COLORADO INTERSTATE GAS 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 JUNE 30, 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 1-4874
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COLORADO INTERSTATE GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 84-0173305
(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 $1 per share. Shares outstanding on August 13,
2003: 1,000

COLORADO INTERSTATE GAS 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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COLORADO INTERSTATE GAS COMPANY

TABLE OF CONTENTS

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

/d = per day
BBtu = billion British thermal units
MDth = thousand dekatherm

When we refer to cubic feet measurements, all measurements are at a pressure
of 14.73 pounds per square inch.

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COLORADO INTERSTATE GAS COMPANY

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

See accompanying notes.

1

COLORADO INTERSTATE GAS COMPANY

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

See accompanying notes.

2

COLORADO INTERSTATE GAS COMPANY

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

See accompanying notes.

3

COLORADO INTERSTATE GAS 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. 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 in the United States. 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 June 30, 2003,
and for the quarters and six months ended June 30, 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
which are of a normal, recurring nature to fairly present our interim period
results. Due to the seasonal nature of our businesses, information for interim
periods may not indicate the results of operations for the entire year. Our
results for all periods presented have been reclassified to reflect our Field
Services assets as discontinued operations. In addition, prior period
information presented in these financial statements includes reclassifications
which were made to conform to the current period presentation. 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 2002
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. Our natural gas pipeline is subject
to the regulations and accounting procedures of the Federal Energy Regulatory
Commission (FERC) in accordance with the Natural Gas Act of 1938 and Natural Gas
Policy Act of 1978. In 1996 we discontinued the application of regulatory
accounting principles under SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation. We continue to evaluate the application of SFAS No. 71 for
changes in the competitive environment and our operating cost structures. See a
further discussion of our accounting for regulated operations in our 2002 Form
10-K.

2. DISCONTINUED OPERATIONS AND DIVESTITURES

Discontinued Operations

In the first quarter of 2003, we announced our plan to sell our
Mid-Continent Field Services assets and completed the sale of our Wyoming
gathering systems. With this announcement, we had sold or announced the sale of
substantially all of the assets in our Field Services segment. As a result, we
reclassified our Field Services segment as discontinued operations in our
financial statements beginning in the first quarter of 2003 for all periods
presented. We sold our Wyoming gathering systems to Western Gas Resources, Inc.
in January 2003. Net proceeds from this sale were $14 million, and we recognized
a gain in the first quarter of 2003 of approximately $1 million. In June 2003,
we completed the sale of our Field Services assets in the Mid-Continent region.
These assets primarily included our Greenwood, Hugoton, Keyes and Mocane natural

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gas gathering systems, our Sturgis processing plant and our processing
arrangements at three additional processing plants. Net proceeds from the sale
were approximately $46 million, and we recognized a gain in the second quarter
of 2003 of approximately $13 million.

In February 2003, we completed the sale of a natural gas gathering system
located in the Panhandle field of Texas. Net proceeds on this transaction of
approximately $19 million were advanced to us by the purchaser in July 2002.
These assets were historically reported in our Pipeline segment and were also
reclassified as discontinued operations in the second quarter of 2002.

During the quarter and six months ended June 30, 2002, we classified as
discontinued operations our interest in natural gas and oil properties and
related contracts located in Texas, Kansas and Oklahoma. We completed these
sales in July 2002.

The summarized financial results of our discontinued operations are as
follows:

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(1) As of June 30, 2003, all assets classified as discontinued operations had
been sold. As a result, there were no assets or liabilities related to these
operations in our June 30, 2003 balance sheet.

(2) Includes $13 million of property and equipment related to natural gas and
oil properties that were classified as held for sale at December 31, 2002.

Divestitures

During the second quarter of 2003, we sold assets with a combined net book
value of less than $1 million. We received proceeds of approximately $9 million,
including $6 million related to the buyout of a gas purchase contract, net of $2
million related to an environmental liability. We recorded a gain on sale of
long-lived assets of approximately $7 million.

3. DEBT AND CREDIT FACILITIES

In April 2003, El Paso entered into a new $3 billion revolving credit
facility, with a $1.5 billion letter of credit sub-limit, which matures on
June 30, 2005. This facility replaces El Paso's previous $3 billion revolving
credit facility. Approximately $1 billion of El Paso financing arrangements
(including leases, letters of credit
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and other facilities) were also amended to conform El Paso's obligations to the
new $3 billion revolving credit facility. Under the terms of the $3 billion
revolving credit facility, upon the retirement of the Clydesdale financing
transaction (as discussed below), we will become a borrower under this facility
along with El Paso and our affiliates, ANR Pipeline Company, Tennessee Gas
Pipeline Company and El Paso Natural Gas Company. El Paso's $3 billion revolving
credit facility and the other financing arrangements are secured by El Paso's
equity in several of its subsidiaries, including us.

El Paso's equity in us, a production payment from El Paso and various
natural gas and oil properties were pledged as collateral under an El Paso
financing arrangement known as the Clydesdale financing arrangement. In April of
2003, El Paso restructured the remaining $753 million outstanding under its
Clydesdale financing arrangement as a term loan. The term loan will amortize in
equal quarterly payments of $100 million over the next two years. The same
assets that historically supported the Clydesdale financing arrangement and a
guarantee by El Paso collateralize the term loan. As long as the amortization
requirements are met and we are in compliance with the Clydesdale transaction,
the term loan places no restrictions on our ability to invest or dividend cash
to El Paso. On June 30, 2003, the balance on the Clydesdale term loan was $653
million. In August 2003, El Paso made a quarterly principal payment in the
amount of $100 million on the loan.

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 plaintiffs in this case seek certification of a nationwide
class of natural gas working interest owners and natural gas royalty owners to
recover royalties that the plaintiffs contend 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. Plaintiffs' motion for class
certification was denied on April 10, 2003. Plaintiffs' motion to file another
amended petition to narrow the proposed class to royalty owners in wells in
Kansas, Wyoming and Colorado was granted on July 28, 2003. Our costs and legal
exposure related to this lawsuit and claims are not currently determinable.

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 June 30, 2003, we had approximately $2 million accrued for all outstanding
legal matters.

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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 June 30,
2003, we had accrued approximately $14 million for expected remediation costs
and associated onsite, offsite and groundwater technical studies, which we
anticipate incurring through 2027. Our accrual at June 30, 2003, was based on
the most likely outcome that can be reasonably estimated. Below is a
reconciliation of our accrued liability as of June 30, 2003 (in millions):

Balance as of January 1, 2003............................... $13
Additions/adjustments for remediation activities............ 2
Payments for remediation activities......................... (1)
---
Balance as of June 30, 2003................................. $14
===

In addition, we expect to make capital expenditures for environmental
matters of approximately $1 million in the aggregate for the years 2003 through
2008. These expenditures primarily relate to compliance with clean air
regulations. For the remainder of 2003, we estimate that our total expenditures
will be approximately $3 million. In addition, this entire amount is being
expended under government directed clean-up plans.

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

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 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.
We have filed comments with the FERC addressing our concerns with the proposed
rules, participated in a public conference and filed additional comments. 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 Policy. In July 2002, the FERC issued a Notice of Inquiry
(NOI) that sought 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. El Paso's pipelines and others filed
comments on the NOI.

In July 2003, the FERC issued modifications to its negotiated rate policy
applicable to interstate natural gas pipelines. The new policy has two primary
changes. First, the FERC will no longer permit the pricing of negotiated rates
based on natural gas commodity price indices, although it will permit current
contracts negotiated on that basis to continue until the end of the applicable
contract period. Second, the FERC is imposing new filing requirements on
pipelines to ensure the transparency of negotiated rate transactions.

Interim Rule on Cash Management. In August 2002, the FERC issued a NOPR
proposing, inter alia, that all cash management or money pool arrangements
between a FERC-regulated subsidiary and its

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non-FERC regulated parent be in writing and that, as a condition of
participating in such an arrangement, the FERC-regulated entity maintain a
minimum proprietary capital balance of 30 percent and both it and its parent
maintain investment grade credit ratings. After receiving written comments and
hearing industry participants' concerns at a public conference in September
2002, the FERC issued an Interim Rule on Cash Management on June 26, 2003, which
did not adopt the proposed limitations on entry into or participation in cash
management programs. Instead, the Interim Rule requires natural gas companies to
maintain up-to-date documentation authorizing the establishment of the cash
management programs in which they participate and supporting all deposits into,
borrowings and interest from, and interest expense paid to such programs.

The Interim Rule also seeks comments on a proposed reporting requirement
that a FERC-regulated entity file cash management agreements and any changes
thereto within ten days and that it notify the FERC within five days when its
proprietary capital ratio falls below 30 percent (i.e., its long-term
debt-to-equity ratio rises above 70 percent) and when it subsequently returns to
or exceeds 30 percent. We filed comments on the Interim Rule on August 7, 2003.

Emergency Reconstruction of Interstate Natural Gas Facilities Final
Rule. On May 19, 2003, the FERC issued a Final Rule that amends its regulations
to enable natural gas interstate pipeline companies, in emergency situations,
resulting in sudden, unanticipated loss of natural gas or capacity, to replace
facilities when immediate action is required to restore service for the
protection of life or health or for the maintenance of physical property.
Specifically, the Final Rule permits a pipeline to replace mainline facilities
using a route other than an existing right-of-way, to commence construction
without being subject to a 45-day waiting period, and to undertake projects that
exceed the existing blanket cost constraints. Lastly, the Final Rule requires
that landowners be notified of potential construction but provides for a
possible waiver of the 30-day waiting period.

Pipeline Safety Notice of Proposed Rulemaking. In January 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 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 these matters could
impact our credit rating and that 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. SEGMENT INFORMATION

Prior to the sale or announced sale of our remaining Field Services assets,
we segregated our business activities into two distinct operating segments:
Pipelines and Field Services. These segments were strategic business units that
provided a variety of energy products and services. They were managed separately
as each business unit required different technology and marketing strategies. In
the first quarter of 2003, we reclassified our Field Services segment and a
portion of our Pipelines segment to discontinued operations in our financial
statements, and all periods were restated to reflect this change. See Note 2 for
a further

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discussion of these operations. As a result of this change, our continuing
operations consist solely of our FERC regulated natural gas pipeline business.

6. 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 Interim Rule on Cash Management as discussed in Note 4. As of June 30, 2003
and December 31, 2002, we had advanced to El Paso $590 million and $469 million.
The market rate of interest at June 30, 2003 and December 31, 2002 was 1.3% and
1.5%. As of June 30, 2003 and December 31, 2002, we have classified $590 million
and $444 million of these advances as non-current notes receivable from
affiliates. These receivables are due upon demand; however, we do not anticipate
settlement within the next twelve months.

At June 30, 2003 and December 31, 2002, we had other accounts receivable
from related parties of $9 million and $17 million. Accounts payable to
affiliates was $13 million and $11 million at June 30, 2003 and December 31,
2002. These balances arose in the normal course of our business.

The following table shows revenues and charges from our affiliates,
including discontinued operations, for the quarters and six months ended June
30, 2003 and 2002:

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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 of this Form 10-Q.

GENERAL

During the first quarter of 2003, we reclassified the entire Field Services
segment as discontinued operations, and in June 2003, we completed the sale of
the remaining assets in this segment. Our financial statements and discussion
and analysis of financial condition and results of operations have been restated
to reflect this reclassification for all periods presented.

RESULTS OF OPERATIONS

We use earnings before interest expense and income taxes (EBIT) to assess
the operating results and effectiveness of our business. We define EBIT as net
income adjusted for (i) items that do not impact our income from continuing
operations such as discontinued operations, (ii) income taxes, (iii) interest
and debt expense and (iv) affiliated interest income. We exclude interest and
debt expense so that investors may evaluate our operating results without regard
to our financing methods. As a result, we believe EBIT is useful to our
investors because it allows them to more effectively evaluate the operating
performance of our business. In addition, this is the measurement used by El
Paso to evaluate the operating performance of its business segments. 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. The following is a
reconciliation of our operating income to our EBIT and our EBIT to our net
income for the periods ended June 30:

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(1) Throughput volumes exclude volumes related to discontinued operations. Prior
period volumes have been restated to reflect our current year presentation
which includes billable transportation throughput volume for storage
withdrawal.

Second Quarter 2003 Compared to Second Quarter 2002

Operating revenues for the quarter ended June 30, 2003, were $15 million
higher than the same period in 2002. The increase was due to $6 million from
completed system expansions and new transportation contracts, $4 million of
natural gas recoveries from customers in excess of amounts used in operations,
$3 million of increased gas processing revenues resulting from higher liquid
prices and $2 million of storage gas sales, which commenced in the fourth
quarter of 2002.

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Operating expenses for the quarter ended June 30, 2003, were $2 million
higher than the same period in 2002. The increase was due to $5 million in
volume adjustments related to one of our storage fields in 2003, $4 million of
system supply and processing feedstock gas costs and $2 million of higher
overhead allocations from El Paso. These increases were partially offset by a $6
million gain on the buyout of a gas purchase contract related to the sale of our
Table Rock sulfur extraction facility in 2003 and $4 million due to the
revaluation of our natural gas imbalances as a result of changes in natural gas
imbalance volumes and prices.

Six Months Ended 2003 Compared to Six Months Ended 2002

Operating revenues for the six months ended June 30, 2003, were $28 million
higher than the same period in 2002. The increase was due to $10 million from
completed system expansions and new transportation contracts, $6 million of
increased gas processing revenues resulting from higher prices, $5 million of
storage gas sales, which commenced in the fourth quarter of 2002, $5 million
related to the finalization of a rate settlement and $3 million of natural gas
recoveries from customers in excess of amounts used in operations.

Operating expenses for the six months ended June 30, 2003, were $1 million
lower than the same period in 2002. The decrease was due to a $6 million gain on
the buyout of a gas purchase contract related to the sale of our Table Rock
sulfur extraction facility in 2003 and $4 million due to the revaluation of our
natural gas imbalances as a result of changes in natural gas imbalance volumes
and prices. The decrease was partially offset by $5 million in volume
adjustments related to one of our storage fields, $2 million in higher overhead
allocations from El Paso and $2 million in higher system gas supply and liquids
feedstock costs.

AFFILIATED INTEREST INCOME, NET

Second Quarter 2003 Compared to Second Quarter 2002

Affiliated interest income, net for the quarter ended June 30, 2003, was $2
million lower than the same period in 2002 due to lower average advances to El
Paso under our cash management program in 2003 and lower short-term interest
rates in 2003.

Six Months Ended 2003 Compared to Six Months Ended 2002

Affiliated interest income, net for six months ended June 30, 2003, was $1
million higher than the same period in 2002 due to higher average advances to El
Paso under our cash management program in 2003 offset by lower short-term
interest rates in 2003.

INCOME TAXES

Our effective tax rates were different than the statutory rate of 35
percent in all periods, primarily due to state income taxes.

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 over financial reporting (Internal Controls) as of the end
of the period covered by 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. Colorado Interstate Gas
Company'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. 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. Therefore, 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. Our
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Disclosure Controls and Internal Controls are designed to provide such
reasonable assurances of achieving our desired control objectives, and our
principal executive officer and principal financial officer have concluded that
our Disclosure Controls and Internal Controls are effective in achieving that
level of reasonable assurance.

No Significant Changes in Internal Controls. We have sought to determine
whether there were any "significant deficiencies" or "material weaknesses" in
Colorado Interstate Gas Company's Internal Controls, or whether the company had
identified any acts of fraud involving personnel who have a significant role in
Colorado Interstate Gas Company'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's Audit Committee and our independent auditors and to
report on related matters in this section of the Quarterly Report. The principal
executive officer and principal financial officer note that there has not been
any change in Internal Controls that occurred during the most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, Internal Controls.

Effectiveness of Disclosure Controls. Based on the controls evaluation,
our principal executive officer and principal financial officer have concluded
that the Disclosure Controls are effective to ensure that material information
relating to Colorado Interstate Gas Company and its consolidated subsidiaries is
made known to management, including the principal executive officer and
principal financial officer, on a timely basis.

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 as Exhibits to this Quarterly
Report.

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.

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
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

None.

14

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.

COLORADO INTERSTATE GAS COMPANY

Date: August 13, 2003 /s/ JOHN W. SOMERHALDER II
------------------------------------
John W. Somerhalder II
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)

Date: August 13, 2003 /s/ GREG G. GRUBER
------------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer, Treasurer
and Director
(Principal Financial and Accounting
Officer)

15

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.