COLORADO INTERSTATE GAS CO - 10-Q Quarterly Report

Back to GetFilings.com

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

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

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

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 SEPTEMBER 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
---------------

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 November 10,
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.

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

COLORADO INTERSTATE GAS COMPANY

TABLE OF CONTENTS

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

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.

i

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. 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 September 30, 2003, and for the
quarters and nine months ended September 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 be indicative of our results of operations for the entire year.
Our results for all periods presented have been reclassified to reflect the
assets in our Field Services segment 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 had 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 system is subject to
the jurisdiction 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 SFAS No. 71, Accounting for the
Effects of Certain Types of Regulation. The accounting required by SFAS No. 71
differs from the accounting required for businesses that do not apply its
provisions. Transactions that are generally recorded differently as a result of
applying regulatory accounting requirements include the capitalization of an
equity return component on regulated capital projects, post retirement employee
benefit plans, and other costs included in, or expected to be included in,
future rates.

As a result of recent changes in our competitive environment and operating
cost structure, we continue to assess the applicability of the provisions of
SFAS No. 71 to our financial statements. The outcome of this evaluation could
result in the restoration of our application of this accounting. We expect to
complete our current evaluation of the applicability of SFAS No. 71 by the end
of this year.

2. DISCONTINUED OPERATIONS AND DIVESTITURES

Discontinued Operations

In the first quarter of 2003, we announced a plan to sell our Mid-Continent
Field Services assets and completed the sale of our Wyoming gathering systems.
With this announcement, we had completed or

4

announced the sale of substantially all of the assets in our Field Services
segment. As a result, we reclassified the assets and operations of 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 the assets in the Mid-Continent region. These assets primarily included our
Greenwood, Hugoton, Keyes and Mocane natural 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 had been previously advanced to us by the purchaser in
July 2002. These assets were historically reported in our Pipeline segment and
were also reflected as discontinued operations in the third quarter of 2002.

During the quarter and nine months ended September 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:

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

(1) As of June 30, 2003, all assets classified as discontinued operations had
been sold. As a result, there was no activity in operating results during
the quarter ended September 30, 2003.

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

(1) As of September 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 September 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.

5

Divestitures

During 2003, we sold assets with a combined net book value of less than $1
million. Net proceeds from these sales were approximately $8 million, which
includes $6 million related to the buyout of a gas purchase contract. We
recorded a gain on the sale of long-lived assets of approximately $6 million.

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 on
June 30, 2005. The $3 billion revolving credit facility has a borrowing cost of
LIBOR plus 350 basis points, letter of credit fees of 350 basis points and a
commitment fee of 75 basis points on the unused portion of the facility. This
facility replaces El Paso's previous $3 billion revolving credit facility.
Approximately $1 billion of other El Paso 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. 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, and will only be
liable for amounts we directly borrow. 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 its equity in 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. Beginning in May 2003, the term
loan is being amortized in equal quarterly payments of $100 million. 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. As of September 30, 2003, the balance on the Clydesdale term loan
was $521 million. In November 2003, El Paso made its quarterly payment of $100
million and retired an additional $7 million on this loan.

For the nine months ended September 30, 2003, we were in compliance with
all of our debt-related covenants.

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

6

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, attorneys' 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 September 30, 2003, we had no accruals for our 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 September
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 September 30, 2003, was based
on the most likely outcome that can be reasonably estimated. Below is a
reconciliation of our accrued liability as of September 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 September 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 remediation
expenditures will be approximately $2 million, which will be 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 our reserves are
adequate.

Rates and Regulatory Matters

Marketing Affiliate NOPR. In September 2001, the FERC issued a Notice of
Proposed Rulemaking (NOPR) proposing 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

7

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 an order that prospectively prohibits
pipelines from negotiating rates based upon natural gas commodity price indices
and imposes certain new filing requirements to ensure the transparency of
negotiated rate transactions. Requests for rehearing were filed on August 25,
2003 and remain pending. We do not expect that the order on rehearing will have
a material effect on us.

Cash Management Rule. On October 23, 2003, the FERC approved a rule that
requires a FERC regulated entity to file its cash management agreement with the
FERC, maintain records of transactions involving its participation in the cash
management program, compute its proprietary capital ratio quarterly based on
criteria established by the FERC, and notify the FERC 45 days after the end of a
calendar quarter whether its proprietary capital ratio falls below 30 percent
and subsequently when its proprietary capital ratio returns to or exceeds 30
percent. In the rule, the FERC stated that the requirements imposed by the rule
are not in the nature of a regulation governing participation in cash management
programs and that the rule does not dictate the content or terms for
participating in a cash management program. Although the rule is subject to
rehearing, we do not believe an order on rehearing will have a material effect
on us.

On September 10, 2003, the Office of Executive Director of Regulatory
Audits completed an industry-wide audit of the FERC Form 2 related to cash
management. The audit included our affiliates, EPNG and Mojave. The audit did
not identify any instances of non-compliance with the FERC's reporting and
recording requirements but recommended that EPNG and Mojave revise and update
their existing cash management agreements with El Paso. We are in the process of
reviewing and revising our cash management agreement pursuant to this
recommendation.

Emergency Reconstruction of Interstate Natural Gas Facilities Rule. On May
19, 2003, the FERC issued a 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 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. It also 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. Although we cannot predict the outcome of this
rulemaking, we do not expect this order to have a material effect on us.

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 possible that the outcome of these
matters could impact our credit rating and that of our parent. Further, for
environmental matters, it is possible that other developments, such as
increasingly strict environmental laws and regulations and claims for

8

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 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
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. As of September 30, 2003 and December 31,
2002, we had advanced to El Paso $618 million and $469 million. The market rate
of interest at September 30, 2003 was 3.5% and at December 31, 2002 was 1.5%. As
of September 30, 2003 and December 31, 2002, we have classified $618 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 September 30, 2003 and December 31, 2002, we had other current
receivables from related parties of $12 million and $17 million. In addition, at
September 30, 2003, we had a $7 million non-current note receivable from a
related party. Accounts payable to affiliates was $89 million and $11 million at
September 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 nine months ended
September 30, 2003 and 2002:

9

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 and the
financial statements and notes presented in Item 1 of this Form 10-Q.

GENERAL

During 2003, we reclassified our Field Services segment as discontinued
operations, and completed the sale of the remaining assets in this segment. Our
financial statements and management's 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 the impact of accounting changes, (ii) income taxes, (iii)
interest and debt expense and (iv) affiliated interest income. 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.
We exclude interest and debt expense from this measure so that investors may
evaluate our operating results without regard to our financing methods. EBIT 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 September 30:

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

(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.

Third Quarter 2003 Compared to Third Quarter 2002

Operating revenues for the quarter ended September 30, 2003, were
consistent with the same period in 2002. Increases in revenues were due to $7
million from completed system expansions and new transportation contracts, $3
million of increased gas processing revenues resulting from higher liquids
prices and $2 million of

10

storage gas sales, which commenced in the fourth quarter of 2002. These
increases were offset by an $11 million reduction in amounts received from
customers for gas use reimbursements.

Operating expenses for the quarter ended September 30, 2003, were
consistent with the same period in 2002. Increases in operating expenses of $4
million due to favorable property tax adjustments made in 2002 were offset by a
decrease of $5 million for system supply and processing feedstock gas costs.

Nine Months Ended 2003 Compared to Nine Months Ended 2002

Operating revenues for the nine months ended September 30, 2003, were $28
million higher than the same period in 2002. The increase was due to $17 million
from completed system expansions and new transportation contracts, $9 million of
increased gas processing revenues resulting from higher prices, $7 million of
storage gas sales, which commenced in the fourth quarter of 2002, and $5 million
related to the finalization of a rate settlement, partially offset by a $8
million reduction in amounts received from customers for gas use reimbursements.

Operating expenses for the nine months ended September 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. These decreases were partially offset by $4 million in
favorable property tax adjustments made in 2002, $3 million in higher system gas
supply and liquids feedstock costs and $2 million in higher overhead allocations
from El Paso.

AFFILIATED INTEREST INCOME, NET

Third Quarter 2003 Compared to Third Quarter 2002

Affiliated interest income, net for the quarter ended September 30, 2003,
was $2 million higher than the same period in 2002, due to higher average
advances to El Paso under its cash management program and higher short-term
interest rates in 2003. The average advance balance for the third quarter of
$276 million in 2002 increased to $565 million during the same period in 2003.
The average short-term interest rates for the third quarter increased from 1.8%
in 2002 to 1.9% during the same period in 2003.

Nine Months Ended 2003 Compared to Nine Months Ended 2002

Affiliated interest income, net for nine months ended September 30, 2003,
was $3 million higher than the same period in 2002, due to higher average
advances to El Paso under its cash management program and higher short-term
interest rates in 2003. The average advance balance for the nine months ended
September 30, 2002 of $165 million increased to $479 million during the same
period in 2003. The average short-term interest rates decreased from 1.9% in
2002 to 1.6% during the same period 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.

11

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

12

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: November 10, 2003 /s/ JOHN W. SOMERHALDER II
------------------------------------
John W. Somerhalder II
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)

Date: November 10, 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.