COLORADO INTERSTATE GAS CO - 10-K Annual Report

Back to GetFilings.com

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

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

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

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 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 1-4874

COLORADO INTERSTATE GAS COMPANY
(Exact name of registrant as specified in its charter)

DELAWARE 84-0173305
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

EL PASO BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)

TELEPHONE NUMBER: (713) 420-2600

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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

STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT: .............................NONE

INDICATE THE NUMBER OF SHARES OUTSTANDING AT EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

Common Stock, par value $1 per share. Shares outstanding on March 15, 2004:
1,000

COLORADO INTERSTATE GAS COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION
I(1)(a) AND (b) TO FORM 10-K AND IS THEREFORE FILING THIS REPORT WITH A REDUCED
DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.

DOCUMENTS INCORPORATED BY REFERENCE: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

COLORADO INTERSTATE GAS COMPANY

TABLE OF CONTENTS

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

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

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
Bcf = billion cubic feet
MMcf = million cubic feet
Tcfe = trillion cubic feet equivalent

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

When we refer to "us", "we", "our", or "ours", we are describing Colorado
Interstate Gas Company and/or our subsidiaries.

(i)

PART I

ITEM 1. BUSINESS

GENERAL

We are a Delaware corporation incorporated in 1927. In January 2001, we
became a wholly owned subsidiary of El Paso Corporation (El Paso). On January
27, 2004, our parent, Noric Holdings III, L.L.C. was merged into El Paso Noric
Investments III, L.L.C. (Noric III), a wholly owned indirect subsidiary of El
Paso. Our primary business consists of interstate transportation and storage of
natural gas. We conduct our business activities through our natural gas pipeline
system and storage facilities, all of which are discussed below.

The Pipeline System. The Colorado Interstate Gas system provides natural
gas transmission, storage and processing services and consists of approximately
4,000 miles of pipeline with a design capacity of approximately 3,100 MMcf/d.
During 2003, 2002 and 2001, average throughput was 1,685 BBtu/d, 1,649 BBtu/d
and 1,480 BBtu/d. Our system extends from most production areas in the Rocky
Mountain region and the Anadarko Basin to the front range of the Rocky Mountains
and interconnects with several pipeline systems transporting gas to the Midwest,
the Southwest, California and the Pacific Northwest.

During the fourth quarter of 2003, we completed the construction of
additional gas compression and air blending facilities which expanded the
deliverability of the Valley Line portion of our Front Range system by
approximately 92 MMcf/d.

Storage Facilities. Along our pipeline system, we have approximately 29
Bcf of underground working natural gas storage capacity, provided by four
storage facilities located in Colorado and Kansas.

REGULATORY ENVIRONMENT

Our interstate natural gas transmission system and storage operations are
regulated by the Federal Energy Regulatory Commission (FERC) under the Natural
Gas Act of 1938 and the Natural Gas Policy Act of 1978. This system operates
under a FERC-approved tariff that establishes rates, terms and conditions for
services to our customers. Generally, the FERC's authority extends to:

- rates and charges for natural gas transportation and storage;

- certification and construction of new facilities;

- extension or abandonment of facilities;

- maintenance of accounts and records;

- relationships between pipeline and energy affiliates;

- terms and conditions of services;

- depreciation and amortization policies;

- acquisition and disposition of facilities; and

- initiation and discontinuation of services.

The fees or rates established under our tariffs are a function of our costs
of providing services to our customers, as well as a reasonable return on our
invested capital. Approximately 92 percent of our transportation services
revenue is attributable to a capacity reservation (demand charge) paid by firm
customers. These firm customers are obligated to pay a monthly demand charge,
regardless of the amount of natural gas they transport or store, for the term of
their contracts. The remaining 8 percent of our transportation services revenue
is primarily attributable to charges based solely on the volumes of gas actually
transported or stored on our pipeline system. Consequently, our financial
results have historically been relatively stable; however, they can be subject
to volatility due to factors such as weather, changes in natural gas prices and
market conditions, regulatory actions, competition and the credit-worthiness of
our customers.

1

Our interstate pipeline system is also subject to federal, state and local
pipeline safety and environmental statutes and regulations. We have continuing
programs designed to keep all of our facilities in compliance with pipeline
safety and environmental requirements. We believe that our system is in material
compliance with the applicable requirements.

A discussion of significant rate and regulatory matters is included in Part
II, Item 8, Financial Statements and Supplementary Data, Note 9, and is
incorporated herein by reference.

MARKETS AND COMPETITION

We serve two major markets, our "on-system" market, consisting of utilities
and other customers located along the front range of the Rocky Mountains in
Colorado and Wyoming, and our "off-system" market, consisting of the
transportation of Rocky Mountain natural gas production from multiple supply
basins to interconnections with other pipelines bound for the Midwest, the
Southwest, California and the Pacific Northwest. We face different types of
competition in both markets, as well as from alternate energy sources used to
generate electricity such as hydroelectric power, coal and fuel oil. Competition
in the on-system market consists of local production from the Denver-Julesburg
basin, an intrastate pipeline, and long-haul shippers who elect to sell into
this market rather than the off-system market. Recent growth in the on-system
market from both the space heating segment and electric generation segment has
provided us with incremental demand for transportation services. Competition in
the off-system market consists of other interstate pipelines that are directly
connected to our supply sources and can transport these volumes to markets in
the Midwest, Southwest, California and Pacific Northwest.

We have approximately 130 firm and interruptible customers, including
distribution and industrial customers, electric generation companies, gas
producers, other gas pipelines and gas marketing and trading companies. We
provide transportation services in both our gas supply and market areas. We have
approximately 190 firm transportation contracts with an average remaining term
of approximately five years. Approximately 97 percent of our firm capacity is
subscribed. The largest customer we served during 2003, which made up
approximately 34 percent of our revenues, was Public Service Company of Colorado
with a capacity of 1,418 BBtu/d under contracts that expire between 2005 and
2014. Of this amount, 187 BBtu/d expires in 2005 and 970 BBtu/d expires in 2007.

A number of large natural gas consumers are electric utility companies who
use natural gas to fuel electric power generation facilities. Electric power
generation is the fastest growing demand sector of the natural gas market. The
potential consequences of proposed and ongoing restructuring and deregulation of
the electric power industry are currently unclear. Restructuring and
deregulation potentially benefit the natural gas industry by creating more
demand for natural gas turbine generated electric power, but this effect is
offset, in varying degrees, by increased efficiency in generation and the use of
surplus electric capacity as a result of open market access.

Our existing contracts mature at various times and in varying amounts of
throughput capacity. Our ability to extend our existing contracts or re-market
expiring capacity is dependent on competitive alternatives, the regulatory
environment at the federal, state and local levels and market supply and demand
factors at the relevant dates these contracts are extended or expire. The
duration of new or re-negotiated contracts will be affected by current prices,
competitive conditions and judgments concerning future trends and volatility. We
attempt to resubscribe our capacity at the maximum rates allowed under our
tariff; however, at times we discount our rates to remain competitive.

ENVIRONMENTAL

A description of our environmental activities is included in Part II, Item
8, Financial Statements and Supplementary Data, Note 9, and is incorporated
herein by reference.

EMPLOYEES

As of March 9, 2004, we had approximately 240 full-time employees, none of
whom are subject to a collective bargaining agreement.

2

ITEM 2. PROPERTIES

A description of our properties is included in Item 1, Business, and is
incorporated herein by reference.

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

ITEM 3. LEGAL PROCEEDINGS

A description of our legal proceedings is included in Part II, Item 8,
Financial Statements and Supplementary Data, Note 9, and is incorporated herein
by reference.

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

Item 4, Submission of Matters to a Vote of Security Holders, has been
omitted from this report pursuant to the reduced disclosure format permitted by
General Instruction I to Form 10-K.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

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

We pay dividends on our common stock from time to time from legally
available funds that have been approved for payment by our Board of Directors.
In 2003, we declared and paid cash dividends of approximately $41 million. No
common stock dividends were declared or paid in 2002. We paid cash dividends of
$120 million to our parent in 2001.

ITEM 6. SELECTED FINANCIAL DATA

Item 6, Selected Financial Data, has been omitted from this report pursuant
to the reduced disclosure format permitted by General Instruction I to Form
10-K.

3

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information required by this Item is presented in a reduced disclosure
format pursuant to General Instruction I to Form 10-K. The notes to consolidated
financial statements contain information that is pertinent to the following
analysis, including a discussion of our significant accounting policies and
discontinued operations.

GENERAL

Our business consists of interstate natural gas transportation and storage.
Our interstate natural gas transportation system faces varying degrees of
competition from other pipelines, as well as from alternate energy sources used
to generate electricity, such as hydroelectric power, coal and fuel oil. We are
regulated by the FERC which regulates the rates we can charge our customers.
These rates are a function of our costs of providing services to our customers,
including a reasonable return on our invested capital. As a result, our
financial results have historically been relatively stable; however, they can be
subject to volatility due to factors such as weather, changes in natural gas
prices and market conditions, regulatory actions, competition and the
credit-worthiness of our customers. In addition, our ability to extend our
existing customer contracts or re-market expiring contracted capacity at maximum
rates is dependent on competitive alternatives, the regulatory environment and
supply and demand factors at the relevant dates these contracts are extended or
expire. We attempt to resubscribe our capacity at the maximum rates allowed
under our tariff; although, at times, we discount our rates to remain
competitive in particular markets.

4

RESULTS OF OPERATIONS

Our management, as well as El Paso's management, uses 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 exclude interest and debt expense from
this measure so that our management can evaluate our operating results without
regard to our financing methods. We believe the discussion of our results of
operations based on EBIT is useful to our investors because it allows them to
more effectively evaluate the operating performance of our business using the
same performance measure analyzed internally by our management. EBIT may not be
comparable to measurements used by other companies. Additionally, EBIT should be
considered in conjunction with net income and 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 years
ended December 31:

- ---------------
(1) Throughput volumes include billable transportation throughput volume for
storage activities and exclude volumes related to discontinued operations.

OPERATING RESULTS (EBIT)

Our EBIT for the year ended December 31, 2003 was $26 million higher than
in 2002. The completion of the Front Range and other expansion projects during
2002 and 2003, and new transportation contracts resulted in higher reservation
revenues of $17 million and contributed $15 million to the increase in EBIT. In
2003, we sold our Table Rock sulfur extraction facility and realized a $6
million gain in EBIT on the buyout of a related gas purchase contract. We also
had a $15 million benefit in other income and EBIT in 2003 related to the
re-application of Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation. See Item 8, Financial
Statements and Supplementary Data, Note 1 for a detail of the regulatory assets
we established upon re-application of this standard. Offsetting these EBIT
increases was $11 million of higher system gas supply costs net of fuel and
liquid recoveries.

Upon our re-application of SFAS No. 71, we changed our depreciation method
from the straight line method to the composite method, which is consistent with
the way we recover our plant costs under our FERC-approved tariff. As a result
of this change, we will now use the FERC estimated useful life of 32 years for
our regulated pipeline and storage facilities versus the 50 year useful life we
used previously. We estimate the annual increase in our depreciation expense
will be approximately $9 million and will be partially offset by an annual
increase of approximately $2 million in higher income as a result of the
estimated 2004 allowance for equity funds used during construction that we will
be able to capitalize under the provisions of SFAS No. 71.

5

AFFILIATED INTEREST INCOME

Affiliated interest income for the year ended December 31, 2003, was $6
million higher than in 2002. The increase was due to higher average advances to
El Paso under its cash management program in 2003 and higher short-term rates in
2003 on which we earned interest. The average advance balance due from El Paso
of $217 million in 2002 increased to $529 million in 2003. The average
short-term interest rates increased from 1.9% in 2002 to 2% in 2003.

INCOME TAXES

Our effective tax rate was different than the statutory rate of 35 percent
in 2003 primarily due to state income taxes. In 2002, the difference was
primarily due to state income taxes and affiliated dividend income. For a
reconciliation of the statutory rate of 35 percent to the effective tax rates,
see Item 8, Financial Statements and Supplementary Data, Note 5.

DISCONTINUED OPERATIONS

During 2002 and 2003, we reflected our production and field services
businesses as discontinued operations. See Item 8, Financial Statements and
Supplementary Data, Note 3, for a discussion of the sales of these businesses
and for summarized financial results of these discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

Our liquidity needs have been provided by cash flows from operating
activities and the use of El Paso's cash management program. Under El Paso's
cash management program, depending on whether we have short-term cash surpluses
or requirements, we either provide cash to El Paso or El Paso provides cash to
us. We have historically provided cash advances to El Paso, and we reflect these
net advances to our parent as investing activities in our statement of cash
flows. As of December 31, 2003, we had receivables from El Paso of $563 million
as a result of this program. These receivables are due upon demand; however, we
do not anticipate settlement within the next twelve months. As of December 31,
2003, these receivables were classified as non-current notes receivable from
affiliates in our balance sheet. We also had $6 million in other notes
receivable from our parent, Noric III. We believe that cash flows from operating
activities will be adequate to meet our short-term capital requirements for
existing operations. However, as a result of recent announcements by El Paso
related to a revision of its estimates of its natural gas and oil reserves, our
ability to borrow or recover the amounts advanced under El Paso's cash
management program could be impacted. See Item 8, Financial Statements and
Supplementary Data, Note 2 for a discussion of these matters. Our cash flows
from continuing operations for the years ended December 31 were as follows:

In a series of credit rating agency actions beginning in 2002 and
contemporaneously with the downgrades of the senior unsecured indebtedness of El
Paso, our senior unsecured indebtedness was downgraded to below investment grade
and is currently rated B1 by Moody's (with a negative outlook and under review
for a possible downgrade) and B- by Standard & Poor's (with a negative outlook).
These downgrades will increase our cost of capital and collateral requirements
and could impede our access to capital markets in the future.

6

CAPITAL EXPENDITURES

Our capital expenditures, including our investments in unconsolidated
affiliates, during the periods indicated are listed below:

Under our current plan, we expect to spend between approximately $40
million and $55 million in each of the next three years for capital expenditures
to maintain the integrity of our pipeline and ensure the reliable delivery of
natural gas to our customers. In addition, we have budgeted to spend between
approximately $10 million and $25 million in each of the next three years to
expand the capacity of our system contingent upon customer commitment to the
projects. We expect to fund our maintenance and expansion capital expenditures
through internally generated funds.

DEBT

As of December 31, 2003, we had long-term debt outstanding of $280 million.
For a discussion of our debt and other credit facilities, see Item 8, Financial
Statements and Supplementary Data, Note 8, which is incorporated herein by
reference.

COMMITMENTS AND CONTINGENCIES

For a discussion of our commitments and contingencies, see Item 8,
Financial Statements and Supplementary Data, Note 9, which is incorporated
herein by reference.

NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

As of December 31, 2003, there were a number of accounting standards and
interpretations that had been issued, but not yet adopted by us. Based on our
assessment of those standards, we do not believe there are any that could have a
material impact on us.

7

RISK FACTORS AND 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 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," "plan," "budget" and similar
expressions will generally identify forward-looking statements. Our
forward-looking statements, whether written or oral, are expressly qualified by
these cautionary statements and any other cautionary statements that may
accompany those statements. In addition, we disclaim any obligation to update
any forward-looking statements to reflect events or circumstances after the date
of this report.

With this in mind, you should consider the risks discussed elsewhere in
this report and other documents we file with the Securities and Exchange
Commission (SEC) from time to time and the following important factors that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by us or on our behalf.

RISKS RELATED TO OUR BUSINESS

OUR SUCCESS DEPENDS ON FACTORS BEYOND OUR CONTROL.

Our business is the transportation, storage and processing of natural gas
for third parties. As a result, the volume of natural gas involved in these
activities depends on the actions of those third parties and is beyond our
control. Further, the following factors, most of which are beyond our control,
may unfavorably impact our ability to maintain or increase current service
volumes and rates, to renegotiate existing contracts as they expire, or to
remarket unsubscribed capacity:

- future weather conditions, including those that favor alternative energy
sources such as hydroelectric power;

- price competition;

- drilling activity and supply availability of natural gas;

- expiration and/or turn back of significant contracts;

- service area competition;

- changes in regulation and actions of regulatory bodies;

- credit risk of our customer base;

- increased cost of capital;

- opposition to energy infrastructure development, especially in
environmentally sensitive areas;

- adverse general economic conditions; and

- unfavorable movements in natural gas and liquids prices.

THE REVENUES OF OUR PIPELINE BUSINESSES ARE GENERATED UNDER CONTRACTS THAT MUST
BE RENEGOTIATED PERIODICALLY.

Our revenues are generated under service contracts which expire
periodically and must be renegotiated and extended or replaced. We cannot assure
that we will be able to extend or replace these contracts when

8

they expire or that the terms of any renegotiated contracts will be as favorable
as the existing contracts. For a further discussion of these matters, see Part
I, Item 1, Business -- Markets and Competition.

In particular, our ability to extend and/or replace service contracts could
be adversely affected by factors we cannot control, including:

- competition by other pipelines, including the proposed construction by
other companies of additional pipeline capacity in markets served by us;

- changes in state regulation of local distribution companies, which may
cause them to negotiate short-term contracts or turn back their capacity
when their contracts expire;

- reduced demand and market conditions in the areas we serve;

- the availability of alternative energy sources or gas supply points; and

- regulatory actions.

If we are unable to renew, extend or replace these contracts or if we renew
them on less favorable terms, we may suffer a material reduction in our revenues
and earnings.

FLUCTUATIONS IN ENERGY COMMODITY PRICES COULD ADVERSELY AFFECT OUR BUSINESS.

Revenues generated by our contracts depend on volumes and rates, both of
which can be affected by the prices of natural gas. Increased natural gas prices
could result in a reduction of the volumes transported by our customers, such as
power companies who, depending on the price of fuel, may not dispatch gas fired
power plants. Increased prices could also result in industrial plant shutdowns
or load losses to competitive fuels and local distribution companies' loss of
customer base. The success of our operations is subject to continued development
of additional oil and natural gas reserves in the vicinity of our facilities and
our ability to access additional suppliers from interconnecting pipelines to
offset the natural decline from existing wells connected to our systems. A
decline in energy prices could precipitate a decrease in these development
activities and could cause a decrease in the volume of reserves available for
transmission or storage on our system. If natural gas prices in the supply
basins connected to our pipeline systems are higher on a delivered basis to our
off-system markets than delivered prices from other natural gas producing
regions, our ability to compete with other transporters may be negatively
impacted. Fluctuations in energy prices are caused by a number of factors,
including:

- regional, domestic and international supply and demand;

- availability and adequacy of transportation facilities;

- energy legislation;

- federal and state taxes, if any, on the transportation of natural gas;

- abundance of supplies of alternative energy sources; and

- political unrest among oil-producing countries.

THE AGENCIES THAT REGULATE US AND OUR CUSTOMERS AFFECT OUR PROFITABILITY.

Our pipeline business is regulated by the FERC, the U.S. Department of
Transportation and various state and local regulatory agencies. Regulatory
actions taken by those agencies have the potential to adversely affect our
profitability. In particular, the FERC regulates the rates we are permitted to
charge our customers for our services. If our tariff rates were reduced in a
future rate proceeding, if our volume of business under our currently permitted
rates was decreased significantly or if we were required to substantially
discount the rates for our services because of competition, our profitability
and liquidity could be reduced.

Further, state agencies and local governments that regulate our local
distribution company customers could impose requirements that could impact
demand for our services.

9

COSTS OF ENVIRONMENTAL LIABILITIES, REGULATIONS AND LITIGATION COULD EXCEED OUR
ESTIMATES.

Our operations are subject to various environmental laws and regulations.
These laws and regulations obligate us to install and maintain pollution
controls and to clean up various sites at which regulated materials may have
been disposed of or released. We are also party to legal proceedings involving
environmental matters pending in various courts and agencies.

It is not possible for us to estimate reliably the amount and timing of all
future expenditures related to environmental matters because of:

- the uncertainties in estimating clean up costs;

- the discovery of new sites or information;

- the uncertainty in quantifying liability under environmental laws that
impose joint and several liability on all potentially responsible
parties;

- the nature of environmental laws and regulations; and

- the possible introduction of future environmental laws and regulations.

Although we believe we have established appropriate reserves for
liabilities, including clean up costs, we could be required to set aside
additional reserves in the future due to these uncertainties, and these amounts
could be material. For additional information, see Item 8, Financial Statements
and Supplementary Data, Note 9.

OUR OPERATIONS ARE SUBJECT TO OPERATIONAL HAZARDS AND UNINSURED RISKS.

Our operations are subject to the inherent risks normally associated with
those operations, including pipeline ruptures, explosions, pollution, release of
toxic substances, fires and adverse weather conditions, and other hazards, each
of which could result in damage to or destruction of our facilities or damages
to persons and property. In addition, our operations face possible risks
associated with acts of aggression on our assets. If any of these events were to
occur, we could suffer substantial losses.

While we maintain insurance against many of these risks to the extent and
in amounts that we believe are reasonable, our financial condition and
operations could be adversely affected if a significant event occurs that is not
fully covered by insurance.

ONE CUSTOMER CONTRACTS FOR A SUBSTANTIAL PORTION OF OUR FIRM TRANSPORTATION
CAPACITY.

At December 31, 2003, contracts with Public Service Company of Colorado
represented approximately 46% of our firm transportation capacity. For
additional information, see Part I, Item 1, Business -- Markets and Competition
and Part II, Item 8, Financial Statements and Supplementary Data, Note 12. The
loss of this customer or a decline in its credit-worthiness could adversely
affect our results of operations, financial position and cash flow.

RISKS RELATED TO OUR AFFILIATION WITH EL PASO

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

OUR RELATIONSHIP WITH EL PASO AND ITS FINANCIAL CONDITION SUBJECTS US TO
POTENTIAL RISKS THAT ARE BEYOND OUR CONTROL.

Due to our relationship with El Paso, adverse developments or announcements
concerning El Paso could adversely affect our financial condition, even if we
have not suffered any similar development. The senior unsecured indebtedness of
El Paso has been downgraded to below investment grade, currently rated Caa1 by
10

Moody's (with a negative outlook and under review for a possible downgrade) and
CCC+ by Standard & Poor's (with a negative outlook). Our senior unsecured
indebtedness is rated B1 by Moody's (with a negative outlook and under review
for a possible downgrade) and B- by Standard & Poor's (with a negative outlook).
These downgrades will increase our cost of capital and collateral requirements,
and could impede our access to capital markets. As a result of these downgrades,
El Paso has realized substantial demands on its liquidity. These downgrades are
a result, at least in part, of the outlook generally for the consolidated
businesses of El Paso and its needs for liquidity.

El Paso has embarked on its 2003 Long-Range Plan that, among other things,
defines El Paso's future businesses, targets significant debt reduction and
establishes financial goals. An inability to meet these objectives could
adversely affect El Paso's liquidity position, and in turn affect our financial
condition.

Pursuant to El Paso's cash management program, surplus cash is made
available to El Paso in exchange for an affiliated receivable. In addition, we
conduct commercial transactions with some of our affiliates. As of December 31,
2003, we have net receivables of approximately $560 million from El Paso and its
affiliates. El Paso provides cash management and other corporate services for
us. If El Paso is unable to meet its liquidity needs, there can be no assurance
that we will be able to access cash under the cash management program, or that
our affiliates would pay their obligations to us. However, we might still be
required to satisfy affiliated company payables. Our inability to recover any
intercompany receivables owed to us could adversely affect our ability to repay
our outstanding indebtedness. For a further discussion of these matters, see
Item 8, Financial Statements and Supplementary Data, Note 14.

Furthermore, in February 2004, El Paso announced that it had completed a
review of its estimates of natural gas and oil reserves. As a result of this
review, El Paso announced that it was reducing its proved natural gas and oil
reserves by approximately 1.8 Tcfe. El Paso also announced that this reserve
revision would result in a 2003 charge of approximately $1 billion if the full
impact of the revision was taken in that period. In March 2004, El Paso provided
an update and stated that the revisions would likely result in a restatement of
its historical financial statements, the timing and magnitude of which are still
being determined. El Paso has retained a law firm to conduct an internal
investigation, which is ongoing. Also, as a result of the reduction in reserve
estimates, several class action suits have been filed against El Paso and
several of its subsidiaries, but not against us. The reduction in reserve
estimates may also become the subject of an SEC investigation or separate
inquiries by other governmental regulatory agencies. These investigations and
lawsuits may further negatively impact El Paso's credit ratings and place
further demands on its liquidity. See Item 8, Financial Statements and
Supplementary Data, Note 2 for a further discussion of the possible impacts of
this announcement.

WE MAY BE SUBJECT TO A CHANGE OF CONTROL UNDER CERTAIN CIRCUMSTANCES.

Our direct parent, Noric III pledged as collateral its equity interests in
us. As a result, our ownership is subject to change if El Paso's lenders under
the $3 billion revolving credit facility exercise rights over their collateral.
El Paso's equity in us also collateralizes approximately $1 billion of other
financing arrangements, including leases, letters of credit and other
facilities.

A DEFAULT UNDER EL PASO'S $3 BILLION REVOLVING CREDIT FACILITY BY ANY PARTY
COULD ACCELERATE OUR FUTURE BORROWINGS, IF ANY, UNDER THE FACILITY AND OUR
LONG-TERM DEBT, WHICH COULD ADVERSELY AFFECT OUR LIQUIDITY POSITION.

We are a party to El Paso's $3 billion revolving credit facility. We are
only liable, however, for our borrowings under the facility, which were zero as
of December 31, 2003. Under the facility, a default by El Paso, or any other
party, could result in the acceleration of all outstanding borrowings under the
facility, including the borrowings of any non-defaulting party. El Paso's
revisions to its reserve estimates would likely result in a restatement of its
historical financial statements. Any such material restatement would result in
an event of default under El Paso's revolving credit facility, which could
result in the acceleration of any outstanding borrowings by El Paso, and would
preclude us from borrowing under the facility in the future. The acceleration of
our future borrowings, if any, under the credit facility, or the inability to
borrow under the credit facility, could adversely affect our liquidity position
and, in turn, our financial condition.
11

Furthermore, any indentures governing our long-term debt include
cross-acceleration provisions. Therefore, if we borrow $5 million or more under
the credit facility and such borrowings are accelerated for any reason,
including the default of another party, our long-term debt could also be
accelerated. The acceleration of our long-term debt could also adversely affect
our liquidity position and, in turn, our financial condition.

WE COULD BE SUBSTANTIVELY CONSOLIDATED WITH EL PASO IF EL PASO WERE FORCED TO
SEEK PROTECTION FROM ITS CREDITORS IN BANKRUPTCY.

If El Paso were the subject of voluntary or involuntary bankruptcy
proceedings, El Paso and its other subsidiaries and their creditors could
attempt to make claims against us, including claims to substantively consolidate
our assets and liabilities with those of El Paso and its other subsidiaries. The
equitable doctrine of substantive consolidation permits a bankruptcy court to
disregard the separateness of related entities and to consolidate and pool the
entities' assets and liabilities and treat them as though held and incurred by
one entity where the interrelationship between the entities warrants such
consolidation. We believe that any effort to substantively consolidate us with
El Paso and/or its other subsidiaries would be without merit. However, we cannot
assure you that El Paso and/or its other subsidiaries or their respective
creditors would not attempt to advance such claims in a bankruptcy proceeding
or, if advanced, how a bankruptcy court would resolve the issue. If a bankruptcy
court were to substantively consolidate us with El Paso and/or its other
subsidiaries, there could be a material adverse effect on our financial
condition and liquidity.

WE ARE A WHOLLY OWNED SUBSIDIARY OF NORIC III, AN INDIRECT SUBSIDIARY OF EL
PASO.

As we are an indirect subsidiary of El Paso, El Paso has substantial
control over:

- our payment of dividends;

- decisions on our financings and our capital raising activities;

- mergers or other business combinations;

- our acquisitions or dispositions of assets; and

- our participation in El Paso's cash management program.

El Paso may exercise such control in its interests and not necessarily in
the interests of us or the holders of our long-term debt.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

Our primary market risk is exposure to changing interest rates. The table
below shows the carrying value and related weighted average effective interest
rates of our interest bearing securities, by expected maturity dates and the
fair value of those securities. As of December 31, 2003, the fair values of our
long-term debt securities have been estimated based on quoted market prices for
the same or similar issues.

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

(1) Holders of $100 million of our long-term debt, which has a stated maturity
date of 2037, have the option to redeem these securities in 2007 at par
value. As a result, we assume these amounts will mature in 2007.

12

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

COLORADO INTERSTATE GAS COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN MILLIONS)

See accompanying notes.

13

COLORADO INTERSTATE GAS COMPANY

CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)

See accompanying notes.
14

COLORADO INTERSTATE GAS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

See accompanying notes.

15

COLORADO INTERSTATE GAS COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN MILLIONS, EXCEPT SHARE AMOUNTS)

See accompanying notes.

16

COLORADO INTERSTATE GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

Our consolidated financial statements include the accounts of all
majority-owned, controlled subsidiaries after the elimination of all significant
intercompany accounts and transactions. We consolidate entities when we have the
ability to control the operating and financial decisions and policies of that
entity. Our financial statements for prior periods include reclassifications
that were made to conform to the current year presentation. Those
reclassifications had no impact on reported net income or stockholder's equity.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts we report as assets, liabilities, revenues and expenses
and our disclosures in these financial statements. Actual results can, and often
do, differ from those estimates.

Regulated Operations

Our natural gas pipeline is subject to the jurisdiction of the FERC in
accordance with the Natural Gas Act of 1938 and Natural Gas Policy Act of 1978.
In 1996, we discontinued the use of regulated accounting under SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation, because of a
substantial amount of volumes being transported on our system at discounted
rates and the impact of expected increases in competition, coupled with slow
demand growth, which would put the recovery of our cost of service at risk.
Since that time, market improvements, including the growth in the demand for
electricity from gas fired power plants in the western United States and
improved value for off-system capacity, the completion of our latest rate case
in 2003 and the subscription of nearly all of our current capacity have resulted
in our re-application of regulated accounting under SFAS No. 71 effective
December 31, 2003. SFAS No. 71 provides that rate regulated enterprises account
for and report assets and liabilities consistent with the economic effect of the
way in which regulators establish rates, if the rates are designed to recover
the costs of providing the regulated service and if the competitive environment
makes it reasonable to assume that such rates can be charged and collected. We
will perform an annual review to assess the ongoing applicability of SFAS No.
71.

As a result of re-establishing the principles of SFAS No. 71, we recorded
other income of $15 million in our 2003 income statement comprised of $9 million
to record the regulatory asset associated with the tax gross-up of allowance for
funds used during construction (AFUDC) and $6 million to record the
postretirement benefits to be collected from our customers in the future.
Additionally, we reclassified $1 million in other non-current assets and $2
million in other current and non-current liabilities as regulatory related
matters. See Note 7 for a detail of our regulatory assets and liabilities.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

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

17

Materials and Supplies

We value materials and supplies at the lower of cost or market value with
cost determined using the average cost method.

Natural Gas Imbalances

Natural gas imbalances occur when the actual amount of natural gas
delivered from or received by a pipeline system, processing plant or storage
facility differs from the contractual amount scheduled to be delivered or
received. We value these imbalances due to or from shippers and operators at the
end of year actual or appropriate market index price. Imbalances are settled in
cash or made up in-kind, subject to the contractual terms of settlement.

Imbalances due from others are reported in our balance sheet as either
accounts receivable from customers or accounts receivable from affiliates.
Imbalances owed to others are reported on the balance sheet as either trade
accounts payable or accounts payable to affiliates. In addition, all imbalances
are classified as current.

Property, Plant and Equipment

Our property, plant and equipment is recorded at its original cost of
construction or, upon acquisition, at either the fair value of the assets
acquired or the cost to the entity that first placed the asset in service. We
capitalize direct costs, such as labor and materials and indirect costs, such as
overhead, interest and, upon adoption of SFAS No. 71, an equity return component
for our regulated businesses as allowed by the FERC. We capitalize the major
units of property replacements or improvements and expense minor items.

Prior to our re-application of SFAS No. 71, we used the straight-line
method to depreciate our pipeline and storage systems over their remaining
useful lives of 50 years at a rate of 2 percent. Upon the re-application of SFAS
No. 71, we changed this method to a composite (group) method which is consistent
with the manner in which we recover our capitalized costs in our established
rates. Under this method, assets with similar lives and other characteristics
are grouped and depreciated as one asset. Currently, our depreciation rates vary
from 2 to 27 percent. Using these rates, the average remaining depreciable lives
of these assets range from 2 to 32 years.

When we retire property, plant and equipment, we charge accumulated
depreciation and amortization for the original cost, plus the cost to remove,
sell or dispose, less its salvage value. Prior to the re-application of SFAS No.
71, we recognized gains or losses in income from sales of assets less the cost
of the assets. Following the re-application of SFAS No. 71, we do not recognize
a gain or loss on regulated property plant and equipment unless we sell an
entire operating unit. We include gains or losses on dispositions of operating
units in income.

At December 31, 2003 and 2002, we had approximately $37 million and $66
million of construction work in progress included in our property, plant and
equipment.

We capitalize a carrying cost on funds invested during construction of
long-lived assets. This carrying cost is calculated based on our average cost of
debt. Interest capitalized during the years ended December 31, 2003, 2002, and
2001, was $2 million, $3 million and $2 million. These amounts are included as
an offset to interest expense in our income statement. Beginning in 2004, as a
result of our application of SFAS No. 71, an allowance for funds used during
construction, or AFUDC equity component will also be recorded based on average
funds invested. Capitalized carrying costs for debt and equity are reflected as
an increase in the cost of the asset on our balance sheet.

Asset Impairments

We evaluate our assets for impairment when events or circumstances indicate
that a long-lived asset's carrying value may not be recovered. These events
include market declines, changes in the manner in which we intend to use an
asset or decisions to sell an asset and adverse changes in the legal or business
environment

18

such as adverse actions by regulators. At the time we decide to exit an activity
or sell a long-lived asset or group of assets, we adjust the carrying value of
those assets downward, if necessary, to the estimated sales price, less costs to
sell. We also classify these assets as either held for sale or as discontinued
operations, depending on whether they have independently determinable cash
flows. We applied SFAS No. 144 in accounting for the sales of our field services
and production businesses during 2003 and 2002, which met all of the
requirements to be treated as discontinued operations in 2003 and 2002. See Note
3 for further information.

Accumulated Other Comprehensive Income

On January 1, 2001, we adopted the provisions of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, and recorded a cumulative
unrealized loss of $2 million, net of income taxes, in accumulated other
comprehensive income to recognize the fair value of all derivatives designated
as cash flow hedging instruments. As of December 31, 2001, the value of cash
flow hedges included in accumulated other comprehensive income was an unrealized
gain of $3 million, net of income taxes. As a result of the sale of most of our
pipeline segment's natural gas and oil properties, in June 2002, we recognized a
$3 million reduction in comprehensive income on derivative positions that no
longer qualified as cash flow hedges under SFAS No. 133. We terminated all of
our derivative positions in 2002, and are no longer involved in hedging
activities. For the years ended December 31, 2002 and 2001, no ineffectiveness
was recorded in earnings on our cash flow hedges.

Revenue Recognition

Our revenues consist primarily of demand and throughput-based
transportation and storage services. We recognize demand revenues on firm
contracted capacity and storage monthly over the contract period, regardless of
the amount of capacity that is actually used. For throughput-based services, as
well as revenues on sales of natural gas and related products, we record
revenues when physical deliveries of natural gas or other commodities are made
at the agreed upon delivery point. Revenues in all services are generally based
on the thermal quantity of gas delivered or subscribed at a price specified in
the contract or tariff. Our pipeline is subject to FERC regulations and, as a
result, revenues we collect may be refunded in a final order of a pending rate
proceeding or as a result of a rate settlement. We establish reserves for these
potential refunds.

Environmental Costs and Other Contingencies

We record environmental liabilities when our environmental assessments
indicate that remediation efforts are probable and the costs can be reasonably
estimated. We recognize a current period expense when the clean-up efforts do
not benefit future periods. We capitalize costs that benefit more than one
accounting period except in instances where separate agreements or legal and
regulatory guidelines dictate otherwise. Estimates of our liabilities are based
on currently available facts, existing technology and presently enacted laws and
regulations taking into account the likely effects of inflation and other
societal and economic factors, and include estimates of associated legal costs.
These amounts also consider prior experience in remediating contaminated sites,
other companies' clean-up experience and data released by the Environmental
Protection Agency (EPA) or other organizations. These estimates are subject to
revision in future periods based on actual costs or new circumstances and are
included in our balance sheet in other current and long-term liabilities at
their undiscounted amounts. We evaluate recoveries from insurance coverage, rate
recovery, government sponsored and other programs separately from our liability
and, when recovery is assured, we record and report an asset separately from the
associated liability in our financial statements.

We recognize liabilities for other contingencies when we have an exposure
that, when fully analyzed, indicates it is both probable that an asset has been
impaired or that a liability has been incurred and the amount of impairment or
loss can be reasonably estimated. Funds spent to remedy these contingencies are
charged against a reserve, if one exists, or expensed. When a range of probable
loss can be estimated, we accrue the most likely amount or at least the minimum
of the range of probable loss.

19

Income Taxes

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

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

2. LIQUIDITY

In February 2004, El Paso announced that it had completed a review of its
estimates of natural gas and oil reserves. As a result of this review, El Paso
announced that it was reducing its proved natural gas and oil reserves by
approximately 1.8 Tcfe. El Paso also announced that this reserve revision would
result in a 2003 charge of approximately $1 billion if the full impact of the
revision was taken in that period. In March 2004, El Paso provided an update and
stated that the revisions would likely result in a restatement of its historical
financial statements, the timing and magnitude of which are still being
determined.

A material restatement of El Paso's prior period financial statements may
result in an "event of default" under El Paso's revolving credit facility and
various other financing transactions; specifically under the provisions of the
facility related to representations and warranties on the accuracy of its
historical financial statements and its debt to total capitalization ratio. El
Paso has received waivers on its revolving credit facility and two other
transactions. These waivers have a condition that provides for the expiration of
the waiver in thirty days, unless El Paso successfully receives waivers on other
specified transactions within that time period. El Paso is pursuing these
additional waivers and expects to receive them. However, if El Paso is unable to
obtain these additional waivers, and there is an existing event of default, El
Paso could be required to immediately repay the amounts outstanding under the
revolving credit facility, and El Paso and we would be precluded from borrowing
under this facility. We currently have no outstanding borrowings under the
facility, have never borrowed under the facility and do not believe we will need
to borrow from the facility in the future. In addition, based upon a review of
the covenants and indentures of our other outstanding indebtedness, we do not
believe that a default on the revolving credit facility would constitute an
event of default on our other debt securities.

El Paso is a significant potential source of liquidity to us. We
participate in El Paso's cash management program. Under this program, depending
on whether we have short-term cash surpluses or requirements, we either provide
cash to El Paso or El Paso provides cash to us. We have historically and
consistently provided cash to El Paso under this program, and as of December 31,
2003, we had a cash advance receivable from El Paso of $563 million, classified
as a non-current asset in our balance sheet. If El Paso were unable to meet its
liquidity needs, we would not have access to this source of liquidity and there
is no assurance that El Paso could repay the entire amounts owed to us. In that
event, we could be required to write-off some amount of these advances, which
could have a material impact on our stockholder's equity. Furthermore, we would
still be required to repay affiliated company payables. Non-cash write-downs
that cause our debt to EBITDA (as defined in our agreements) ratio to fall below
5 to 1 could prohibit us from incurring additional debt. However, this non-cash
equity reduction would not result in a default under our existing debt
securities. In addition,

20

based on our current estimates of cash flows, we do not believe we will need to
seek repayment of all or part of these advances in the next year.

El Paso's ownership in us serves as collateral under El Paso's revolving
credit facility and other of El Paso's borrowings. If El Paso's lenders under
this facility or those borrowings were to exercise their rights to this
collateral, our ownership could change. However, this change of control would
not constitute an event of default under our existing debt securities. However,
if the rating of our debt were downgraded by the rating agencies by "one full
grade" within 60 days after a change of control, we would be required to give
some of our bondholders the option to tender their debt.

If, as a result of the events described above, El Paso were subject to
voluntary or involuntary bankruptcy proceedings, El Paso and its other
subsidiaries and their creditors could attempt to make claims against us,
including claims to substantively consolidate our assets and liabilities with
those of El Paso and its other subsidiaries. We believe that claims to
substantively consolidate us with El Paso and/or its other subsidiaries would be
without merit. However, there is no assurance that El Paso and/or its other
subsidiaries or their creditors would not advance such a claim in a bankruptcy
proceeding. If we were to be substantively consolidated in a bankruptcy
proceeding with El Paso and/or its other subsidiaries, there could be a material
adverse effect on our financial condition and our liquidity.

Finally, we have cross-acceleration provisions in our long-term debt that
state that should we incur an event of default under which borrowings in excess
of $5 million are accelerated, our long-term debt could also be accelerated. The
acceleration of our long-term debt would adversely affect our liquidity position
and, in turn, our financial condition.

3. DISCONTINUED OPERATIONS AND DIVESTITURES

Discontinued Operations

In the first quarter of 2003, we announced a plan to sell our Mid-Continent
midstream assets and completed the sale of our Wyoming gathering systems. With
this announcement, we completed or announced the sale of substantially all of
our midstream assets. As a result, we reclassified these assets and operations
as discontinued operations in our financial statement beginning in the first
quarter of 2003.

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 also reflected as discontinued operations in the
third quarter of 2002.

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 December 2002, we sold the Natural Buttes gas gathering facilities to
Westport Resources Corporation. Net proceeds from this sale were approximately
$39 million, and we recognized a gain of approximately $25 million. 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 April 2002, we executed an agreement to sell to Pioneer Natural
Resources USA, Inc. and affiliates (Pioneer) all of our interests in natural gas
and oil production properties and related contracts located in Texas, Kansas and
Oklahoma. The sale was completed on July 1, 2002, and as part of the sale, we
assigned all our rights and obligations under the Amarillo "B" contract to
Pioneer. These properties were previously included in our Pipeline segment. Net
proceeds from the sale were approximately $112 million, and we recognized a gain
in the third quarter of 2002 of approximately $23 million, net of an $8 million
reserve for environmental contingencies and $13 million of income taxes.

21

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

Divestitures

During 2003, we sold various 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.

During March 2002, we sold natural gas and oil production properties
located in south Texas, to our indirect parent, El Paso CGP Company (El Paso
CGP). Proceeds from this sale were approximately $2 million. We did not
recognize a gain or loss on the properties sold.

During November 2002, we sold CIG Exploration, Inc., a consolidated
subsidiary, to CIGE Holdco, Inc., an affiliated company. We received gross
proceeds from this sale of $75 million, which was based on the net book value of
the company (since the sale occurred between affiliated entities under common
control). We did not recognize a gain or loss on the sale.

4. MERGER-RELATED COSTS

During the year ended December 31, 2001, we incurred merger-related costs
of $31 million associated with El Paso's merger with our former parent company,
El Paso CGP in January 2001. These charges include employee costs of $13 million
which consist of employee severance, retention and transition costs for severed
employees and early retirees that occurred as a result of El Paso's
merger-related workforce reduction and consolidation, costs for pension and
postretirement benefits settled and curtailed under existing benefit plans.
Following the merger, approximately 180 full-time positions were eliminated
through a combination of early retirement and terminations. The pension and
postretirement benefits were accrued on the merger date and will be paid over
the applicable benefit periods of the terminated and retired employees. All
other employee costs were expensed as incurred and were paid in the first and
second quarters of 2001. Also included in

22

merger-related costs were $18 million, primarily associated with a $7 million
write-off related to the valuation of natural gas imbalances to conform our
imbalance valuation methods to El Paso's, and $9 million related to a disputed
gas pricing claim. All charges were accrued as of the merger date with the
exception of the gas pricing claim which was expensed when incurred.

5. INCOME TAXES

The following table reflects the components of income tax expense from
continuing operations for each of the three years ended December 31:

Our income tax expense from continuing operations differs from the amount
computed by applying the statutory federal income tax rate of 35 percent to
income before taxes for the following reasons at December 31:

The following are the components of our net deferred tax liability of
continuing operations at December 31:

23

Under El Paso's tax accrual policy, we are allocated the tax effects
associated with our employees' non-qualified dispositions of employee stock
purchase plan stock, the exercise of non-qualified stock options and the vesting
of restricted stock as well as restricted stock dividends. This allocation
increased taxes payable by $1 million in 2003 and reduced taxes payable by $1
million in 2001. This allocation was not material in 2002. These tax effects are
included in additional paid-in capital in our balance sheet.

6. FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of our financial instruments
are as follows at December 31:

- ---------------
(1) We estimated the fair value of debt with fixed interest rates based on
quoted market prices for the same or similar issues.

As of December 31, 2003 and 2002, the carrying amounts of cash and cash
equivalents, short-term borrowings, and trade receivables and payables are
representative of fair value because of the short-term maturity of these
instruments.

7. REGULATORY ASSETS AND LIABILITIES

Our regulatory assets and regulatory liabilities as of December 31, 2003
and 2002 are presented below.

- ---------------
(1) These amounts are not included in our rate base on which we earn a current
return.

(2) Amounts are included as other non-current assets and other current and
non-current liabilities in our balance sheet.

8. LONG-TERM DEBT

Our long-term debt outstanding consisted of the following at December 31:

- ---------------
(1) Contains cross-acceleration provisions, the most restrictive of which is a
$5 million cross-acceleration clause. If triggered, repayment of our
long-term debt, could be accelerated.

(2) These debentures are puttable to us by the holders in 2007. For maturity
purposes, we assume these will be redeemed in 2007.
24

Aggregate maturities of the principal amounts of long-term debt for the
next five years and in total thereafter are as follows:

Other Financing Arrangements

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 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 replaced El
Paso's previous $3 billion revolving credit facility. El Paso's $1 billion
revolving credit facility, which matured in August 2003, and 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
under those arrangements to the new credit facility. In December 2003, we became
a borrower under the $3 billion revolving credit facility along with El Paso and
our affiliates, ANR Pipeline Company, Tennessee Gas Pipeline Company (TGP) and
El Paso Natural Gas Company (EPNG), and El Paso's equity in several of its
subsidiaries, including its equity in us, collateralize the credit facility and
the other financing arrangements. We are only liable for amounts we directly
borrow. As of December 31, 2003, $850 million was outstanding and $1.2 billion
in letters of credit were issued under the $3 billion revolving credit facility,
none of which was borrowed by or issued on behalf of us. See Note 2 for a
discussion regarding El Paso's possible default on the $3 billion revolving
credit facility.

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. In December 2003, El Paso
repaid the outstanding balance on the Clydesdale term loan and we were released
as collateral.

Under the $3 billion revolving credit facility and other indentures, we are
subject to a number of restrictions and covenants. The most restrictive of these
include (i) limitations on the incurrence of additional debt, based on a ratio
of debt to EBITDA (as defined in the agreements); (ii) limitations on the use of
proceeds from borrowings; (iii) limitations, in some cases, on transactions with
our affiliates; (iv) limitations on the incurrence of liens; (v) potential
limitations on our ability to declare and pay dividends; and (vi) potential
limitations on our ability to participate in the El Paso cash management program
discussed in Note 14. For the year ended December 31, 2003, we were in
compliance with all of our debt-related covenants.

9. 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
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). Discovery is proceeding. Our costs and legal exposure related to these
lawsuits and claims are not currently determinable.

25

Will Price (formerly Quinque). We and a number of our affiliates are named
defendants in Will Price, et al. v. Gas Pipelines and Their Predecessors, et
al., filed in 1999 in the District Court of Stevens County, Kansas. Plaintiffs
allege that the defendants mismeasured natural gas volumes and heating content
of natural gas on non-federal and non-Native American lands and seek to recover
royalties that they contend they 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 of a nationwide class of
natural gas working interest owners and natural gas royalty owners was denied on
April 10, 2003. Plaintiffs were granted leave to file a Fourth Amended Petition
which narrows the proposed class to royalty owners in wells in Kansas, Wyoming
and Colorado and removes claims as to heating content. A second class action has
since been filed as to the heating content claims. Our costs and legal exposure
related to these lawsuits 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 this information becomes available, or other relevant developments occur, we
will adjust our accrual amounts accordingly. While there are still uncertainties
related to the ultimate costs we may incur, based upon our evaluation and
experience to date, we believe our current reserves are adequate. As of December
31, 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 December
31, 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. This accrual includes $9 million for
environmental contingencies related to oil and gas properties we sold in 2003.
Our accrual at December 31, 2003, was based on the most likely outcome that can
be reasonably estimated. Below is a reconciliation of our accrued liability as
of December 31, 2003 (in millions):

Balance as of January 1, 2003............................... $13
Additions/adjustments for remediation activities............ 3
Payments for remediation activities......................... (2)
---
Balance as of December 31, 2003............................. $14
===

For 2004, we estimate that our total remediation expenditures will be
approximately $4 million, which will be expended under government directed
clean-up plans. In addition, we expect to make capital expenditures for
environmental matters of approximately $1 million in the aggregate for the years
2004 through 2008. These expenditures primarily relate to compliance with clean
air regulations.

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.

26

Rates and Regulatory Matters

FERC Audit of Capacity Release Transactions. On December 1, 2003, the
FERC's Office of Market Oversight and Investigations (OMOI) sent us a data
request related to capacity release transactions. We responded on January 15,
2004. Our costs and legal response related to this matter are not currently
determinable.

There are other regulatory rules and orders in various stages of adoption,
review and/or implementation, none of which we believe will have a material
impact on us.

While the outcome of our outstanding 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 and accruals related to these
matters. 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.

Capital and Other Commitments

At December 31, 2003, we had capital and investment commitments of
approximately $3 million primarily related to our ongoing capital projects. Our
other planned capital and investment projects are discretionary in nature, with
no substantial capital commitments made in advance of the actual expenditures.

We executed a service agreement with Wyoming Interstate Company, Ltd., our
affiliate, providing for the availability of pipeline transportation capacity
through July 31, 2007. Under the service agreement, we are required to make
minimum annual payments of $9 million for 2004, $7 million for 2005, $5 million
for 2006, and $2 million for 2007. We expensed approximately $9 million for each
of the three years ended December 31, 2003 pursuant to this agreement.

Operating Leases

We lease property, facilities and equipment under various operating leases.
The aggregate minimum lease commitments are $1 million for the years 2004 to
2008. These amounts exclude minimum annual commitments paid by El Paso, which
are allocated to us through an overhead allocation. See a further discussion of
transactions with related parties in Note 14. Rental expense on our operating
leases for the years ended December 31, 2003, 2002 and 2001, was $2 million, $3
million and $3 million.

10. RETIREMENT BENEFITS

Pension and Retirement Benefits

El Paso maintains a pension plan to provide benefits as determined under a
cash balance formula covering substantially all of its U.S. employees, including
our employees. Prior to our merger with El Paso, our former parent, El Paso CGP,
provided non-contributory pension plans covering substantially all of its U.S.
employees, including our employees. On April 1, 2001, this plan was merged into
El Paso's existing cash balance plan. Our employees who were participants in
this plan on March 31, 2001 receive the greater of cash balance benefits under
the El Paso plan or the predecessor's plan benefits accrued through March 31,
2006.

El Paso maintains a defined contribution plan covering its U.S. employees,
including our employees. Prior to May 1, 2002, El Paso matched 75 percent of
participant basic contributions up to 6 percent, with matching contributions
being made to the plan's stock fund, which participants could diversify at any
time. After May 1, 2002, the plan was amended to allow for matching
contributions to be invested in the same manner as that of participant
contributions. In March 2003, El Paso suspended the matching contribution.
Effective July 1, 2003, El Paso began making matching contributions again at a
rate of 50 percent of participant basic contributions up to 6 percent. El Paso
is responsible for benefits accrued under its plans and allocates the related
costs to its affiliates.

27

Other Postretirement Benefits

As a result of El Paso's merger with our former parent, El Paso CGP, we
offered a one-time election through an early retirement window for employees who
were at least age 50 with 10 years of service on December 31, 2000, to retire on
or before June 30, 2001, and keep benefits under our postretirement medical and
life plans. Total charges associated with the curtailment and special
termination benefits were $8 million. Medical benefits for this closed group of
retirees may be subject to deductibles, co-payment provisions, and other
limitations and dollar caps on the amount of employer costs. El Paso reserves
the right to change these benefits. Employees who retired after June 30, 2001,
continue to receive limited postretirement life insurance benefits. Our
postretirement benefit plan costs are pre-funded to the extent these costs are
recoverable through our rates. We expect to contribute $2 million to our other
postretirement benefit plan in 2004.

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 was signed into law. The benefit obligations and costs
reported below, which include prescription drug coverage, do not reflect the
impact of this legislation. Current accounting standards that are not yet
effective may require changes to previously reported benefit information once
they are finalized.

The following table presents the change in benefit obligation, change in
plan assets, reconciliation of funded status, and components of net periodic
benefit cost for other postretirement benefits as of and for the twelve months
ended September 30 (the plan reporting date):

Benefit costs include the following components for the year ended December
31:

28

Benefit obligations are based on actuarial estimates and assumptions. The
following table details the weighted average assumptions we used for our other
postretirement plan for 2003, 2002 and 2001:

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

(1) The expected return on plan assets is a pre-tax rate (before a tax rate
ranging from 38% to 39% on postretirement benefits) that is primarily based
on an expected risk-free investment return, adjusted for historical risk
premiums and specific risk adjustments associated with our debt and equity
securities. These expected returns were then weighted based on the target
asset allocations of our investment portfolio.

Actuarial estimates for our postretirement benefits plan assumed a weighted
average annual rate of increase in the per capita costs of covered health care
benefits of 10.0 percent in 2003, gradually decreasing to 5.5 percent by the
year 2008. Assumed health care cost trends can have a significant effect on the
amounts reported for other postretirement benefit plans. The impact of a
one-percentage point increase or decrease in assumed health care cost trends
presented above would have been less than $1 million for both our service and
interest costs and our accumulated postretirement benefit obligations.

Other Postretirement Plan Assets. The following table provides the actual
asset allocations in our postretirement plan as of September 30:

The target allocation for the invested assets is 65% equity/35% fixed
income. In late 2003, we modified our target asset allocations for our
postretirement plan to increase our equity allocation to 65 percent of total
plan assets. As of September 30, 2003 we had not yet adjusted our portfolio's
investments to reflect this change in strategy. Other assets are held in cash
for payment of benefits upon presentment. Any El Paso stock held by the plan is
held indirectly through investments in mutual funds.

The primary investment objective of our plan is to ensure, that over the
long-term life of the plan, an adequate pool of sufficiently liquid assets
exists to support the benefit obligation to participants, retirees and
beneficiaries. In meeting this objective, the plan seeks to achieve a high level
of investment return consistent with a prudent level of portfolio risk.
Investment objectives are long-term in nature covering typical market cycles of
three to five years. Any shortfall in investment performance compared to
investment objectives is the result of general economic and capital market
conditions.

11. COMMON STOCK

During 2001 we paid cash dividends to our parent of $120 million. No common
stock dividends were declared or paid during 2002. In February 2003, we declared
and paid a $41 million dividend to our parent.

12. TRANSACTIONS WITH MAJOR CUSTOMER

The following table shows revenues from our major customer for each of the
three years ended December 31:

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

(1) Our contracts with PSCO include 1,418 BBtu/d that expire between 2005 and
2014. Of this amount, 187 BBtu/d expires in 2005 and 970 BBtu/d expires in
2007. PSCO represents approximately 46% of our firm capacity.

29

13. SUPPLEMENTAL CASH FLOW INFORMATION

The following table contains supplemental cash flow information for each of
the three years ended December 31:

14. TRANSACTIONS WITH AFFILIATES

We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of its participating affiliates, thus
minimizing total borrowing from outside sources. We had advanced $563 million at
December 31, 2003, at a market rate of interest which was 2.8%. At December 31,
2002, we had advanced $469 million at a market rate of interest which was 1.5%.
These receivables are due upon demand; however; we do not anticipate settlement
within the next twelve months. As of December 31, 2003 and 2002, we classified
$563 million and $444 million as non-current note receivables from affiliates.
See Note 2 for a discussion regarding our participation in and the
collectibility of these receivables.

At December 31, 2003 and 2002, we had other accounts receivable from
affiliates of $1 million and $17 million. In addition, at December 31, 2003, we
had a $6 million non-current note receivable from our parent, Noric III.
Accounts payable to related parties was $10 million and $11 million at December
31, 2003 and 2002. These balances arose in the normal course of our business. As
a result of El Paso's credit rating downgrades, we maintained $3 million and $2
million as of December 31, 2003 and 2002, in contractual deposits related to our
affiliates' transportation contracts on our system.

El Paso allocates a portion of its general and administrative expenses to
us. The allocation is based on the estimated level of effort devoted to our
operations and the relative size of our EBIT, gross property and payroll. For
the years ended December 2003, 2002 and 2001 the annual charges were $27
million, $22 million and $36 million. During 2003, 2002 and 2001, EPNG and TGP
allocated payroll and other expenses to us associated with our shared pipeline
services. The allocated expenses are based on the estimated level of staff and
their expenses to provide the services. For the years ended December 2003, 2002
and 2001, the annual charges were $19 million, $16 million and $10 million.
During 2003, 2002, and 2001 we provided some administrative functions for our
affiliates. We, in turn, allocated administrative and general operating costs to
our affiliates based on reasonable contractual levels for the services provided.
The amounts recorded for these services are reported as reimbursement of
operating expenses. We believe all the allocation methods are reasonable.

We enter into transactions with other El Paso subsidiaries in the normal
course of our business to transport, sell and purchase natural gas which
increased our affiliated revenue and charges. As discussed more fully in Note 9,
we also have a transportation service agreement with Wyoming Interstate Company,
Ltd. that extends through 2007. Services provided by these affiliates are based
on the same terms as non-affiliates.

The following table shows revenues and charges from our affiliates for each
of the three years ended December 31:

30

15. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The table below presents our summarized quarterly financial information.
For the quarters ended March 31, 2003 and each of the quarters in 2002, our
summarized quarterly financial information includes reclassifications for
discontinued operations (see Note 3 for further discussion of our discontinued
operations).

31

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholder of
Colorado Interstate Gas Company:

In our opinion, the consolidated financial statements in the Index
appearing under Item 15(a)(1) present fairly, in all material respects, the
consolidated financial position of Colorado Interstate Gas Company and its
subsidiaries (the "Company") at December 31, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the Index under Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the
Company's indirect parent, El Paso Corporation, may be in default of covenants
contained in its revolving credit facility and other financing transactions.
Such an event of default could have a material impact on the Company's
liquidity. Certain waivers have been obtained by El Paso Corporation, however,
additional waivers must be obtained and certain conditions must be satisfied to
continue the effectiveness of the waivers.

As discussed in Note 1, the Company re-applied the provisions of Statement
of Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation, on December 31, 2003.

As discussed in Note 1, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, on January 1, 2001.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
March 15, 2004

32

SCHEDULE II

COLORADO INTERSTATE GAS COMPANY

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN MILLIONS)

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

(1) These amounts represent cash payments.

33

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

None.

ITEM 9A. 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 Annual 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 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 Annual 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.

34

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 Annual
Report.

PART III

Item 10, "Directors and Executive Officers of the Registrant;" Item 11,
"Executive Compensation;" Item 12, "Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters;" and Item 13, "Certain
Relationships and Related Transactions," have been omitted from this report
pursuant to the reduced disclosure format permitted by General Instruction I to
Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Audit Fees for the years ended December 31, 2003 and 2002 of $500,000
and $470,000 were for professional services rendered by PricewaterhouseCoopers
LLP for the audits of the consolidated financial statements of Colorado
Interstate Gas Company. No other audit-related, tax or other services were
provided by our auditors for the years ended December 31, 2003 and 2002.

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

35

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

1. Financial statements and supplemental information.

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

2. Financial statement schedules.

Schedule II -- Valuation and Qualifying
Accounts......................................... 33
All other schedules are omitted because they are
not applicable, or the required information is
disclosed in the financial statements or
accompanying notes.

3. Exhibit list........................................ 37

(B) REPORTS ON FORM 8-K.

None.

36

COLORADO INTERSTATE GAS COMPANY

EXHIBIT LIST
DECEMBER 31, 2003

Exhibits not incorporated by reference to a prior filing are designated by
an asterisk. All exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.

37

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
and our consolidated subsidiaries not filed herewith for the reason that the
total amount of securities authorized under any of such instruments does not
exceed 10 percent of our total consolidated assets.

38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on the 15th day of
March 2004.

COLORADO INTERSTATE GAS COMPANY

By /s/ JOHN W. SOMERHALDER II
------------------------------------
John W. Somerhalder II
Chairman of the Board

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

39

COLORADO INTERSTATE GAS COMPANY

EXHIBIT INDEX
DECEMBER 31, 2003

Exhibits not incorporated by reference to a prior filing are designated by
an asterisk. All exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.