TENNESSEE GAS PIPELINE CO - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-4101

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TENNESSEE GAS PIPELINE COMPANY
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 74-1056569
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

EL PASO BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)

Telephone Number: (713) 420-2600

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

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

Common Stock, par value $5 per share. Shares outstanding on May 14, 2003:
208

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

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENNESSEE GAS PIPELINE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

1

TENNESSEE GAS PIPELINE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes.

2

TENNESSEE GAS PIPELINE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

3

TENNESSEE GAS PIPELINE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We are an indirect wholly owned subsidiary of El Paso Corporation (El
Paso). We prepared this Quarterly Report on Form 10-Q under the rules and
regulations of the United States Securities and Exchange Commission (SEC).
Because this is an interim period filing presented using a condensed format, it
does not include all of the disclosures required by generally accepted
accounting principles. You should read it along with our 2002 Annual Report on
Form 10-K, which includes a summary of our significant accounting policies and
other disclosures. The financial statements as of March 31, 2003, and for the
quarters ended March 31, 2003 and 2002, are unaudited. We derived the balance
sheet as of December 31, 2002, from the audited balance sheet filed in our 2002
Form 10-K. In our opinion, we have made all adjustments, all of which are of a
normal, recurring nature (except for a cumulative effect of accounting change,
which is discussed in Note 2) to fairly present our interim period results. Due
to the seasonal nature of our business, information for interim periods may not
necessarily indicate the results of operations for the entire year. In addition,
prior period information presented in these financial statements includes
reclassifications which were made to conform to the current period
presentations. These reclassifications have no effect on our previously reported
net income or stockholder's equity.

Our accounting policies are consistent with those discussed in our Form
10-K, except as discussed below:

Accounting for Costs Associated with Exit or Disposal Activities. As of
January 1, 2003, we adopted Statement of Financial Accounting Standards (SFAS)
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
No. 146 requires that we recognize costs associated with exit or disposal
activities when they are incurred rather than when we commit to an exit or
disposal plan. There was no initial financial statement impact of adopting this
standard.

Accounting for Guarantees. On January 1, 2003, we adopted Financial
Accounting Standards Board Interpretation (FIN) No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN No. 45 requires that we record a liability for all
guarantees, including financial performance and fair value guarantees, issued
after December 31, 2002, at fair value when they are issued. There was no
initial financial statement impact of adopting this standard.

Accounting for Regulated Operations. We continue to evaluate the
application of SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation, for changes in the competitive environment and our operating cost
structures. See a further discussion of our accounting for regulated operations
in our 10-K.

2. CUMULATIVE EFFECT OF ACCOUNTING CHANGE

On January 1, 2002, we adopted SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that
upon adoption of SFAS No. 142, any negative goodwill should be written off as a
cumulative effect of an accounting change. Prior to adoption of the standards,
we had negative goodwill associated with our 30 percent investment in Portland
Natural Gas Company. As a result of our adoption of these standards on January
1, 2002, we recognized a pretax and after-tax gain of $10 million as a
cumulative effect of an accounting change in our 2002 income statement related
to the elimination of this negative goodwill.

3. DEBT AND OTHER CREDIT FACILITIES

In April 2003, El Paso entered into a new $3 billion revolving credit
facility, with a $1.5 billion letter of credit sublimit, which matures in June
2005. This facility replaces the previous $3 billion revolving credit facility.
El Paso's existing $1 billion revolving credit facility, which matures in August
2003, and approximately $1 billion of other financing arrangements (including
leases, letters of credit and other facilities) were also amended to conform El
Paso's obligations to the new $3 billion revolving credit facility.
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We, along with our affiliates, ANR Pipeline Company, El Paso Natural Gas Company
(EPNG) and El Paso, are borrowers under the $3 billion revolving credit facility
and we, EPNG and El Paso are borrowers under the $1 billion revolving credit
facility.

El Paso's equity in several of its subsidiaries, including us and our
equity in Bear Creek Storage, collateralizes the revolving credit facility and
other financing arrangements. We will remain jointly and severally liable under
the $3 billion revolving credit facility until August 19, 2003. After that date,
we will only be liable for the amounts we borrow under the facility. We are also
jointly and severally liable for any amounts outstanding under the $1 billion
revolving credit facility until it matures in August 2003.

These facilities have a borrowing cost of LIBOR plus 350 basis points and
letter of credit fees of 350 basis points. A key financial covenant of the
facilities is the requirement for El Paso to maintain debt to total
capitalization, as defined in the revolving credit facilities, not to exceed 75
percent. In addition, we and other pipeline company borrowers cannot incur
incremental debt if the incurrence of debt would cause our debt to EBITDA ratio,
as defined in the revolving credit facilities, to exceed 5 to 1. The proceeds
from the issuance of debt by the pipeline company borrowers can be used only for
maintenance and expansion capital expenditures or investments in other
FERC-regulated assets and to refinance existing debt. As of March 31, 2003, $1.5
billion was outstanding under the $3 billion facility, none of which was
borrowed by us, and $500 million was outstanding and $456 million in letters of
credit were issued under the $1 billion facility, none of which was borrowed by
us.

In March 2003, El Paso entered into a $1.2 billion two-year term loan and
the proceeds were used to retire the outstanding balance under the Trinity River
financing agreement, which was collateralized by various assets of El Paso,
including our 50 percent ownership interest in Bear Creek.

4. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Grynberg. In 1997, we and a number of our affiliates were named defendants
in actions brought by Jack Grynberg on behalf of the U.S. Government under the
False Claims Act. Generally, these complaints allege an industry-wide conspiracy
to underreport the heating value as well as the volumes of the natural gas
produced from federal and Native American lands, which deprived the U.S.
Government of royalties. The plaintiff in this case seeks royalties that he
contends the government should have received had the volume and heating value of
natural gas produced from royalty properties been differently measured,
analyzed, calculated and reported, together with interest, treble damages, civil
penalties, expenses and future injunctive relief to require the defendants to
adopt allegedly appropriate gas measurement practices. No monetary relief has
been specified in this case. These matters have been consolidated for pretrial
purposes (In re: Natural Gas Royalties Qui Tam Litigation, U.S. District Court
for the District of Wyoming, filed June 1997). In May 2001, the court denied the
defendants' motion to dismiss. Discovery is proceeding. Our costs and legal
exposure related to these lawsuits and claims are not currently determinable.

Will Price (formerly Quinque). We and a number of our affiliates were
named defendants in Quinque Operating Company, et al v. Gas Pipelines and Their
Predecessors, et al, filed in 1999 in the District Court of Stevens County,
Kansas. Quinque has been dropped as a plaintiff and Will Price has been added.
This class action complaint alleges that the defendants mismeasured natural gas
volumes and heating content of natural gas on non-federal and non-Native
American lands. The plaintiff in this case seeks certification of a nationwide
class of natural gas working interest owners and natural gas royalty owners to
recover royalties that the plaintiff contends these owners should have received
had the volume and heating value of natural gas produced from their properties
been differently measured, analyzed, calculated and reported, together with
prejudgment and postjudgment interest, punitive damages, treble damages,
attorney's fees, costs and expenses, and future injunctive relief to require the
defendants to adopt allegedly appropriate gas measurement practices. No monetary
relief has been specified in this case. Plaintiff's motion for class
certification was denied on April 10, 2003. Our costs and legal exposure related
to this lawsuit and claims are not currently determinable.

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In addition to the above matters, we and our subsidiaries and affiliates
are named defendants in numerous lawsuits and governmental proceedings that
arise in the ordinary course of our business.

For each of our outstanding legal matters, we evaluate the merits of the
case, 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.
As of March 31, 2003, we had approximately $4 million accrued for all
outstanding legal matters.

Environmental Matters

We are subject to federal, state and local laws and regulations governing
environmental quality and pollution control. These laws and regulations require
us to remove or remedy the effect on the environment of the disposal or release
of specified substances at current and former operating sites. As of March 31,
2003, we had accrued approximately $82 million, including approximately $77
million for expected remediation costs and associated onsite, offsite and
groundwater technical studies and approximately $5 million for related
environmental legal costs, which we anticipate incurring through 2027. Our
reserve estimates range from a high of approximately $86 million and a low of
approximately $82 million. Our accrual at March 31, 2003, was based on the
probability of the range of reasonably likely outcomes. Below is a
reconciliation of our accrued liability as of March 31, 2003 (in millions):

Balance as of January 1..................................... $84
Payments for remediation activities......................... (2)
---
Balance as of March 31...................................... $82
===

In addition, we expect to make capital expenditures for environmental
matters of approximately $51 million in the aggregate for the years 2003 through
2008. These expenditures primarily relate to compliance with clean air
regulations. For 2003, we estimate that our total remediation expenditures will
be approximately $4 million, of which $1 million we estimate will be for capital
related expenditures. In addition, approximately $2 million of this amount will
be expended under government directed clean-up plans. The remaining $1 million
will be self-directed or in connection with facility closure.

Internal PCB Remediation Project. Since 1988, we have been engaged in an
internal project to identify and address the presence of polychlorinated
biphenyls (PCBs) and other substances, including those on the EPA's List of
Hazardous Substances, at compressor stations and other facilities we operate.
While conducting this project, we have been in frequent contact with federal and
state regulatory agencies, both through informal negotiation and formal entry of
consent orders. We executed a consent order in 1994 with the EPA, governing the
remediation of the relevant compressor stations and are working with the EPA and
the relevant states regarding those remediation activities. We are also working
with the Pennsylvania and New York environmental agencies regarding remediation
and post-remediation activities at the Pennsylvania and New York stations.

PCB Cost Recoveries. In May 1995, following negotiations with our
customers, we filed an agreement with the FERC that established a mechanism for
recovering a substantial portion of the environmental costs identified in our
internal remediation project. The agreement, which was approved by the FERC in
November 1995, provided for a PCB surcharge on firm and interruptible customers'
rates to pay for eligible costs under the PCB remediation project, with these
surcharges to be collected over a defined collection period. We have twice
received approval from the FERC to extend the collection period, which is now
currently set to expire in June 2004. The agreement also provided for bi-annual
audits of eligible costs. As of March 31, 2003, we had pre-collected our PCB
costs by approximately $116 million. The pre-collection will be reduced by
future eligible costs incurred for the remainder of the remediation project. To
the extent actual eligible expenditures are less than the amounts pre-collected,
we will refund to our customers the pre-collection amount plus carrying charges
incurred up to the date of the refunds. As of March 31, 2003, we have recorded a
regulatory liability (included in other non-current liabilities on our balance
sheet) for future refund obligations of approximately $57 million.

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Kentucky PCB Project. In November 1988, the Kentucky environmental agency
filed a complaint in a Kentucky state court alleging that we discharged
pollutants into the waters of the state and disposed of PCBs without a permit.
The agency sought an injunction against future discharges, an order to remediate
or remove PCBs and a civil penalty. We entered into interim agreed orders with
the agency to resolve many of the issues raised in the complaint. The relevant
Kentucky compressor stations are being remediated under a 1994 consent order
with the EPA. Despite our remediation efforts, the agency may raise additional
technical issues or seek additional remediation work in the future.

CERCLA Matters. We have received notice that we could be designated, or
have been asked for information to determine whether we could be designated, as
a Potentially Responsible Party (PRP) with respect to three active sites under
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) or state equivalents. We have sought to resolve our liability as a PRP
at these sites through indemnification by third parties and settlements which
provide for payment of our allocable share of remediation costs. As of March 31,
2003 we have estimated our share of the remediation costs to be between $1
million and $2 million. Since the clean-up costs are estimates and are subject
to revision as more information becomes available about the extent of
remediation required, and because in some cases we have asserted a defense to
any liability, our estimates could change. Moreover, liability under the federal
CERCLA statute is joint and several, meaning that we could be required to pay in
excess of our pro rata share of remediation costs. Our understanding of the
financial strength of other PRPs has been considered, where appropriate, in
determining our estimated liabilities.

It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations and claims for
damages to property, employees, other persons and the environment 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 relating to the ultimate costs we may incur,
based upon our evaluation and experience to date, we believe the reserves are
adequate.

Rates and Regulatory Matters

Gas Supply Realignment Costs. In 1997, the FERC approved the settlement of
all issues related to the recovery of our Gas Supply Realignment (GSR) and other
transition costs. Under the agreement, we are entitled to collect up to $770
million from our customers, $693 million through a demand surcharge and $77
million through an interruptible transportation surcharge. As of March 31, 2003,
$66 million of the interruptible transportation surcharge had been collected.
There is no time limit for collection of the remaining interruptible
transportation surcharge. This agreement also provides for a rate case
moratorium that expired November 2000 and an escalating cap on the rates we can
charge some of our customers, indexed to inflation, through October 2005.

Order No. 637. In February 2000, the FERC issued Order No. 637. Order 637
impacts the way pipelines conduct their operational activities, including how
they release capacity, segment capacity and manage imbalance services,
operational flow orders and pipeline penalties. We filed our compliance proposal
in August 2000 and received an order on compliance from the FERC in April 2002.
Most of our compliance proposal was accepted, but the FERC rejected our
proposals regarding overlapping capacity segments, discounting and the priority
of capacity. In response, we sought rehearing and have made another compliance
filing. On October 31, 2002, FERC issued its order responding to the United
States Court of Appeals for the D.C. Circuit's order remanding various aspects
of Order No. 637. On December 2, 2002, we submitted our compliance filing with
FERC to comply with the October 31 order. We also filed for rehearing of the
October 31 order, which remains pending. We cannot predict the outcome of the
compliance filings or the requests for rehearing.

Marketing Affiliate NOPR. In September 2001, the FERC issued a Notice of
Proposed Rulemaking (NOPR). The NOPR proposes to apply the standards of conduct
governing the relationship between

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interstate pipelines and marketing affiliates to all energy affiliates. The
proposed regulations, if adopted by the FERC, would dictate how we conduct
business and interact with our energy affiliates. In December 2001, we filed
comments with the FERC addressing our concerns with the proposed rules. A public
hearing was held on May 21, 2002, providing an opportunity to comment further on
the NOPR. Following the conference, additional comments were filed by El Paso's
pipelines and others. At this time, we cannot predict the outcome of the NOPR,
but adoption of the regulations in their proposed form would, at a minimum,
place additional administrative and operational burdens on us.

Negotiated Rate NOI. In July 2002, the FERC issued a Notice of Inquiry
(NOI) that seeks comments regarding its 1996 policy of permitting pipelines to
enter into negotiated rate transactions. We have entered into those transactions
over the years, and the FERC is now reviewing whether negotiated rates should be
capped, whether or not the "recourse rate" (a cost-of-service based rate)
continues to safeguard against a pipeline exercising market power and other
issues related to negotiated rate programs. On September 25, 2002, El Paso's
pipelines and others filed comments. Reply comments were filed on October 25,
2002. At this time, we cannot predict the outcome of this NOI.

Cash Management NOPR. On August 1, 2002, the FERC issued a NOPR requiring
that all cash management or money pool arrangements between a FERC regulated
subsidiary (like us) and a non-FERC regulated parent must be in writing, and set
forth the duties and responsibilities of cash management participants and
administrators; the methods of calculating interest and for allocating interest
income and expenses; and the restrictions on deposits or borrowings by money
pool members. The NOPR also requires specified documentation for all deposits
into, borrowings from, interest income from, and interest expenses related to,
these arrangements. Finally, the NOPR proposed that as a condition of
participating in a cash management or money pool arrangement, the FERC regulated
entity maintain a minimum proprietary capital balance of 30 percent, and the
FERC regulated entity and its parent maintain investment grade credit ratings.
On August 28, 2002, comments were filed. The FERC held a public conference on
September 25, 2002, to discuss the issues raised in the comments.
Representatives of companies from the gas and electric industries participated
on a panel and uniformly agreed that the proposed regulations should be revised
substantially and that the proposed capital balance and investment grade credit
rating requirements would be excessive. At this time, we cannot predict the
outcome of this NOPR.

Also on August 1, 2002, the FERC's Chief Accountant issued an Accounting
Release, which was effective immediately. The Accounting Release provides
guidance on how companies should account for money pool arrangements and the
types of documentation that should be maintained for these arrangements.
However, it did not address the proposed requirements that the FERC regulated
entity maintain a minimum proprietary capital balance of 30 percent and that the
entity and its parent have investment grade credit ratings. Requests for
rehearing were filed on August 30, 2002. The FERC has not yet acted on the
rehearing requests.

Emergency Reconstruction of Interstate Natural Gas Facilities NOPR. On
January 17, 2003, FERC issued a NOPR proposing, in emergency situations, to (1)
expand the scope of construction activities authorized under a pipeline's
blanket certificate to allow replacement of mainline facilities; (2) authorize a
pipeline to commence reconstruction of the affected system without a waiting
period; and (3) authorize automatic approval of construction that would be above
the normal cost ceiling. Comments on the NOPR were filed on February 27, 2003.
At this time, we cannot predict the outcome of this rulemaking.

Pipeline Safety Notice of Proposed Rulemaking. On January 28, 2003, the
U.S. Department of Transportation issued a NOPR proposing to establish a rule
requiring pipeline operators to develop integrity management programs to
comprehensively evaluate their pipelines, and take measures to protect pipeline
segments located in what the notice refers to as "high consequence areas." The
proposed rule resulted from the enactment of the Pipeline Safety Improvement Act
of 2002, a new bill signed into law in December 2002. Comments on the NOPR were
filed on April 30, 2003. At this time, we cannot predict the outcome of this
rulemaking.

While the outcome of our outstanding legal matters, environmental matters
and rates and regulatory matters cannot be predicted with certainty, based on
current information and our existing accruals, we do not
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expect the ultimate resolution of these matters to have a material adverse
effect on our financial position, operating results or cash flows. However, it
is possible that new information or future developments could require us to
reassess our potential exposure related to these matters. It is also possible
that the outcome of these matters could impair our debt rating and the credit
rating of our parent. Further, for environmental matters, it is also possible
that other developments, such as increasingly strict environmental laws and
regulations and claims for damages to property, employees, other persons and the
environment resulting from our current or past operations, could result in
substantial costs and liabilities in the future. As new information for our
outstanding legal matters, environmental matters and rates and regulatory
matters becomes available, or relevant developments occur, we will review our
accruals and make any appropriate adjustments. The impact of these changes may
have a material effect on our results of operations, our financial position, and
on our cash flows in the period the event occurs.

5. RELATED PARTY TRANSACTIONS

We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of participating affiliates, thus minimizing
total borrowings from outside sources. Our continued participation in the
program may be dependent on any final rule issued by the FERC in connection with
its cash management notice of proposed rulemaking discussed in Note 4. As of
March 31, 2003 and December 31, 2002, we had advanced to El Paso $616 million
and $599 million. The market rate of interest at March 31, 2003 was 1.3% and at
December 31, 2002, it was 1.5%. These receivables are due upon demand. However,
as of March 31, 2003 and December 31, 2002, we have classified these amounts as
non-current notes receivables from affiliates because we do not anticipate
settlement within the next twelve months. In addition, we had a demand note
receivable with El Paso of $38 million at March 31, 2003 and December 31, 2002,
at an interest rate of 1.85% and 2.21%.

At March 31, 2003 and December 31, 2002, we had other accounts receivable
from related parties of $22 million and $72 million. In addition, we had
accounts payable to related parties of $24 million and $88 million at March 31,
2003 and December 31, 2002. These balances arose in the normal course of
business.

The following table shows revenues and charges from our affiliates for the
quarters ended March 31:

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information contained in Item 2 updates, and should be read in
conjunction with, the information disclosed in our 2002 Form 10-K in addition to
the financial statements and notes presented in Item 1, Financial Statements, of
this Form 10-Q.

RESULTS OF OPERATIONS

We use earnings before interest and income taxes (EBIT) to assess the
operating results and effectiveness of our business. EBIT is operating income
adjusted to include equity earnings from unconsolidated affiliates and other
miscellaneous income. Items that are not included in this measure are financing
costs, including interest and debt expense, income taxes and the impact of
accounting changes. We believe this measurement is useful to our investors
because it allows them to evaluate the effectiveness of our business and
operations and our investments from an operational perspective, exclusive of the
costs to finance those activities and exclusive of income taxes. This
measurement may not be comparable to measurements used by other companies and
should not be used as a substitute for net income or other performance measures
such as operating income or operating cash flow. Presented below is a
reconciliation of our operating results to EBIT and our EBIT to net income and a
discussion of our results of our operations for the quarters ended March 31:

- ---------------

(1) BBtu/d means billion British thermal units per day.

First Quarter 2003 Compared to First Quarter 2002

Operating revenues for the quarter ended March 31, 2003, were $24 million
higher than the same period in 2002. This increase was primarily due to
increased transportation revenues of $12 million resulting from higher
throughput in 2003 as a result of colder weather. The impact of higher natural
gas prices in 2003 on natural gas recoveries resulted in an additional increase
in operating revenues of $11 million.

Operating expenses for the quarter ended March 31, 2003, were $8 million
higher than the same period in 2002. The increase was due to higher electric
compression costs of $4 million resulting from higher usage in 2003, $2 million
of higher depreciation related to transmission system expansion projects placed
in service in 2002 and higher amortization expense of $1 million related to
additional acquisition costs assigned to our utility plant.

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INTEREST AND DEBT EXPENSE

Below is the analysis of interest expense for the quarters ended March 31
(in millions):

Interest and debt expense for the quarter ended March 31, 2003, was $4
million higher than the same period in 2002 primarily due to a $5 million
increase in interest expense resulting from the issuance of $240 million of
long-term debt in June 2002. Also contributing to the increase was a decrease in
interest capitalized on construction projects of $2 million due to a lower
capitalization base in the first quarter of 2003. These increases were offset by
a $3 million decrease in commercial paper interest expense due to the
discontinuation of commercial paper activity in the fourth quarter of 2002.

AFFILIATED INTEREST INCOME (EXPENSE), NET

Affiliated interest for the quarter ended March 31, 2003, was $3 million
lower than the same period in 2002 due primarily to a decrease in our interest
bearing advances from El Paso, partially offset by lower 2003 short-term
interest rates under our cash management program. The average advance balances
for the first quarter changed from a receivable of $503 million in 2002 to a
payable of $427 million in 2003. The average short-term interest rates for the
first quarter decreased from 1.9% in 2002 to 1.4% in 2003.

INCOME TAXES

Income tax expense for the quarters ended March 31, 2003 and 2002, was $21
million and $17 million, resulting in effective tax rates of 30 percent and 29
percent. Our effective tax rates were different than the statutory rate of 35
percent primarily due to state income taxes.

OTHER

CanEast. The CanEast Project will extend our mainline system, through a
combination of lease capacity and facilities modifications, to the Leidy Hub,
and expand our capacity in that area by about 127 million cubic feet per day.
Construction commenced and the anticipated in-service date of the project is
June 2003. Total year to date expenditures on the project have been
approximately $2 million.

Blue Atlantic. The Blue Atlantic Transmission System project consists of
approximately 1,000 miles of 36-inch pipe designed to carry up to 1 Bcf/d. The
pipeline will follow a sub-sea route from an anticipated production area
offshore on the Scotian shelf, make landfall on the Southern coast of Nova
Scotia, then continue sub-sea to landing points in the New York and New Jersey
areas. Current cost estimates are approximately $2.5 billion, and current
expenditures to date for the first quarter 2003 are approximately $1 million.
Pending successful producer drilling activity, we anticipate being ready to make
all necessary regulatory filings by late 2004, and to place the system in
service by the fourth quarter of 2008.

COMMITMENTS AND CONTINGENCIES

See Item 1, Financial Statements, Note 4, which is incorporated herein by
reference.

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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and to be made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions will
generally identify forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 2002, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.

There are no material changes in our quantitative and qualitative
disclosures about market risks from those reported in our Annual Report on Form
10-K for the year ended December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures. Under the supervision and with the
participation of management, including our principal executive officer and
principal financial officer, we have evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (Disclosure Controls)
and internal controls (Internal Controls) within 90 days of the filing date of
this Quarterly Report pursuant to Rules 13a-15 and 15d-15 under the Securities
Exchange Act of 1934 (Exchange Act).

Definition of Disclosure Controls and Internal Controls. Disclosure
Controls are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified under the Exchange Act. Disclosure Controls include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure. Internal Controls are procedures
which are designed with the objective of providing reasonable assurance that (1)
our transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded and
reported, all to permit the preparation of our financial statements in
conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls. TGP's management, including
the principal executive officer and principal financial officer, does not expect
that our Disclosure Controls and Internal Controls will prevent all errors and
all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
errors or mistakes. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate
12

because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

No Significant Changes in Internal Controls. We have sought to determine
whether there were any "significant deficiencies" or "material weaknesses" in
TGP's Internal Controls, or whether TGP had identified any acts of fraud
involving personnel who have a significant role in TGP's Internal Controls. This
information was important both for the controls evaluation generally and because
the principal executive officer and principal financial officer are required to
disclose that information to our Board and our independent accountants and to
report on related matters in this section of the Quarterly Report. The principal
executive officer and principal financial officer note that, from the date of
the controls evaluation to the date of this Quarterly Report, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Effectiveness of Disclosure Controls. Based on the controls evaluation,
our principal executive officer and principal financial officer have concluded
that, subject to the limitations discussed above, the Disclosure Controls are
effective to ensure that material information relating to TGP and its
consolidated subsidiaries is made known to management, including the principal
executive officer and principal financial officer, particularly during the
period when our periodic reports are being prepared.

Officer Certifications. The certifications from the principal executive
officer and principal financial officer required under Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002 have been included herein, or as Exhibits to this
Quarterly Report, as appropriate.

13

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Part I, Item 1, Financial Statements, Note 4, which is incorporated
herein by reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.

14

Undertaking

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

b. Reports on Form 8-K

We filed a Current Report on Form 8-K dated April 18, 2003 announcing an
amendment to our financing facilities.

15

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

TENNESSEE GAS PIPELINE COMPANY

Date: May 14, 2003 /s/ JOHN W. SOMERHALDER II
------------------------------------
John W. Somerhalder II
Chairman of the Board and Director
(Principal Executive Officer)

Date: May 14, 2003 /s/ GREG G. GRUBER
------------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial and Accounting
Officer)

16

CERTIFICATION

I, John W. Somerhalder II, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tennessee Gas
Pipeline Company;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: May 14, 2003

/s/ JOHN W. SOMERHALDER II
--------------------------------------
John W. Somerhalder II
Chairman of the Board
(Principal Executive Officer)
Tennessee Gas Pipeline Company

17

CERTIFICATION

I, Greg G. Gruber, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tennessee Gas
Pipeline Company;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: May 14, 2003

/s/ GREG G. GRUBER
--------------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Tennessee Gas Pipeline Company

18

EXHIBIT INDEX

Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.