43

Total regulatory liabilities	$	51	$	50

~~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~~1) ~~under~~Included the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund, or state equivalents for three active sites. Liability under the federal CERCLA statute may be joint and several, meaning that we could be required to pay in ~~excess of our pro rata share of remediation costs. We consider the financial strength of~~ other ~~PRPs~~long-term inassets ~~estimating~~and ~~our~~ liabilities. ~~Accruals~~on ~~for~~our ~~these~~balance ~~issues are included in the environmental reserve discussed above~~sheets.

~~For~~The ~~2011,~~significant weregulatory ~~estimate~~assets ~~that~~and ~~our~~liabilities ~~total~~include: remediation expenditures will be approximately $4 million, which will be expended under government directed clean-up plans. In addition, we expect to make capital expenditures for environmental matters of $3 million in the aggregate for 2011 through 2015, including capital expenditures associated with the impact of the EPA 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.

ItDifference isBetween Gas ~~possible~~Retained ~~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~~Gas Consumed in ~~order to comply with existing environmental laws and regulations~~Operations. These Itamounts isreflect ~~also~~the ~~possible~~value ~~that other developments, such as increasingly strict environmental laws, regulations and orders~~ of ~~regulatory~~the ~~agencies,~~volumetric asdifference ~~well~~between ~~as claims for damages to property and~~ the gas ~~environment~~retained ~~or injuries to employees~~ and ~~other~~consumed ~~persons~~in ~~resulting from~~ our ~~current or past~~ operations,. These ~~could~~amounts ~~result~~are innot ~~substantial~~included ~~costs and liabilities~~ in the ~~future.~~rate ~~As this information becomes available~~base, orbut ~~other~~given ~~relevant developments occur~~our tariffs, ~~we will adjust our accrual amounts accordingly. While there~~ are ~~still~~expected ~~uncertainties related~~ to ~~the~~be ~~ultimate~~recovered ~~costs~~from ~~we may incur, based upon~~ our ~~evaluation~~customers ~~and~~or ~~experience~~returned to ~~date,~~our wecustomers ~~believe~~in ~~our~~subsequent ~~reserves~~fuel ~~are~~filing ~~adequate~~periods.

~~Rates~~Taxes on Capitalized Funds Used During Construction. Represents the regulatory asset balance established to offset the deferred tax for the equity component of AFUDC. Taxes on capitalized funds used during construction and ~~Regulatory~~the ~~Matters~~offsetting deferred income taxes are included in the rate base and are recovered over the depreciable lives of the long-lived asset to which they relate.

~~EPNG~~Unamortized ~~Rate~~Loss ~~Case.~~on InReacquired ~~April 2010, the FERC approved an uncontested partial offer of settlement which increased our base tariff rates, effective January 1, 2009~~Debt. As ~~part~~Amount ofrepresents the ~~settlement,~~deferred weand ~~made~~unamortized ~~refunds~~portion of ~~approximately~~losses $76 million, plus interest, in 2010. The settlement resolved all but four issues in the proceeding. In January 2011, the Presiding Administrative Law Judge issued her decision that for the most part found against us on reacquired ~~the~~debt ~~four~~which ~~issues. We~~are ~~will~~recovered ~~appeal~~through ~~those decisions to~~ the ~~FERC~~cost ~~and may also seek review~~ of ~~any~~service ofover the ~~FERC’s~~life ~~decisions to the U.S. Court~~ of ~~Appeals. Although~~ the ~~final~~new ~~outcome~~debt ~~is not currently determinable, we do not believe our refund exposure is material and we believe our accruals established for this matter are adequate~~issue.

InPostretirement Benefits. Represents ~~September~~differences ~~2010,~~in wepostretirement ~~filed~~benefit acosts ~~new~~expensed ~~rate~~and ~~case with~~ the ~~FERC~~amounts ~~proposing~~previously anrecovered ~~increase~~ in ~~base tariff~~ rates. Prior asto ~~permitted~~our ~~under~~2011 ~~the~~rate case settlement, ofthese ~~the~~balances ~~previous~~also ~~rate~~included ~~case. In~~unrecognized ~~October~~gains ~~2010,~~and ~~the~~losses ~~FERC~~or ~~issued~~changes anin actuarial ~~order~~assumptions ~~accepting~~related ~~and~~to ~~suspending~~our ~~the~~postretirement ~~effective~~benefit ~~date~~plan. ofAs ~~the~~part ~~proposed~~of ~~rates~~our torate ~~April~~case 1settlement, ~~2011,~~we ~~subject~~no tolonger ~~refund,~~include ~~the~~these ~~outcome~~costs ofin aour ~~hearing~~rates and ~~other~~during ~~proceedings. At~~the ~~this~~third ~~time~~quarter of 2011, ~~the~~we ~~outcome~~reclassified $6 million (net of ~~this~~income ~~matter~~taxes isof ~~not~~$4 ~~currently~~million) to ~~determinable~~accumulated other comprehensive income.

InProperty ~~October 2010, we filed with the FERC to permanently abandon two compressor stations~~ and ~~temporarily~~Plant ~~idle seven compressor stations along our south mainline system in 2011~~Depreciation. ~~This~~ ~~was~~Represents ~~done to better align our capacity to~~ the ~~current~~deferral ~~lower level~~ of ~~contract~~customer-funded amounts ~~demand~~for ~~resulting~~costs ~~from,~~of infuture ~~part,~~asset ~~the~~retirements ~~weakened~~and ~~economic~~costs ~~conditions~~previously ~~along~~collected ~~this~~in ~~line. Our intent is to bring the idled facilities back into service over the next several years as market demand improves. In~~ our ~~2011~~rates ~~rate~~for ~~case, we did not seek to earn a return on~~ the ~~original investment in the idled facilities. We will continue to incur related operating costs and~~ depreciation ~~expense until~~of ~~the compressor stations are idled once approved by the FERC. These filings have been protested by~~ certain ~~interveners~~assets ~~and~~in ~~the~~excess ~~result~~of isnormal ~~uncertain~~depreciation ~~at this time~~rates.

3532

~~Mojave Rate Case~~5. In ~~August 2010~~Property, wePlant ~~filed a petition with the FERC to (i) amend our filing requirement previously approved by the FERC~~ and ~~(ii)~~Equipment approve an uncontested rate case settlement that, among other things, would establish new base transportation rates. Under the terms of the agreement, we may not file a new rate case to be effective any earlier than September 1, 2012, but must file a rate case to be effective no later than September 1, 2014. The FERC approved this settlement in October 2010 with an effective date of December 1, 2010.

~~Other~~Additional ~~Matter~~Acquisition Cost. Included in our property balances are additional acquisition costs assigned to utility plant, which represent the excess of allocated purchase costs over the historical costs of the facilities. At December 31, 2011 and 2010, additional acquisition cost assigned to utility plant was approximately $151 million and accumulated depreciation was approximately $101 million and $99 million. These additional acquisition costs are being amortized on a straight-line basis over a remaining life of 21 years, and are not recoverable in our rates under current FERC policies. Our amortization expense related to additional acquisition cost assigned to utility plant was approximately $2 million for the years ended December 31, 2011, 2010 and 2009.

~~Tuba~~Capitalized ~~City~~Costs ~~Uranium~~During ~~Milling Facility~~Construction. ~~For~~Interest acosts ~~period~~capitalized ofare ~~approximately~~included ~~ten~~as ~~years~~a ~~beginning~~reduction ~~in the mid~~ to ~~late~~interest ~~1950s, Rare Metals Corporation of America, a historical affiliate, conducted uranium mining~~ and ~~milling~~debt ~~operations~~expense ~~in the vicinity of Tuba City, Arizona, under a contract with the United States government as part of the Cold War nuclear program. The site of the Tuba City uranium mill, which is~~ on ~~land~~our income ~~within~~statements ~~the~~and ~~Navajo Indian Reservation, reverted to the Navajo Nation after the mill closed in 1966. The tailings at the mill site~~ were ~~encapsulated~~less ~~and~~than a$1 ~~ground~~million ~~water~~during ~~remediation system was installed by~~ the ~~U.S.~~years ~~Department~~ended ofDecember 31, ~~Energy (DOE) under the Federal Uranium Mill Tailings Radiation Control Act of 1978. In May 2007~~2011, we2010 ~~filed suit against the DOE~~ and other federal agencies requesting a judicial determination that the DOE was fully and legally responsible for any remediation of any waste associated with historical uranium production activity at two sites in the vicinity of the mill facilities near Tuba City, Arizona2009. InEquity ~~March~~amounts ~~2009,~~capitalized ~~the~~are ~~United~~included ~~States District Court for the District of Columbia issued an opinion dismissing one of our claims, which has been affirmed by the Court of Appeals for the D.C. Circuit. Also~~ in ~~March~~other ~~2009,~~income ~~following~~on our ~~close~~income ~~cooperation~~statements ~~with~~and ~~the~~were ~~Navajo Nation in joint legislative efforts, President Obama signed the Fiscal Year 2009 Omnibus Appropriations Act, which appropriated~~ $51 million ~~toward~~(exclusive ~~the final remediation by the DOE~~ of ~~one~~taxes) ofduring ~~the~~each ~~two sites that are the subject~~ of ~~our lawsuit. The DOE has assigned to~~ the ~~Navajo~~years ~~Nation~~ended ~~the obligation to remediate the site. We anticipate that the Navajo Nation will perform the remediation in the near future~~December 31, ~~and we are continuing to maintain the interim exposure control measures we have installed at the site. Additionally~~2011, ~~the~~2010 ~~EPA~~ and Bureau of Indian Affairs (BIA) have entered into an administrative order of consent, pursuant to which the BIA will conduct a remedial investigation/feasibility study at the second site involved in the lawsuit2009. ~~Finally,~~ the EPA is currently assessing the environmental condition of all former uranium mines on the Navajo Indian Reservation to determine the need for further environmental response activities. There are approximately 500 abandoned uranium mine sites on the Navajo Indian Reservation, 16 of which were operated by the historical affiliate.

~~While~~Construction ~~the~~Work-In-Progress. ~~outcome~~At ~~of these matters cannot be predicted with certainty~~December 31, ~~based~~2011 ~~on current information~~and 2010, we dohad ~~not~~$36 ~~expect~~million ~~the ultimate resolution~~ of ~~these~~construction ~~matters~~work-in-progress toincluded ~~have~~in ~~a material adverse effect on~~ our ~~financial position~~property, ~~operating~~plant results or cash flows. It is possible that new information or future developments could require us to reassess our potential exposure related to these matters. The impact of these changes may have a material effect on our results of operations, our financial position, and ~~our cash flows in the periods these events occur~~equipment.

~~Other~~Asset ~~Commitments~~Retirement Obligations. We have legal obligations associated with the retirement of our natural gas pipelines, transmission facilities and storage wells. We have obligations to plug storage wells when we no longer plan to use them and when we abandon them. Our legal obligations associated with our natural gas transmission facilities primarily involve purging, sealing and possibly removing the facilities if they are abandoned. We also have obligations to remove hazardous materials associated with our natural gas transmission facilities if they are ever demolished or replaced. We accrue a liability for legal obligations based on an estimate of the timing and amount of their settlement.

~~Capital~~We ~~Commitments.~~are Werequired ~~have~~to ~~planned~~operate ~~capital~~and ~~projects~~maintain ~~that~~our ~~are~~natural ~~discretionary~~gas inpipelines ~~nature~~and storage system, ~~with~~and nointend to do so as long as supply and demand for natural gas exists, which we expect for the foreseeable future. Therefore, we believe that we cannot reasonably estimate the asset retirement obligation for the substantial ~~contractual~~majority ~~capital~~of ~~commitments~~our ~~made~~natural ingas ~~advance~~pipelines and storage system assets because these assets have indeterminate lives. Our asset retirement liabilities as of December 31, 2011 and 2010 were not material to our financial statements. We continue to evaluate our asset retirement obligations and future developments could impact the ~~actual~~amounts ~~expenditures~~we record.

366. Debt and Credit Facilities

~~Table~~Debt. Our long-term debt consisted of ~~Contents~~the following at December 31:

Operating Leases. We lease property, facilities and equipment under various operating leases. Future minimum annual rental commitments under our operating leases at December 31, 2010, were as follows:


	2011		2010
	(In millions)
5.95% Notes due April 2017	$	355	$	355
8.625% Debentures due January 2022		260		260
7.50% Debentures due November 2026		200		200
8.375% Notes due June 2032		300		300

		1,115		1,115
Less: Unamortized discount		2		2

Total long-term debt	$	1,113	$	1,113

Year Ending December 31,	(In millions)
2011	$	3
2012		3
2013		3
2014		3
2015		1
Thereafter		1
Total	$	14

Credit Facility. We are eligible to borrow amounts available under El Paso’s $1.25 billion revolving credit agreement and are only liable for amounts we directly borrow. During the first half of 2011, El Paso refinanced this credit facility and its collateral restrictions were modified providing El Paso’s master limited partnership the ability to acquire up to 100 percent ownership interests in us or another El Paso subsidiary, or some combination thereof. This credit facility provides for an elimination of collateral support upon El Paso achieving investment grade status by one of the rating agencies. Additionally, our current cost to borrow under the El Paso credit facility has increased to LIBOR plus 2.25 percent. As of December 31, 2011, El Paso had approximately $620 million of capacity remaining and available to us and our affiliates under this credit agreement, and none of the amount outstanding under the facility was issued or borrowed by us. Our common stock and the member interest of another El Paso subsidiary are pledged as collateral under the credit agreement.

~~Rental~~33 expense for the years ended December 31, 2010, 2009 and 2008 was $23 million, $21 million and $22 million and is reflected in operation and maintenance expense. Included in rental expense is approximately $20 million in each period associated with right-of-way and other arrangements, principally related to a long-term commitment which extends through 2025.

~~Guarantees.~~Under WeEl ~~are~~Paso’s or$1.25 ~~have~~billion ~~been~~revolving ~~involved~~credit inagreement ~~various ownership~~ and ~~other~~our ~~contractual~~indentures, ~~arrangements~~we ~~that~~are subject ~~sometimes require us~~ to ~~provide~~a ~~additional~~number ~~financial~~of ~~support~~restrictions ~~that~~and ~~results~~covenants. inThe ~~the~~most ~~issuance~~restrictive of ~~financial~~these ~~and~~include ~~performance~~(i) limitations ~~guarantees~~on ~~that~~the ~~are~~incurrence ~~not~~of ~~recorded~~additional indebt, ~~our~~based ~~financial~~on ~~statements. In~~ a ~~financial~~ratio ~~guarantee,~~of wedebt ~~are obligated~~ to ~~make~~EBITDA ~~payments~~(as ifdefined in the ~~guaranteed~~agreements), ~~party~~which ~~fails~~shall tonot ~~make~~exceed ~~payments~~5 ~~under,~~to or1; (ii) limitations ~~violates~~on the ~~terms~~use of, ~~the~~proceeds ~~financial~~from ~~arrangement.~~borrowings; In(iii) limitations, ain ~~performance~~some ~~guarantee~~cases, weon ~~provide~~transactions ~~assurance~~with ~~that~~our affiliates; (iv) limitations on the ~~guaranteed~~incurrence ~~party~~of ~~will~~liens; ~~execute~~(v) potential limitations on ~~the~~our ~~terms~~ability ofto ~~the~~declare ~~contract.~~and pay Ifdividends; ~~they~~and do(vi) potential ~~not,~~limitations weon ~~are~~our ~~required~~ability to ~~perform~~participate onin ~~their~~the ~~behalf~~El Paso’s cash management program. ~~During~~The ~~2010,~~indentures wegoverning ~~terminated~~some of our ~~performance~~long-term ~~guarantees~~debt ~~which~~contain ~~had~~cross-acceleration aprovisions, ~~maximum~~the ~~exposure~~most restrictive of ~~approximately~~which is $1125 million. For the year ended December 31, 2011, we were in compliance with our debt-related covenants.

87. ~~Retirement~~Commitments ~~Benefits~~and Contingencies

~~Pension~~Legal ~~and~~Proceedings Retirement Savings Plan. El Paso maintains a pension plan and a retirement savings plan covering substantially all of its U.S. employees, including our former employees. The benefits under the pension plan are determined under a cash balance formula. Under its retirement savings plan, El Paso matches 75 percent of participant basic contributions up to six percent of eligible compensation and can make additional discretionary matching contributions depending on El Paso’s operating performance relative to its peers. El Paso is responsible for benefits accrued under its plans and allocates the related costs to its affiliates.

~~Postretirement~~Bank ~~Benefits~~of ~~Plan~~America. We ~~provide~~are ~~postretirement~~a ~~medical~~named ~~benefits~~defendant, ~~for~~along awith ~~closed~~Burlington ~~group~~Resources, Inc. (Burlington), now a subsidiary of ~~employees~~ConocoPhillips ~~who~~Company, ~~retired~~in ona orclass ~~before~~action ~~March~~lawsuit 1,styled ~~1986~~Bank of America, ~~and~~et al. ~~limited~~v. ~~postretirement~~El ~~life~~Paso ~~insurance~~Natural ~~for~~Gas ~~employees~~and ~~who~~Burlington ~~retired~~Resources ~~after~~Oil ~~January~~and 1Gas Company, ~~1985~~L.P., Asfiled ~~such~~in October 2003 in the District Court of Kiowa County, ~~our~~Oklahoma ~~obligation~~asserting royalty underpayment claims related to ~~accrue~~specified ~~for~~shallow ~~other~~wells ~~postretirement~~in ~~employee~~Oklahoma, ~~benefits~~Texas isand New ~~primarily~~Mexico. ~~limited~~The toPlaintiffs assert that royalties were underpaid starting in the ~~fixed~~1980s ~~population~~when the purchase price of ~~retirees~~gas ~~who~~was ~~retired~~lowered onbelow orthe ~~before~~Natural ~~March~~Gas 1,Policy ~~1986~~Act maximum lawful prices. ~~Our~~The ~~postretirement~~Plaintiffs ~~benefit~~have ~~plan~~only ~~costs~~alleged ~~are~~an ~~prefunded~~amount toof damages against our co-defendant, Burlington. We believe that our actions in the ~~extent~~1980s ~~these~~were ~~costs~~proper in light of a declining market. We also contend that we are ~~recoverable~~entitled ~~through~~to an indemnity from Burlington under our ~~rates~~1992 separation agreement for all claims related to royalty payments, which Burlington denies. ToThe Plaintiffs assert that royalties were further underpaid by Burlington as a result of post-production cost deductions taken starting in the ~~extent~~late ~~actual~~1990s. ~~costs~~We ~~differ~~have no liability for the post-production claims as they pertain to periods after our separation from Burlington. This action was transferred to Washita County District Court in 2004. A tentative settlement reached in November 2005 was rejected by the ~~amounts~~court ~~recovered~~in June 2007. A class certification hearing occurred in ~~rates~~April 2009. The court certified a Texas and Oklahoma class of royalty owners and stayed the claims pertaining to New Mexico wells. The class certification was upheld by the Oklahoma Court of Appeals, and a ~~regulatory~~petition ~~asset~~for orreview ~~liability~~was denied isby ~~recorded~~the Oklahoma Supreme Court. WeThe doPlaintiffs ~~not~~have ~~expect~~proceeded towith ~~make~~discovery ~~any~~of ~~contributions~~the post-production claims against Burlington. Our costs and legal exposure related to ~~our~~this ~~postretirement~~lawsuit ~~benefit~~are ~~plan~~not incurrently ~~2011~~determinable.

~~Accumulated~~State ~~Postretirement~~of ~~Benefit~~Texas ~~Obligation,~~v. ~~Plan~~EPNG. ~~Assets~~On ~~and~~behalf ~~Funded~~of ~~Status.~~the InTexas ~~accounting~~Commission ~~for~~on ~~our~~Environmental ~~postretirement benefit plan~~Quality, wethe ~~record~~State anof ~~asset~~Texas orhas ~~liability~~filed ~~based~~a onlawsuit ~~the~~against us ~~over~~related ~~funded~~to orallegedly ~~under~~unauthorized ~~funded~~emissions ~~status.~~of ~~Any~~air ~~deferred~~contaminants ~~amounts~~associated ~~related~~with tothe ~~unrecognized~~rupture ~~gains~~of ~~and~~one ~~losses~~of orour ~~changes~~pipelines in ~~actuarial~~the ~~assumptions~~vicinity ~~are~~of ~~recorded~~Bushland, ~~either~~Texas asin a2009. ~~regulatory~~The ~~asset~~parties orhave ~~liability~~reached asan ~~allowed~~agreement byin ~~the~~principle ~~FERC. These~~to ~~amounts~~settle ~~would~~this ~~otherwise~~matter bewhich ~~recorded~~will not inhave ~~accumulated~~a ~~other~~material ~~comprehensive~~adverse ~~income~~effect ~~for~~on ~~non-regulated~~our ~~entities~~financial condition.

37In addition to the above 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, including those discussed above, 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. At December 31, 2011, we had less than $1 million accrued for our outstanding legal proceedings.

~~Table~~Environmental ofMatters ~~Contents~~

~~The~~We ~~table~~are ~~below~~subject ~~provides~~to ~~information~~federal, ~~about~~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 December 31, 2011 and 2010, our ~~postretirement~~accrual ~~benefit~~was ~~plan:~~ approximately $14 million and $16 million for expected remediation costs and associated onsite, offsite and groundwater technical studies and for related environmental legal costs; however, we estimate that our exposure could be as high as $24 million at December 31, 2011. Our accrual at December 31, 2011 includes $13 million for environmental contingencies related to properties we previously owned.

	December 31,
	2010			2009
	(In millions)
Change in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation – beginning of period	$	47		$	52
Interest cost		2			3
Actuarial (gain) loss		4			(4	)
Benefits paid(1)		(3	)		(4	)
Accumulated postretirement benefit obligation – end of period	$	50		$	47
Change in plan assets:
Fair value of plan assets – beginning period	$	79		$	71
Actual return on plan assets		9			13
Benefits paid		(4	)		(5	)
Fair value of plan assets – end of period	$	84		$	79
Reconciliation of funded status:
Fair value of plan assets	$	84		$	79
Less: accumulated postretirement benefit obligation		50			47
Net asset at December 31	$	34		$	32

~~(1) Amounts~~Our ~~shown~~environmental ~~net~~remediation ofprojects aare ~~subsidy~~in various stages of ~~approximately~~completion. $1Our ~~million~~recorded liabilities ~~for~~reflect ~~each~~our current estimates of ~~the~~amounts ~~years~~we ~~ended~~will ~~December~~spend ~~31,~~to ~~2010~~remediate ~~and~~these ~~2009~~sites. ~~related~~However, todepending on the ~~Medicare~~stage ~~Prescription~~of ~~Drug,~~completion ~~Improvement~~or assessment, ~~and~~the ~~Modernization~~ultimate ~~Act~~extent of ~~2003~~contamination or remediation required may not be known. As additional assessments occur or remediation efforts continue, we may incur additional liabilities.

~~Plan~~Superfund ~~Assets~~Matters. ~~The~~Included ~~primary~~in our ~~investment~~recorded ~~objective~~environmental ofliabilities ~~our~~are ~~plan~~projects iswhere towe ~~ensure~~have ~~that,~~received ~~over~~notice ~~the~~that ~~long-term~~we ~~life~~have ofbeen ~~the~~designated ~~plan~~or ancould ~~adequate~~be ~~pool~~designated ofas ~~sufficiently~~a ~~liquid~~Potentially ~~assets~~Responsible ~~exists~~Party to(PRP) ~~meet~~under the ~~benefit~~Comprehensive ~~obligations~~Environmental toResponse, ~~retirees~~Compensation and ~~beneficiaries.~~Liability Act ~~Investment~~(CERCLA), ~~objectives~~commonly ~~are~~known ~~long-term~~as inSuperfund, ~~nature~~or ~~covering~~state ~~typical~~equivalents ~~market~~for ~~cycles.~~three ~~Any~~active ~~shortfall~~sites. ofLiability ~~investment~~under ~~performance~~the ~~compared~~federal toCERCLA ~~investment~~statute ~~objectives~~may isbe ~~generally~~joint ~~the result of economic~~ and ~~capital~~several, ~~market~~meaning ~~conditions. Although~~that ~~actual~~we ~~allocations~~could ~~vary~~be ~~from~~required ~~time~~ to ~~time~~pay ~~from~~in ~~our~~excess ~~targeted allocations, the target allocations~~ of our ~~postretirement~~pro ~~plan’s~~rata ~~assets~~share ~~are~~of 65remediation costs. ~~percent~~We ~~equity~~consider ~~and~~the 35financial ~~percent~~strength ~~fixed~~of ~~income~~other ~~securities. We~~PRPs ~~may invest plan assets~~ in aestimating ~~manner~~our ~~that~~liabilities. ~~replicates,~~Accruals tofor ~~the~~these ~~extent~~matters ~~feasible,~~are ~~the~~included ~~Russell~~in ~~3000 Index and~~ the ~~Barclays~~environmental ~~Capital~~reserve ~~Aggregate~~discussed ~~Bond Index to achieve equity and fixed income diversification, respectively~~above.

WeFor ~~use~~2012, ~~various~~we ~~methods~~estimate tothat ~~determine the fair values of the assets in~~ our ~~other~~total ~~postretirement~~remediation ~~benefit~~expenditures ~~plan,~~will ~~which~~be ~~are~~approximately ~~impacted~~$3 ~~by a number of factors~~million, ~~including~~most ~~the availability~~ of ~~observable~~which ~~market~~will ~~data~~be ~~over~~expended ~~the~~under ~~contractual~~government ~~term~~directed ofclean-up ~~the underlying assets~~plans. We ~~separate~~In ~~these assets into three levels (Level 1~~addition, 2we ~~and~~expect ~~3) based on our assessment of the availability of this market data and the significance of non-observable data used~~ to ~~determine~~make capital ~~the~~expenditures ~~fair~~for ~~value~~environmental ofmatters ~~these assets. As~~ of ~~December~~approximately ~~31, 2010, assets were comprised of an exchange-traded mutual fund with a fair value of~~ $2 million and common collective trust funds with a fair value of $82 million. As of December 31, 2009, assets were comprised of an exchange-traded mutual fund with a fair value of $2 million and common collective trust funds with a fair value of $77 million. Our exchange-traded mutual fund invests primarily in ~~dollar-denominated securities, and its fair value (which is considered a Level 1 measurement) is determined based on~~ the ~~price~~aggregate ~~quoted~~ for ~~the~~2012 ~~fund~~through ~~in actively traded markets. Our common collective trust funds are invested in approximately 65 percent equity and 35 percent fixed income securities~~2016, ~~and~~including ~~their~~capital ~~fair~~expenditures ~~values~~associated ~~(which~~with ~~are considered Level 2 measurements) are determined primarily based on~~ the ~~net~~impact ~~asset~~of ~~value reported by~~ the ~~issuer,~~EPA ~~which~~rule ~~is based~~ on ~~similar~~emissions ~~assets~~of inhazardous ~~active~~air ~~markets. Certain~~pollutants ~~restrictions~~from onreciprocating internal ~~withdrawals~~combustion ~~exist~~engines ~~for~~which ~~these~~are ~~common~~subject ~~collective trust funds where the issuer reserves the right~~ to ~~temporarily~~regulations ~~delay~~with ~~withdrawals~~which inwe ~~certain situations such as market conditions or at the issuer's discretion. We do not~~ have ~~any~~to ~~assets that are considered Level 3 measurements. The methods described above may produce a fair value that may not~~ be ~~indicative of net realizable value or reflective of future fair values, and there have been no changes~~ in ~~the~~compliance ~~methodologies~~by ~~used~~October ~~at December 31, 2010 and 2009~~2013.

38It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws, regulations and orders of regulatory agencies, as well as claims for damages to property and the environment or injuries to employees and other persons resulting from our current or past operations, could result in substantial costs and liabilities in the future. As this information becomes available, or other relevant developments occur, we will adjust our accrual amounts accordingly. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we believe our reserves are adequate.

~~Table~~Rates ofand ~~Contents~~Regulatory Matters

~~Expected~~EPNG ~~Payment~~Rate Cases. In April 2010, the FERC approved an offer of ~~Future~~settlement ~~Benefits~~which increased our base tariff rates, effective January 1, 2009. As part of ~~December~~the 31settlement, we made refunds of approximately $76 million, plus interest, in 2010. The settlement resolved all but four issues in the rate proceeding. In January 2011, wethe ~~expect~~Presiding Administrative Law Judge issued a decision that for the ~~following~~most ~~benefit~~part ~~payments~~found ~~under~~against us on the four issues. We have appealed those decisions to the FERC and may also seek review of any of the FERC’s decisions to the U.S. Court of Appeals. Although the final outcome is not currently determinable, we believe our ~~plan:~~accruals established for this matter are adequate.

Year Ending December 31,	Expected Payments(1)
	(In millions)
2011	$	6
2012		5
2013		5
2014		5
2015		5
2016 - 2020		19

In September 2010, we filed a new rate case with the FERC proposing an increase in base tariff rates which would increase revenues by approximately $100 million annually over previously effective tariff rates. In October 2010, the FERC issued an order accepting and suspending the effective date of the proposed rates to April 1, 2011, subject to refund, the outcome of a hearing and other proceedings. A hearing commenced in late October 2011 and concluded in December 2011. A decision is due in May 2012. It is uncertain whether such an increase will be achieved in the context of any settlement between us and our customers or following the outcome of the hearing in the rate case. Although the final outcome is not currently determinable, we believe our accruals established for this matter are adequate.

~~____________~~Other Regulatory Matters. In October 2010, we filed with the FERC to permanently abandon two compressor stations and temporarily idle nine compressor stations along our south mainline system in 2011. This was done to better align our capacity to the current lower level of contract demand resulting from, in part, the weakened economic conditions along this line. Our intent was to bring the idled facilities back into service over the next several years as market demand improves. In our 2010 rate case, we did not initially seek to earn a return on the original investment in the idled facilities. We will continue to incur related operating costs and depreciation expense until the compressor stations are idled. In April 2011, the FERC denied our request to temporarily idle the nine compressor stations. We have appealed the FERC’s decision and the outcome is uncertain. In September 2011, the FERC issued an order approving the abandonment of the two compressor stations, which we abandoned in December 2011.

~~(1)~~35 Includes a reduction of approximately $1 million in each of the years 2011 – 2015 and approximately $3 million in aggregate for 2016 – 2020 for an expected subsidy related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

	2010		2009		2008
	(Percent)
Assumptions related to benefit obligations at December 31:
Discount rate		4.53		5.14		5.90
Assumptions related to benefit costs for the year ended December 31:
Discount rate		5.14		5.90		6.05
Expected return on plan assets(1)		7.75		8.00		8.00

In January 2012, we filed with the FERC to permanently abandon two additional compressor stations and four compressor units on our north mainline and San Juan triangle. We requested an order by December 31, 2012.

~~____________~~ Other Matter

~~(1)~~Tuba City Uranium Milling Facility. For a period of approximately ten years beginning in the mid to late 1950s, Rare Metals Corporation of America, a historical affiliate, conducted uranium mining and milling operations in the vicinity of Tuba City, Arizona, under a contract with the United States government for the benefit of the Cold War nuclear program. The ~~expected~~site ~~return~~of onthe ~~plan~~Tuba ~~assets~~City uranium mill, which is on land within the Navajo Indian Reservation, reverted to the Navajo Nation after the mill closed in 1966. The tailings at the mill site were encapsulated and a ~~pre-tax~~ground ~~rate~~water remediation system was installed by the U.S. Department of ~~return~~Energy ~~based~~(DOE) onunder the Federal Uranium Mill Tailings Radiation Control Act of 1978. In May 2007, we filed suit against the DOE and other federal agencies requesting a judicial determination that the DOE was fully and legally responsible for any remediation of any waste associated with historical uranium production activity at two sites in the vicinity of the mill facilities near Tuba City, Arizona. In March 2009, the United States District Court for the District of Columbia issued an opinion dismissing one of our ~~targeted~~claims, ~~portfolio~~which has been affirmed by the Court of ~~investments~~Appeals for the D.C. ~~Our~~Circuit. ~~postretirement~~Also ~~benefit~~in ~~plan’s~~March ~~investment~~2009, ~~earnings~~following our close cooperation with the Navajo Nation in joint legislative efforts, President Obama signed the Fiscal Year 2009 Omnibus Appropriations Act, which appropriated $5 million toward the final remediation by the DOE of one of the two sites that are the subject of our lawsuit. The DOE assigned to ~~unrelated~~the ~~business~~Navajo ~~income~~Nation ~~taxes~~the obligation to perform the final remediation of the site which was completed in August 2011. Additionally, the EPA and Bureau of Indian Affairs (BIA) have entered into an administrative order of consent, pursuant to which the BIA is conducting a remedial investigation/feasibility study at a ~~rate~~second ofsite ~~35%~~involved in the lawsuit. The remedial investigation/feasibility study is expected ~~return~~to onbe ~~plan~~completed ~~assets~~by ~~for~~2014. Additionally, the United States has filed counterclaims in the District of Columbia alleging that, to the extent we contributed to the disposal of any waste at the second site, we should bear part of the remediation costs at that site. The United States has filed a motion to dismiss our ~~postretirement~~remaining ~~benefit~~claims, ~~plan~~which motion is ~~calculated~~pending ~~using~~before the ~~after-tax~~district ~~rate~~court. Finally, the EPA is currently assessing the environmental condition of ~~return~~all former uranium mines on the Navajo Indian Reservation to determine the need for further environmental response activities. There are approximately 500 abandoned uranium mine sites on the Navajo Indian Reservation, 16 of which were operated by the historical affiliate. The final outcome of these legal proceedings, remediation and feasibility studies, and environmental assessments is uncertain.

~~Actuarial~~While ~~estimates~~the ~~for~~outcome ~~our~~of ~~postretirement~~these ~~benefits~~matters ~~plan~~cannot ~~assumed~~be apredicted ~~weighted~~with certainty, ~~average~~based ~~annual~~on ~~rate~~current ofinformation, ~~increase~~we indo ~~the~~not ~~per~~expect ~~capita~~the ~~costs~~ultimate resolution of ~~covered~~these ~~health~~matters ~~care~~to ~~benefits~~have ofa ~~7.4~~material ~~percent,~~adverse ~~gradually~~effect ~~decreasing~~on toour ~~5.0~~financial ~~percent~~position, byoperating ~~the~~results ~~year~~or ~~2016~~cash flows. ~~Assumed~~It ~~health~~is ~~care~~possible ~~cost~~that ~~trends~~new ~~can~~information ~~have~~or afuture developments ~~significant~~could ~~effect~~require onus ~~the~~to ~~amounts~~reassess ~~reported~~our ~~for~~potential ~~our~~exposure ~~postretirement~~related ~~benefit~~to ~~plan~~these matters. AThe ~~one-percentage~~impact ~~point~~of ~~change~~these ~~would~~changes ~~not~~may have ~~had~~ a ~~significant~~material effect on ~~interest~~our ~~costs~~results inof ~~2010~~operations, orour ~~2009.~~financial Aposition, ~~one-percentage~~and ~~point~~our ~~change~~cash flows in ~~assumed health care cost trends would have~~ the ~~following~~periods ~~effect~~these asevents occur. ~~of December 31, 2010 and 2009:~~

	2010			2009
	(In millions)
One percentage point increase:
Accumulated postretirement benefit obligation	$	3		$	3
One percentage point decrease:
Accumulated postretirement benefit obligation	$	(3	)	$	(3	)

Other Commitments

~~Components~~Capital ofCommitments. ~~Net~~We ~~Benefit~~have ~~Income.~~planned ~~For~~capital ~~each~~projects ofthat ~~the~~are ~~years~~discretionary ~~ended~~in ~~December 31~~nature, ~~the~~with ~~components~~no ofsubstantial ~~net~~contractual ~~benefit~~capital ~~income~~commitments ~~are~~made asin ~~follows:~~advance of the actual expenditures.

	2010			2009			2008
	(In millions)
Interest cost	$	2		$	3		$	4
Expected return on plan assets		(5	)		(5	)		(7	)
Amortization of net actuarial gain		—			—			(2	)
Net benefit income	$	(3	)	$	(2	)	$	(5	)

Operating Leases. We lease property, facilities and equipment under various operating leases. Future minimum annual rental commitments under our operating leases at December 31, 2011, were as follows:


Year Ending December 31,	(In millions)
2012	$	3
2013		3
2014		3
2015		1
Thereafter		1

Total	$	11

~~Table~~Rental expense on our lease obligations for the years ended December 31, 2011, 2010 and 2009 was $23 million, $23 million and $21 million and is reflected in operation and maintenance expense on our income statements. Included in our rental expense is approximately $20 million in each period associated with right-of-way ~~Contents~~and other arrangements, principally related to a long-term commitment which extends through 2025.

9.36 ~~Transactions with Major Customers~~

	2010(1)		2009(1)		2008
	(In millions)
ConocoPhillips Company	$	78	$	124	$	82
Southern California Gas Company		74		89		85
Southwest Gas Corporation		64		*		*

Other Commercial Commitments. We hold cancelable easements or rights-of-way arrangements from landowners permitting the use of land for the construction and operation of our pipeline systems.

~~____________~~ 8. Retirement Benefits

~~(1)~~Pension ~~Revenues~~and ~~reflect~~Retirement ~~rates~~Savings ~~subject~~Plans. El Paso maintains a pension plan, the El Paso Corporation Pension Plan, and a retirement savings plan covering substantially all of its U.S. employees, including our former employees. The benefits under the pension plan are determined under a cash balance formula. Under its retirement savings plan, El Paso matches 75 percent of participant basic contributions up to ~~refund~~six percent of eligible compensation and can make additional discretionary matching contributions depending on El Paso’s operating performance relative to its peers. El Paso is responsible for benefits accrued under its plans and allocates the related costs to its affiliates.

*Postretirement ~~Less~~Benefits ~~than~~Plan. ~~10%~~We provide postretirement medical benefits for a closed group of ~~operating~~employees ~~revenues~~who retired on or before March 1, 1986, and limited postretirement life insurance for employees who retired after January 1, 1985, under the El Paso Corporation Retiree Benefits Plan. As such, our obligation to accrue for other postretirement employee benefits is primarily limited to the fixed population of retirees who retired on or before March 1, 1986. Our postretirement benefit plan costs were prefunded and were recoverable under prior rate case settlements. Currently, there is no cost recovery or related funding that is required as part of our current FERC approved rates, however, we can seek to recover any funding shortfall that may be required in the future. We do not expect to make any contributions to our postretirement benefit plan in 2012, and there were no contributions made in 2011, 2010 and 2009.

10Accumulated Postretirement Benefit Obligation, Plan Assets and Funded Status. ~~Accounts~~In ~~Receivable~~accounting ~~Sales~~for ~~Program~~our postretirement benefit plan, we record an asset or liability based on the over funded or under funded status. Any deferred amounts related to unrecognized gains and losses or changes in actuarial assumptions are recorded in accumulated other comprehensive income, a component of stockholder’s equity, until those gains and losses are recognized in the income statement. Prior to the third quarter of 2011, we recorded a regulatory asset or liability for these unrecognized amounts as allowed by the FERC. During the third quarter of 2011, we reclassified $6 million (net of income taxes of $4 million) from a regulatory liability to accumulated other comprehensive income pursuant to our rate case settlement whereby these amounts are no longer included in the rates we charge our customers.

InThe ~~the~~table ~~first~~below ~~quarter~~provides ofinformation ~~2010,~~about we entered into an accounts receivable sales program to sell accounts receivable to a third party financial institution that qualifies for sale accounting under the updated accounting standards related to financial asset transfers. Under this program, we sell receivables in their entirety to a third party financial institution (through a wholly-owned special purpose entity). At December 31, 2010, the third-party financial institution held $42 million of the accounts receivable we sold under the program. In connection with our ~~accounts~~postretirement ~~receivable~~benefit 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. During the year ended December 31, 2010, we sold approximately $528 million of accounts receivable to the third party financial institution, for which we received approximately $335 million of cash up front and had a deferred purchase price of approximately $193 million. We received approximately $180 million of cash related to the deferred purchase price when the underlying receivables were collected during 2010. As of December 31, 2010, we had not collected approximately $13 million of deferred purchase price related to our accounts receivable sales, which is reflected as other accounts receivable on our balance sheet (and was initially recorded at an amount which approximates its fair value using observable inputs other than quoted prices in active markets). We recognized a loss of less than $1 million on our accounts receivable sales for the year ended December 31, 2010. 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 new accounts receivable sales programs as operating cash flows on our statement of cash flows.plan:

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 year ended December 31, 2010.


	December 31,
	2011			2010
	(In millions)
Change in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation—beginning of period	$	50		$	47
Interest cost		2			2
Actuarial loss		1			4
Benefits paid⁽¹⁾		(2	)		(3	)

Accumulated postretirement benefit obligation—end of period	$	51		$	50

Change in plan assets:
Fair value of plan assets—beginning of period	$	84		$	79
Actual return on plan assets		3			9
Benefits paid		(3	)		(4	)

Fair value of plan assets—end of period	$	84		$	84

Reconciliation of funded status:
Fair value of plan assets	$	84		$	84
Less: accumulated postretirement benefit obligation		51			50

Net asset at December 31	$	33		$	34

~~The~~(1) ~~third~~Amounts ~~party~~shown ~~financial~~net ~~institution~~of ~~involved~~a insubsidy ~~this~~of ~~accounts~~approximately ~~receivable~~$1 ~~sales~~million ~~program~~for ~~acquires~~each ~~interests~~of inthe ~~various~~years ~~financial~~ended ~~assets~~December ~~and~~31, ~~issues~~2011 ~~commercial~~and ~~paper~~2010 related to ~~fund those acquisitions. We do not consolidate~~ the ~~third~~ ~~party~~Medicare ~~financial~~Prescription ~~institution because we do not have the power to control~~Drug, ~~direct~~Improvement, orand ~~exert~~Modernization ~~significant~~Act ~~influence over its overall activities since our receivables do not comprise a significant portion~~ of ~~its operations~~2003.

4037

11Components of Accumulated Other Comprehensive Income. ~~Transactions~~The ~~with~~amount ~~Affiliates~~recognized in accumulated other comprehensive income of $3 million at December 31, 2011, net of income taxes of $3 million, is related to unrecognized gains. We do not anticipate that any of this amount will be recognized as part of our net periodic benefit income in 2012.

~~Cash~~Plan ~~Management Program~~Assets. WeThe ~~participate~~primary ininvestment Elobjective ~~Paso’s~~of ~~cash~~our ~~management~~plan ~~program~~is ~~which~~to ~~matches~~ensure ~~short-term~~that, ~~cash~~over ~~surpluses~~the ~~and~~long-term ~~needs~~ life of ~~participating~~the ~~affiliates~~plan, ~~thus~~an ~~minimizing~~adequate ~~total~~pool ~~borrowings~~of ~~from~~sufficiently ~~outside~~liquid ~~sources.~~assets Elexists ~~Paso~~to ~~uses~~meet the ~~cash~~benefit ~~management~~obligations ~~program~~ to ~~settle~~retirees ~~intercompany~~and ~~transactions between participating affiliates~~beneficiaries. WeInvestment ~~have~~objectives ~~historically~~are ~~advanced~~long-term ~~cash to El Paso~~ in ~~exchange~~nature ~~for~~covering antypical ~~affiliated~~market ~~note receivable that is due upon demand~~cycles. AtAny ~~December~~shortfall ~~31,~~of ~~2010~~investment ~~and~~performance compared ~~2009,~~to weinvestment ~~had~~objectives ais ~~note~~generally ~~receivable~~the ~~from~~result ~~El Paso~~ of ~~approximately~~economic ~~$0.8~~and ~~billion~~capital ~~and~~market $1conditions.0 Although ~~billion.~~actual Atallocations ~~December~~vary ~~31,~~from ~~2010,~~time weto ~~have~~time ~~classified~~from ~~this note receivable as noncurrent on~~ our ~~balance~~targeted ~~sheet~~allocations, ~~as we do not anticipate using it in~~ the ~~next~~target ~~twelve~~allocations ~~months~~of ~~considering~~ our ~~available~~postretirement ~~cash~~plan’s assets ~~sources~~are ~~and~~65 ~~needs. The~~percent ~~interest~~equity ~~rate~~and on35 ~~this~~percent ~~variable~~fixed ~~rate~~income ~~note~~securities. atWe ~~December~~may ~~31,~~invest ~~2010~~plan ~~and~~assets ~~2009~~in ~~was~~a ~~1.5%. During~~manner ~~2010~~that ~~and 2009~~replicates, weto ~~utilized~~the ~~$75~~extent ~~million~~feasible, ~~net~~the ofRussell a3000 ~~$50~~Index ~~million cash contribution from our parent,~~ and ~~$200~~the ~~million~~Barclays ofCapital ~~our~~Aggregate ~~note~~Bond ~~receivable~~Index ~~from the cash management program~~ to ~~pay~~achieve ~~dividends~~equity toand ~~our~~fixed income ~~parent~~diversification, respectively.

~~Income~~We ~~Taxes.~~use Elvarious ~~Paso~~methods ~~files~~to ~~consolidated~~determine ~~U.S.~~the ~~federal~~fair ~~and~~values ~~certain~~of ~~state~~the ~~tax~~assets ~~returns~~in our other postretirement benefit plans, which ~~include~~are ~~our~~impacted ~~taxable~~by ~~income~~a number of factors, including the availability of observable market data over the contractual term of the underlying assets. InWe ~~certain~~separate ~~states~~these assets into three levels (Level 1, we2 ~~file~~and 3) based on our assessment of the availability of this market data and ~~pay~~the ~~taxes~~significance ~~directly~~of non-observable data used to determine the ~~state~~fair ~~taxing~~value ~~authorities~~of these assets. As Atof December 31, ~~2010~~2011 and ~~2009~~2010, weassets ~~had~~were ~~income~~comprised ~~taxes~~of ~~payable~~an exchange-traded mutual fund with a fair value of $242 million and common/collective trust funds with a fair value of $9082 million. ~~The~~Our ~~majority~~exchange-traded ofmutual ~~these~~fund ~~balances~~invests primarily in dollar-denominated securities, asand ~~well~~its asfair ~~our~~value ~~deferred~~(which is considered a Level 1 measurement) is determined based on the price quoted for the fund in actively traded markets. Our common/collective trust funds are invested in approximately 65 percent equity and 35 percent fixed income ~~taxes~~securities, ~~will~~and ~~become~~their ~~payable~~fair tovalues El(which ~~Paso~~are considered Level 2 measurements) are determined primarily based on the net asset value reported by the issuer, which is based on similar assets in active markets. ~~See~~Certain ~~Note~~restrictions 1on withdrawals exist for these common/collective trust funds where the issuer reserves the right to temporarily delay withdrawals in certain situations such as market conditions or at the issuer’s discretion. We do not have any assets that are considered Level 3 measurements. The methods described above may produce a fair ~~discussion~~value that may not be indicative of ~~our~~net ~~income~~realizable ~~tax~~value ~~policy~~or reflective of future fair values, and there have been no changes in the methodologies used at December 31, 2011 and 2010.

~~Other~~Expected ~~Affiliate~~Payment ~~Balances~~of Future Benefits. AtAs ~~both~~of December 31, ~~2010 and 2009~~2011, we ~~had~~expect ~~contractual~~the ~~deposits~~following ~~from~~benefit ~~our~~payments ~~affiliates~~under ~~of $9 million and $8 million included in other current liabilities on~~ our ~~balance sheets.~~plan:

Affiliate Revenues and Expenses. We provide natural gas transportation services to an affiliate under long-term contracts. We entered into these contracts within the ordinary course of business and the services are based on the same terms as non-affiliates.


Year Ending December 31,	Expected Payments⁽¹⁾
	(In millions)
2012	$	5
2013		5
2014		5
2015		5
2016		5
2017 - 2021		19

El(1) ~~Paso~~Includes ~~bills us directly for certain general and administrative costs and allocates~~ a ~~portion~~reduction of ~~its~~approximately ~~general~~$1 ~~and~~million ~~administrative~~in ~~costs~~each toof ~~us.~~the Inyears ~~addition~~2012—2016 toand ~~allocations~~approximately ~~from~~$3 Elmillion ~~Paso,~~in weaggregate ~~are~~for ~~also~~2017—2021 ~~allocated~~for ~~costs~~an ~~from~~expected ~~Tennessee~~subsidy ~~Gas~~related ~~Pipeline Company (TGP), our affiliate, associated with our pipeline services. We also allocate costs~~ to ~~Colorado~~the ~~Interstate~~Medicare ~~Gas~~Prescription ~~Company~~Drug, ~~our affiliate~~Improvement, ~~for its share of our pipeline services. The allocations from El Paso~~ and ~~TGP~~Modernization ~~are~~Act ~~based on the estimated level~~ of ~~effort devoted to our operations and the relative size of our earnings before interest expense and income taxes, gross property and payroll~~2003.

~~The~~38 ~~following table shows overall revenues, expenses and reimbursements from our affiliates for each of the three years ended December 31:~~

41Actuarial Assumptions and Sensitivity Analysis. Accumulated postretirement benefit obligations and net benefit costs are based on actuarial estimates and assumptions. The following table details the weighted average actuarial assumptions used in determining our postretirement plan obligations and net benefit costs.

Table of Contents


	2011		2010		2009
	(Percent)
Assumptions related to benefit obligations at December 31:
Discount rate		4.16		4.53		5.14
Assumptions related to benefit costs for the year ended December 31:
Discount rate		4.53		5.14		5.90
Expected return on plan assets⁽¹⁾		7.75		7.75		8.00

12(1) The expected return on plan assets listed in the table above is a pre-tax rate of return based on our portfolio of investments. ~~Supplemental~~We ~~Selected~~utilize ~~Quarterly~~an ~~Financial~~after ~~Information~~tax ~~(Unaudited)~~expected return on plan assets to determine our benefit costs, which is based on unrelated business income taxes at a rate of 35 percent.

~~Our~~Actuarial ~~financial~~estimates ~~information~~for byour ~~quarter~~postretirement isbenefits ~~summarized~~plan ~~below.~~assumed ~~Due~~a toweighted average annual rate of increase in the ~~seasonal~~per ~~nature~~capita costs of ~~our~~covered ~~business~~health care benefits of 7.3 percent, ~~information~~gradually decreasing to 5.0 percent by the year 2019. Assumed health care cost trends can have a significant effect on the amounts reported for ~~interim~~our ~~periods~~postretirement ~~may~~benefit plan. A one-percentage point change would not behave ~~indicative~~had ofa ~~our~~significant ~~results~~effect ofon ~~operations~~interest ~~for~~costs ~~the~~in ~~entire~~2011 or ~~year~~2010. A one-percentage point change in assumed health care cost trends would have the following effect as of December 31:

	Quarters Ended
	2011			2010
	March 31			June 30			September 30		December 31		Total
	(In millions)
	(In millions)
One percentage point increase:
2010
Accumulated postretirement benefit obligation	$	4		$	3
Operating revenues	$	145		$	126		$	122	$	124	$	517
One percentage point decrease:
Operating income		72			49			43		40		204
Accumulated postretirement benefit obligation	$	(4	)	$	(3	)
Net income		32			19			15		17		83
2009
Operating revenues	$	157		$	144		$	145	$	147	$	593
Operating income		81			67			66		65		279
Net income		40			30			30		28		128

42Components of Net Benefit Income. For each of the years ended December 31, the components of net benefit income are as follows:

Table of Contents


	2011			2010			2009
	(In millions)
Interest cost	$	2		$	2		$	3
Expected return on plan assets		(6	)		(5	)		(5	)

Net benefit income	$	(4	)	$	(3	)	$	(2	)

~~SCHEDULE~~9. IITransactions with Major Customers

ELThe ~~PASO~~following ~~NATURAL~~table ~~GAS~~shows ~~COMPANY~~revenues from our major customers for each of the three years ended December 31:

VALUATION AND QUALIFYING ACCOUNTS

~~Years~~(1) ~~Ended~~Revenues ~~December~~reflect ~~31,~~rates ~~2010,~~subject ~~2009~~to ~~and 2008~~refund.

~~(In~~* ~~millions)~~Less than 10% of operating revenues.

Description	Balance at Beginning of Period		Charged to Costs and Expenses			Deductions			Balance at End of Period
2010
Allowance for doubtful accounts	$	2	$	—		$	—		$	2
Legal reserves		2		5			(3	)		4
Environmental reserves		19		(1	)		(2	)		16
Regulatory reserves(1)		74		21			(76	)		19
2009
Allowance for doubtful accounts	$	2	$	—		$	—		$	2
Legal reserves		6		4			(8	)		2
Environmental reserves		22		1			(4	)		19
Regulatory reserves(1)		—		74			—			74
2008
Allowance for doubtful accounts	$	4	$	(2	)	$	—		$	2
Legal reserves		4		8			(6	)		6
Environmental reserves		25		1			(4	)		22
Regulatory reserves		10		—			(10	)		—

10. 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.

~~(1)~~39 ~~See Financial Statements and Supplementary Data Note 7 for EPNG’s rate case discussion.~~

~~Table~~In connection with our accounts receivable sales, we receive a portion of ~~Contents~~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 tables below contain information related to our accounts receivable sales program.

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


	Year Ended December 31,
	2011		2010
	(In millions)
Accounts receivable sold to the third-party financial institution⁽¹⁾	$	549	$	528
Cash received for accounts receivable sold under the program		318		335
Deferred purchase price related to accounts receivable sold		231		193
Cash received related to the deferred purchase price		223		180

~~None~~(1) During the years ended December 31, 2011 and 2010, losses recognized on the sale of accounts receivable were immaterial.

ITEM 9A. CONTROLS AND PROCEDURES


	As of December 31,
	2011		2010
	(In millions)
Accounts receivable sold and held by third-party financial institution	$	50	$	42
Uncollected deferred purchase price related to accounts receivable sold⁽¹⁾		21		13

~~Evaluation~~(1) ofInitially ~~Disclosure~~recorded ~~Controls~~at ~~and~~an ~~Procedures~~amount which approximates its fair value using observable inputs other than quoted prices in active markets (Level 2 fair value measurement).

AsThe ofdeferred ~~December~~purchase ~~31,~~price ~~2010,~~related weto ~~carried out an evaluation under~~ the ~~supervision~~accounts ~~and~~receivable ~~with~~sold ~~the~~is ~~participation~~reflected ~~of our management, including our President and Chief Financial Officer (CFO),~~ as toother ~~the~~accounts ~~effectiveness,~~receivable on ~~design and operation of~~ our ~~disclosure~~balance ~~controls and procedures~~sheet. ~~This~~Because ~~evaluation considered~~ the ~~various~~cash ~~processes~~received ~~carried~~up ~~out~~front ~~under~~and the ~~direction~~deferred ofpurchase ~~our~~price ~~disclosure~~relate ~~committee in an effort~~ to ~~ensure that information required to be disclosed in~~ the ~~U.S.~~sale ~~Securities and Exchange Commission reports we file~~ or ~~submit~~ultimate ~~under~~collection ~~the Securities Exchange Act~~ of ~~1934,~~the asunderlying ~~amended (Exchange Act) is accurate~~receivables, ~~complete~~ and ~~timely.~~are ~~Our management, including our President and CFO, does~~ not ~~expect~~subject ~~that~~to ~~our~~significant ~~disclosure~~other ~~controls~~risks ~~and~~given ~~procedures~~their orshort ~~our~~term ~~internal~~nature, ~~controls~~we reflect ~~will prevent and/or detect~~ all ~~errors~~cash ~~and~~flows ~~all~~under ~~fraud.~~the Aaccounts ~~control~~receivable ~~system,~~sales noprogram ~~matter~~as ~~how~~operating ~~well~~cash ~~conceived~~flows ~~and~~on ~~operated,~~our ~~can~~statement ~~provide only reasonable, not absolute, assurance that the objectives~~ of ~~the~~cash ~~control system are met~~flows. ~~Further,~~Under the ~~design~~accounts ofreceivable asales ~~control~~program, ~~system~~we ~~must~~service ~~reflect~~ the ~~fact~~underlying ~~that~~receivables ~~there~~for ~~are~~a ~~resource~~fee. ~~constraints,~~The ~~and~~fair ~~the~~value ~~benefits~~ of ~~controls~~this ~~must~~servicing agreement, beas ~~considered~~well ~~relative~~as ~~to their costs. Because of~~ the ~~inherent~~fees ~~limitations in all control systems~~earned, nowere ~~evaluation~~not ofmaterial ~~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 objective and~~ our ~~President~~financial ~~and~~statements ~~CFO~~for ~~concluded~~the ~~that~~years ~~our~~ended ~~disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) were effective as of~~ December 31, ~~2010. See~~2011 ~~Item 8, Financial Statements~~ and ~~Supplementary Data under Management’s Annual Report on Internal Control Over Financial Reporting~~2010.

~~Changes~~11. inTransactions ~~Internal~~with ~~Control~~Affiliates ~~Over Financial Reporting~~

~~There~~Cash ~~were~~Management noProgram. ~~changes~~We participate in ~~our~~El ~~internal~~Paso’s ~~control~~cash ~~over~~management ~~financial~~program ~~reporting~~which ~~during~~matches ~~the~~short-term ~~fourth~~cash surpluses ~~quarter~~and needs of ~~2010~~participating affiliates, thus minimizing total borrowings from outside sources. El Paso uses the cash management program to settle intercompany transactions between participating affiliates. We have historically advanced cash to El Paso in exchange for an affiliated note receivable that is due upon demand. At December 31, 2011 and 2010, we had a note receivable from El Paso of $873 million and $836 million. We have ~~materially~~classified ~~affected~~this orreceivable ~~are~~as ~~reasonably~~noncurrent ~~likely~~on toour balance ~~materially~~sheet ~~affect~~at December 31, 2011 as we do not anticipate using it in the next twelve months considering available cash sources and needs. The interest rate on this note is variable and was 2.5% and 1.5% at December 31, 2011 and 2010. During 2011 and 2010, we utilized $103 million and $75 million, net of a $50 million cash contribution from our ~~internal~~parent, ~~control~~of ~~over~~our ~~financial~~note ~~reporting~~receivable from the cash management program to pay dividends to our parent.

~~ITEM~~Income 9BTaxes. ~~OTHER~~El ~~INFORMATION~~Paso files consolidated U.S. federal and certain state tax returns which include our taxable income. In certain states, we file and pay taxes directly to the state taxing authorities. At December 31, 2011 and 2010, we had federal and state income taxes payable of $21 million and $24 million. The majority of these balances, as well as our deferred income taxes, will become payable to El Paso. See Note 1 for a discussion of our income tax policy.

~~None~~Other Affiliate Balances. At December 31, 2011 and 2010, we had contractual deposits from our affiliates of $9 million.

44Affiliate Revenues and Expenses. We provide natural gas transportation services to an affiliate under long-term contracts. We entered into these contracts within the ordinary course of business and the services are based on the same terms as non-affiliates.

~~Table~~40 ~~of Contents~~

~~Item~~El ~~10,~~Paso ~~“Directors,~~bills ~~Executive~~us ~~Officers~~directly for certain general and ~~Corporate~~administrative ~~Governance;”~~costs ~~Item~~and 11allocates a portion of its general and administrative costs to us. In addition to allocations from El Paso, ~~“Executive~~we ~~Compensation;” Item~~are 12also allocated costs from Tennessee Gas Pipeline Company, ~~“Security~~L.L.C. ~~Ownership~~(TGP), ofour ~~Certain~~affiliate, ~~Beneficial~~associated ~~Owners~~with ~~and~~our ~~Management~~pipeline ~~and~~services. ~~Related~~We ~~Stockholder~~also ~~Matters;”~~allocate costs ~~and~~to ~~Item~~Colorado 13Interstate Gas Company, ~~“Certain~~our ~~Relationships~~affiliate, ~~and~~for ~~Related~~its ~~Transactions,~~share ~~and~~of ~~Director~~our ~~Independence”~~pipeline ~~have~~services. ~~been~~The ~~omitted~~allocations from ~~this~~El ~~report~~Paso ~~pursuant~~and TGP are based on the estimated level of effort devoted to our operations and the ~~reduced~~relative ~~disclosure~~size ~~format~~of ~~permitted~~our byearnings ~~General~~before interest ~~Instruction~~expense Iand toincome ~~Form~~taxes, ~~10-K~~gross property and payroll.

~~ITEM~~The ~~14.~~following ~~PRINCIPAL~~table ~~ACCOUNTANT~~shows ~~FEES~~revenues, ~~AND~~expenses ~~SERVICES~~and reimbursements from our affiliates for each of the three years ended December 31:

Audit Fees

~~The~~41 audit fees for the years ended December 31, 2010 and 2009 of $982,000 and $796,000, respectively, were primarily for professional services rendered by Ernst & Young LLP and for the audits of the consolidated financial statements of El Paso Natural Gas Company and its subsidiaries as well as the review of documents filed with the SEC and related consents.

NoSupplemental ~~other~~Selected ~~audit-related,~~Quarterly ~~tax~~Financial orInformation ~~other~~(Unaudited) ~~services were provided by our independent registered public accounting firm for the years ended December 31, 2010 and 2009.~~

~~Policy~~Our financial information by quarter is summarized below. Due to the seasonal nature of our business, information for ~~Approval~~interim periods may not be indicative of ~~Audit~~our ~~and~~results ~~Non-Audit~~of ~~Fees~~operations for the entire year.

We are an indirect wholly owned subsidiary of El Paso and do not have a separate audit committee. El Paso’s Audit Committee has adopted a pre-approval policy for audit and non-audit services. For a description of El Paso’s pre-approval policies for audit and non-audit related services, see El Paso Corporation’s proxy statement for its 2011 Annual Meeting of Stockholders.


	Quarters Ended
	March 31		June 30		September 30		December 31		Total
	(In millions)
2011
Operating revenues	$	124	$	123	$	134	$	128	$	509
Operating income		47		48		47		38		180
Net income		18		18		20		13		69
2010
Operating revenues	$	145	$	126	$	122	$	124	$	517
Operating income		72		49		43		40		204
Net income		32		19		15		17		83

4542

~~PART~~SCHEDULE IVII

~~ITEM~~EL ~~15.~~PASO ~~EXHIBITS~~NATURAL ~~AND~~GAS ~~FINANCIAL~~COMPANY ~~STATEMENT SCHEDULES~~

~~(a)~~VALUATION ~~The~~AND ~~following~~QUALIFYING ~~documents are filed as a part of this report:~~ACCOUNTS

1.Years ~~Financial~~Ended ~~statements~~December 31, 2011, 2010 and 2009

~~The~~(In ~~following~~millions) ~~consolidated financial statements are included in Part II, Item 8 of this report:~~

	Page
Description		Balance atBeginningof Period		Charged toCosts andExpenses			Deductions			Charged toOtherAccounts		Balance atEnd ofPeriod
Report of Independent Registered Public Accounting Firm	22
2011
Consolidated Statements of Income	23
Allowance for doubtful accounts		$	2	$	—		$	(2	)	$	—	$	—
Consolidated Balance Sheets	24
Legal reserves			4		4			(8	)		—		—
Consolidated Statements of Cash Flows	25
Environmental reserves			16		—			(2	)		—		14
Consolidated Statements of Stockholder’s Equity	26
Regulatory reserves(1)			19		—			—			6		25
Notes to Consolidated Financial Statements	27
2010
2. Financial statement schedules
Allowance for doubtful accounts		$	2	$	—		$	—		$	—	$	2
Schedule II — Valuation and Qualifying Accounts	43
Legal reserves			2		5			(3	)		—		4
Environmental reserves			19		(1	)		(2	)		—		16
Regulatory reserves(1)			74		—			(76	)		21		19
2009
Allowance for doubtful accounts		$	2	$	—		$	—		$	—	$	2
Legal reserves			6		4			(8	)		—		2
Environmental reserves			22		1			(4	)		—		19
Regulatory reserves(1)			—		—			—			74		74

~~All~~(1) ~~other~~See ~~schedules~~Note ~~are~~7 ~~omitted~~for ~~because~~a ~~they~~discussion ~~are~~of ~~not~~EPNG’s ~~applicable,~~rate ~~or the required information is disclosed in the financial statements or accompanying notes~~cases.

3.43 ~~Exhibits~~

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 agreementsITEM 9. ~~The~~CHANGES ~~agreements~~IN ~~may~~AND ~~contain~~DISAGREEMENTS ~~representations~~WITH ~~and~~ACCOUNTANTS ~~warranties~~ON byACCOUNTING ~~the~~AND FINANCIAL ~~parties~~DISCLOSURE ~~to the agreements, including us, solely for the benefit of the other parties to the applicable agreement and:~~

•None. ~~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;~~

•ITEM 9A. ~~may~~CONTROLS ~~have~~AND ~~been~~PROCEDURES ~~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;~~

•Evaluation ~~may apply standards~~ of Disclosure ~~materiality~~Controls inand aProcedures ~~way that is different from what may be viewed as material to certain investors; and~~

•As ~~were~~of ~~made~~December 31, ~~only~~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 ~~date~~various processes carried out under the direction of our disclosure committee in an effort to ensure that information required to be disclosed in the ~~applicable~~U.S. ~~agreement~~Securities orand ~~such~~Exchange ~~other~~Commission ~~date~~reports we file or ~~dates~~submit under the Securities Exchange Act of 1934, as ~~may~~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 ~~specified~~considered inrelative to their costs. Because of the ~~agreement~~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 ~~subject~~designed to ~~more~~provide ~~recent~~reasonable ~~developments~~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 December 31, 2011. See Item 8. Financial Statements and Supplementary Data under Management’s Annual Report on Internal Control Over Financial Reporting.

~~Accordingly,~~Changes ~~these~~in ~~representations~~Internal ~~and~~Control ~~warranties~~Over ~~may~~Financial ~~not~~Reporting ~~describe the actual state of affairs as of the date they were made or at any other time.~~

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

WeITEM 9B. ~~hereby~~OTHER INFORMATION undertake, 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 our long-term debt and 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 our total consolidated assets.

46None.

~~Table~~44 ~~of Contents~~

~~Pursuant~~PART toIII the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, El Paso Natural Gas Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 28th day of February 2011.

ELItem 10, ~~PASO~~“Directors, ~~NATURAL~~Executive ~~GAS~~Officers ~~COMPANY~~and ~~By:~~Corporate ~~/s/~~Governance;” ~~James~~Item 11, J.“Executive ~~Cleary~~Compensation;” Item 12, ~~James~~“Security J.Ownership ~~Cleary~~of ~~President~~Certain Beneficial Owners and Management and Related Stockholder Matters;” and Item 13, “Certain Relationships and Related Transactions, and Director Independence” have been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction I to Form 10-K.

~~Pursuant~~ITEM 14. toPRINCIPAL ~~the~~ACCOUNTANT ~~requirements~~FEES ofAND ~~the~~SERVICES ~~Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of El Paso Natural Gas Company and in the capacities and on the dates indicated:~~

Signature	Title	Date
/s/ James J. Cleary	President and Director	February 28, 2011
James J. Cleary	(Principal Executive Officer)
/s/ John R. Sult	Executive Vice President and Chief Financial Officer	February 28, 2011
John R. Sult	(Principal Financial Officer)
/s/ Rosa P. Jackson	Vice President and Controller	February 28, 2011
Rosa P. Jackson	(Principal Accounting Officer)
/s/ James C. Yardley	Chairman of the Board and Director	February 28, 2011
James C. Yardley
/s/ Daniel B. Martin	Director	February 28, 2011
Daniel B. Martin
/s/ Robert L. Perez	Director	February 28, 2011
Robert L. Perez

Audit Fees

47The audit fees for the years ended December 31, 2011 and 2010 of $931,000 and $982,000, respectively, were primarily for professional services rendered by Ernst & Young LLP and for the audits of the consolidated financial statements of El Paso Natural Gas Company as well as the review of documents filed with the SEC and related consents.

~~Table~~All ofOther ~~Contents~~Fees

ELNo ~~PASO~~other ~~NATURAL~~audit-related, ~~GAS~~tax ~~COMPANY~~or other services were provided by our independent registered public accounting firm for the years ended December 31, 2011 and 2010.

~~EXHIBIT~~Policy ~~INDEX~~for Approval of Audit and Non-Audit Fees

~~December~~We are an indirect wholly owned subsidiary of El Paso and do not have a separate audit committee. El Paso’s Audit Committee has adopted a pre-approval policy for audit and non-audit services. For a description of El Paso’s pre-approval policies for audit and non-audit related services, see El Paso’s Annual Report on Form 10-K for the year ended December 31, 2011. ~~2010~~

~~Each~~45 exhibit identified below is filed as 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	Restated Certificate of Incorporation dated April 8, 2003 (incorporated by reference to Exhibit 3.A to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).
3.B	By-laws dated June 2, 2008 (incorporated by reference to Exhibit 3.B to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).
4.A	Indenture dated as of January 1, 1992, between El Paso Natural Gas Company and Wilmington Trust Company (as successor to Citibank, N.A.), as Trustee (incorporated by reference to Exhibit 4.A to our Annual Report for the year ended December 31, 2009, filed with the SEC on March 1, 2010).
4.B	Indenture dated as of November 13, 1996, between El Paso Natural Gas Company and Wilmington Trust Company (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4.B to our Annual Report for the year ended December 31, 2009, filed with the SEC on March 1, 2010).
4.C	Indenture dated as of July 21, 2003, between El Paso Natural Gas Company and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.C to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).
4.D	First Supplemental Indenture dated as of June 10, 2002 between El Paso Natural Gas Company and Wilmington Trust Company (as successor in interest to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as Trustee, to indenture dated November 13, 1996 (incorporated by reference to Exhibit 4.D to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).
4.E	Second Supplemental Indenture dated as of April 4, 2007 between El Paso Natural Gas Company and Wilmington Trust Company, as Trustee, to indenture dated November 13, 1996 (incorporated by reference to Exhibit 4.A to our Current Report on Form 8-K filed with the SEC on April 9, 2007).
4.F	First Supplemental Indenture dated as of April 4, 2007 between El Paso Natural Gas Company and Wilmington Trust Company, as trustee, to indenture dated as of July 23, 2003 (incorporated by reference to Exhibit 4.C to our Current Report on Form 8-K filed with the SEC on April 9, 2007).
4.G	Form of 5.95% Senior Note due 2017 (included in Exhibit 4.E).
10.A	Third Amended and Restated Credit Agreement dated as of November 16, 2007, among El Paso Corporation, El Paso Natural Gas Company, Tennessee Gas Pipeline Company, the several banks and other financial institutions from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent (incorporated by reference to Exhibit 10.A to our Annual Report for the year ended December 31, 2009, filed with the SEC on March 1, 2010).
10.B	Third Amendment and Restated Security Agreement dated as of November 16, 2007, made by among El Paso Corporation, El Paso Natural Gas Company, Tennessee Gas Pipeline Company, the subsidiary Grantors and certain other credit parties thereto and JPMorgan Chase Bank, N.A., not in its individual capacity, but solely as collateral agent for the Secured Parties and as the depository bank (incorporated by reference to Exhibit 4.A to our Annual Report for the year ended December 31, 2009, filed with the SEC on March 1, 2010).

48PART IV

~~Table~~ITEM 15. ofEXHIBITS ~~Contents~~AND FINANCIAL STATEMENT SCHEDULES

10.C	Third Amended and Restated Subsidiary Guarantee Agreement dated as of November 16, 2007, made by each of the Subsidiary Guarantors in favor of JPMorgan Chase Bank, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.C to our Current Report on Form 8-K filed with the SEC on November 21, 2007.)
21	Omitted pursuant to the reduced disclosure format permitted by General Instruction I to Form 10-K.
*23	Consent of Independent Registered Public Accounting Firm Ernst & Young LLP.
*31.A	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.B	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.A	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.B	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(a)

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

491. Financial statements

The following consolidated financial statements are included in Part II, Item 8 of this report:


	Page
Report of Independent Registered Public Accounting Firm		22
Consolidated Statements of Income and Comprehensive Income		23
Consolidated Balance Sheets		24
Consolidated Statements of Cash Flows		25
Consolidated Statements of Stockholder’s Equity		26
Notes to Consolidated Financial Statements		27

2. Financial statement schedules

Schedule II — Valuation and Qualifying Accounts		43

All other schedules are omitted because they are not applicable, or the required information is disclosed in the financial statements or accompanying notes.

3. Exhibits

The Exhibit Index, which follows the signature page to this report and is hereby incorporated herein by reference, sets forth a list of those exhibits filed herewith, and includes and identifies contracts or arrangements required to be filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.

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.

Undertaking

We hereby undertake, 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 our long-term debt and 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 our total consolidated assets.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, El Paso Natural Gas Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27th day of February 2012.


EL PASO NATURAL GAS COMPANY

By:		/s/ James J. Cleary
		James J. Cleary
		President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of El Paso Natural Gas Company and in the capacities and on the dates indicated:


Signature	Title	Date

/s/ James J. Cleary	President and Director	February 27, 2012
James J. Cleary	(Principal Executive Officer)

/s/ John R. Sult	Executive Vice President and	February 27, 2012
John R. Sult	Chief Financial Officer (Principal Financial Officer)

/s/ Rosa P. Jackson	Vice President and Controller	February 27, 2012
Rosa P. Jackson	(Principal Accounting Officer)

/s/ James C. Yardley	Chairman of the Board and Director	February 27, 2012
James C. Yardley

/s/ Daniel B. Martin	Director	February 27, 2012
Daniel B. Martin

/s/ Thomas L. Price	Director	February 27, 2012
Thomas L. Price

EL PASO NATURAL GAS COMPANY

EXHIBIT INDEX

December 31, 2011

Each exhibit identified below is filed as 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		Restated Certificate of Incorporation dated April 8, 2003 (incorporated by reference to Exhibit 3.A to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).

3.B		By-laws dated June 2, 2008 (incorporated by reference to Exhibit 3.B to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).

4.A		Indenture dated as of January 1, 1992, between El Paso Natural Gas Company and Wilmington Trust Company (as successor to Citibank, N.A.), as Trustee (incorporated by reference to Exhibit 4.A to our Annual Report for the year ended December 31, 2009, filed with the SEC on March 1, 2010).

4.B		Indenture dated as of November 13, 1996, between El Paso Natural Gas Company and Wilmington Trust Company (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4.B to our Annual Report for the year ended December 31, 2009, filed with the SEC on March 1, 2010).

4.C		Indenture dated as of July 21, 2003, between El Paso Natural Gas Company and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.C to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).

4.D		First Supplemental Indenture dated as of June 10, 2002 between El Paso Natural Gas Company and Wilmington Trust Company (as successor in interest to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as Trustee, to indenture dated November 13, 1996 (incorporated by reference to Exhibit 4.D to our Annual Report for the year ended December 31, 2008, filed with the SEC on March 2, 2009).

4.E		Second Supplemental Indenture dated as of April 4, 2007 between El Paso Natural Gas Company and Wilmington Trust Company, as Trustee, to indenture dated November 13, 1996 (incorporated by reference to Exhibit 4.A to our Current Report on Form 8-K filed with the SEC on April 9, 2007).

4.F		First Supplemental Indenture dated as of April 4, 2007 between El Paso Natural Gas Company and Wilmington Trust Company, as trustee, to indenture dated as of July 23, 2003 (incorporated by reference to Exhibit 4.C to our Current Report on Form 8-K filed with the SEC on April 9, 2007).

4.G		Form of 5.95% Senior Note due 2017 (included in Exhibit 4.E).

10.A		Fourth Amended and Restated Credit Agreement dated as of May 27, 2011, among El Paso Corporation, El Paso Natural Gas Company, Tennessee Gas Pipeline Company, as Borrowers, the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent and Collateral Agent for the Lenders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 3, 2011.

10.B		Fourth Amended and Restated Security Agreement dated as of May 27, 2011, among El Paso Corporation, the persons referred to therein as Pipeline Company Borrowers, the persons referred to therein as Subsidiary Grantors, and JPMorgan Chase Bank, N.A., as Collateral Agent and Depository Bank (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on June 3, 2011.



21		Omitted pursuant to the reduced disclosure format permitted by General Instruction I to Form 10-K.

*23		Consent of Independent Registered Public Accounting Firm Ernst & Young LLP.

*31.A		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.B		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.A		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.B		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*101.INS		XBRL Instance Document.

*101.SCH		XBRL Schema Document.

*101.CAL		XBRL Calculation Linkbase Document.

*101.DEF		XBRL Definition Linkbase Document.

*101.LAB		XBRL Labels Linkbase Document.

*101.PRE		XBRL Presentation Linkbase Document.

(In millions)

Operation and maintenance expenses

Reimbursements of operating expenses