TENNESSEE GAS PIPELINE CO - 10-Q Quarterly Report

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

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-4101

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

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

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

Telephone Number: (713) 420-2600

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

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

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

Common stock, par value $5 per share. Shares outstanding on May 14, 2004:
208

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TENNESSEE GAS PIPELINE COMPANY

TABLE OF CONTENTS

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

/d = per day
BBtu = billion British thermal units
Tcfe = trillion cubic feet of gas equivalents

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 Tennessee
Gas Pipeline Company and/or our subsidiaries.

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENNESSEE GAS PIPELINE COMPANY

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

See accompanying notes.

1

TENNESSEE GAS PIPELINE COMPANY

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

See accompanying notes.

2

TENNESSEE GAS PIPELINE COMPANY

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

See accompanying notes.

3

TENNESSEE GAS PIPELINE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We are an indirect wholly owned subsidiary of El Paso Corporation (El
Paso). We prepared this Quarterly Report on Form 10-Q under the rules and
regulations of the United States Securities and Exchange Commission. Because
this is an interim period filing presented using a condensed format, it does not
include all of the disclosures required by generally accepted accounting
principles. You should read it along with our 2003 Annual Report on Form 10-K,
which includes a summary of our significant accounting policies and other
disclosures. The financial statements as of March 31, 2004, and for the quarters
ended March 31, 2004 and 2003, are unaudited. We derived the balance sheet as of
December 31, 2003, from the audited balance sheet filed in our 2003 Form 10-K.
In our opinion, we have made all adjustments which are of a normal, recurring
nature to fairly present our interim period results. Due to the seasonal nature
of our business, information for interim periods may not necessarily be
indicative of our results of operations for the entire year. In addition, prior
period information presented in these financial statements includes
reclassifications which were made to conform to the current period presentation.
These reclassifications had no effect on our previously reported net income or
stockholder's equity.

Our accounting policies are consistent with those discussed in our 2003
Form 10-K.

2. LIQUIDITY

On May 3, 2004, El Paso announced that the results of its internal
investigation confirmed that its historical financial statements should be
restated to reflect its previously announced revisions to its natural gas and
oil reserve estimates. El Paso believes that a material restatement of its
financial statements would have constituted an event of default under its $3
billion revolving credit facility, under which we are eligible to borrow (see
Note 4), and various other financings; specifically under the provisions of
these arrangements related to representations and warranties on the accuracy of
its historical financial statements and on El Paso's debt to total
capitalization ratio. El Paso has received waivers on its $3 billion revolving
credit facility and these other financing transactions to address these issues,
and these waivers continue to be effective. These waivers require that El Paso
issue its December 31, 2003 financial statements by June 15, 2004. Otherwise, El
Paso would need to obtain additional waivers to avoid an event of default. Based
upon a review of our financing transactions, we do not believe that a default on
El Paso's $3 billion revolving credit facility constitutes an event of default
on our debt agreements.

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 March 31,
2004, we had a cash advance receivable from El Paso of $948 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. Write-downs that cause
our debt to EBITDA (as defined in our agreements) ratio to exceed 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, 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 interest in us and our equity investment in Bear Creek
Storage Company (Bear Creek) serve as collateral under El Paso's revolving
credit facility and other of El Paso's financing transactions. If El Paso's
lenders under this facility or those financing transactions were to exercise
their rights to this collateral, our ownership could change and our investment
in Bear Creek could be liquidated. However,

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this change of control and liquidation would not constitute an event of default
under our existing debt agreements.

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.

3. ACCUMULATED OTHER COMPREHENSIVE LOSS

Our comprehensive income at March 31, 2003, included a loss of $1 million,
representing our proportionate share of amounts recorded in other comprehensive
loss by Portland Natural Gas Transmission System (PNGTS), our equity investee,
related to its derivative hedging activities. In the fourth quarter of 2003, we
sold our 30 percent ownership interest in PNGTS and eliminated the accumulated
other comprehensive loss associated with this investment.

4. CREDIT FACILITIES

El Paso maintains a $3 billion revolving credit facility, with a $1.5
billion letter of credit sublimit, which matures on June 30, 2005. The $3
billion revolving credit facility has a borrowing cost of LIBOR plus 350 basis
points, letter of credit fees of 350 basis points and a commitment fee of 75
basis points on the unused portion of the facility. We, along with El Paso and
our affiliates, ANR Pipeline Company, Colorado Interstate Gas Company and El
Paso Natural Gas Company, are borrowers under the $3 billion revolving credit
facility. We are only liable for amounts we directly borrow under the $3 billion
revolving credit facility. As of March 31, 2004, $600 million was outstanding
and $1.1 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. During
the fourth quarter of 2003 and the first quarter of 2004, El Paso liquidated a
portion of the collateral that supported the $3 billion revolving credit
facility, which reduced the borrowing availability by $42 million. See Note 2
for a discussion regarding El Paso's waivers on the $3 billion revolving credit
facility.

El Paso's equity in several of its subsidiaries, including its equity in us
and our equity in Bear Creek, collateralizes the $3 billion revolving credit
facility and other financing arrangements including leases, letters of credit
and other facilities.

Under the $3 billion revolving credit facility and other financing
agreements, 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 our agreements), the
most restrictive of which shall not exceed 5 to 1; (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 El Paso's cash management program
discussed in Note 7.

5. 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

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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.

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 claim. 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 March
31, 2004, 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 March 31,
2004, we had accrued approximately $46 million, including approximately $45
million for expected remediation costs and associated onsite, offsite and
groundwater technical studies and approximately $1 million for related
environmental legal costs. Our accrual at March 31, 2004 was based on the most
likely outcome that can be reasonably estimated.

In addition, we expect to make capital expenditures for environmental
matters of approximately $42 million in the aggregate for the years 2004 through
2008. These expenditures primarily relate to compliance with clean air
regulations. For the remainder of 2004, we estimate that our total remediation
expenditures will be approximately $6 million, which primarily will be expended
under government directed clean-up plans.

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

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PCB Cost Recoveries. In May 1995, following negotiations with our
customers, we filed an agreement with the Federal Energy Regulatory Commission
(FERC) that established a mechanism for recovering a substantial portion of the
environmental costs identified in our internal remediation project. The
agreement, which was approved by the FERC in November 1995, provided for a PCB
surcharge on firm and interruptible customers' rates to pay for eligible costs
under the PCB remediation project, with these surcharges to be collected over a
defined collection period. We have twice received approval from the FERC to
extend the collection period, which is now currently set to expire in June 2004.
The agreement also provided for bi-annual audits of eligible costs. As of March
31, 2004, we had pre-collected our PCB costs by approximately $121 million. The
pre-collection will be reduced by future eligible costs incurred for the
remainder of the remediation project. To the extent actual eligible expenditures
are less than the amounts pre-collected, we will refund to our customers the
pre-collection amount plus carrying charges incurred up to the date of the
refunds.

As of March 31, 2004, we have recorded a regulatory liability (included in
other non-current liabilities on our balance sheet) of $90 million for future
refund obligations.

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

CERCLA Matters. We have received notice that we could be designated, or
have been asked for information to determine whether we could be designated, as
a Potentially Responsible Party (PRP) with respect to four active sites under
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) or state equivalents. We have sought to resolve our liability as a PRP
at these sites through indemnification by third parties and settlements which
provide for payment of our allocable share of remediation costs. As of March 31,
2004 we have estimated our share of the remediation costs at these sites to be
between $1 million and $2 million. Since the clean-up costs are estimates and
are subject to revision as more information becomes available about the extent
of remediation required, and because in some cases we have asserted a defense to
any liability, our estimates could change. Moreover, liability under the federal
CERCLA statute is joint and several, meaning that we could be required to pay in
excess of our pro rata share of remediation costs. Our understanding of the
financial strength of other PRPs has been considered, where appropriate, in
estimating our liabilities. Reserves for these matters are included in the
environmental reserve discussed above.

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

Rates and Regulatory Matters

Order No. 637. We filed our compliance proposal in August 2000 and
received an order on compliance from the FERC in April 2002. Most of our
compliance proposal was accepted, but the FERC rejected our proposals regarding
overlapping capacity segments, discounting and the priority of capacity. In
response, we sought rehearing and have made another compliance filing. On
October 31, 2002, FERC issued its order responding to the United States Court of
Appeals for the D.C. Circuit's order remanding the various aspects of Order No.
637. On December 2, 2002, we submitted a compliance filing with FERC to comply
with the October 31 order. We also filed for rehearing of the October 31 order.

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On July 11, 2003, the FERC issued an order on our rehearing request and
compliance filing as to the April 3, 2002 Order, denying our request for
rehearing regarding a replacement shipper's ability to select additional primary
points, forwardhauls and backhauls to the same delivery point, and discounting.
We filed certain required tariff revisions in response to that order and sought
further rehearing of certain issues. The Commission has not yet issued an order
on these filings. On February 20, 2004, the Court of Appeals for the D.C.
Circuit vacated certain Commission orders that applied its Order No. 637
discounting policy to Williston Basin pipeline. We cannot predict the outcome of
the compliance filings or the requests for rehearing.

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, we do not expect the
ultimate resolution of these matters to have a material adverse effect on our
financial position, operating results or cash flows. However, it is possible
that new information or future developments could require us to reassess our
potential exposure related to these matters, which could have a material effect
on our results of operations, our financial position, and on our cash flows.

Other Matters

CFTC Investigation. In April 2004, we elected to voluntarily cooperate
with the Commodity Futures Trading Commission (CFTC) in connection with the
CFTC's industry-wide investigation of activities affecting the price of natural
gas in the fall of 2003. Specifically, we provided information relating to
storage reports provided to the Energy Information Administration for the period
October 2003 though December 2003.

While the outcome of this matter cannot be predicted with certainty, based
on current information we do not expect the ultimate resolution of this matter
to have a material adverse effect on our financial position, operating results
or cash flows. However, it is possible that new information or future
developments could require us to reassess our potential exposure related to this
matter, which could have a material effect on our results of operations, our
financial position, and on our cash flows.

6. RETIREMENT BENEFITS

Our postretirement benefit costs for the quarters ended March 31, 2004 and
2003 were less than $1 million.

7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND TRANSACTIONS WITH AFFILIATES

Investments in Unconsolidated Affiliates

We hold investments in various affiliates which we account for using the
equity method of accounting. Summarized financial information for our
proportionate share of these investments is as follows:

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(1) We sold our investment in PNGTS during the fourth quarter of 2003.

(2) Our proportionate share of net income includes our share of taxes payable by
partners recorded by our equity investments.

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Transactions with Affiliates

We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of participating affiliates, thus minimizing
total borrowings from outside sources. As of March 31, 2004 and December 31,
2003, we had advanced to El Paso $948 million and $841 million. The market rate
of interest at March 31, 2004 was 2.5% and at December 31, 2003, was 2.8%. These
receivables are due upon demand; however, as of March 31, 2004 and December 31,
2003, we have classified these advances as non-current notes receivable from
affiliates because we do not anticipate settlement within the next twelve
months. See Note 2 for a discussion regarding our participation in and the
collectibility of these receivables.

At March 31, 2004 and December 31, 2003, we had other accounts receivable
from related parties of $7 million and $6 million. In addition, we had accounts
payable to related parties of $20 million and $8 million at March 31, 2004 and
December 31, 2003. These balances arose in the normal course of business.

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

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

The information contained in Item 2 updates, and should be read in
conjunction with, the information disclosed in our 2003 Form 10-K and the
financial statements and notes presented in Item 1 of this Form 10-Q.

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. Our business consists of consolidated
operations as well as investments in unconsolidated affiliates. 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
both our consolidated business and our unconsolidated investments 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 or other performance measures such as
operating income or operating cash flow.

The following is a reconciliation of our operating income to our EBIT and
our EBIT to our net income for the quarters ended March 31:

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OPERATING RESULTS (EBIT)

The following factors contributed to our overall EBIT increase to $111
million for the three months ended March 31, 2004 from $103 million for the
three months ended March 31, 2003:

INTEREST AND DEBT EXPENSE

Below is the analysis of our interest expense for the quarters ended March
31:

AFFILIATED INTEREST INCOME, NET

Affiliated interest income, net for the quarter ended March 31, 2004, was
$3 million higher than the same period in 2003 due to higher interest rates and
higher average advances to El Paso under its cash management program. The
average advance balance for the first quarter of 2003 changed from a payable of
$415 million to a receivable of $352 million in 2004. The average short-term
interest rate for the first quarter increased from 1.4% in 2003 to 2.7% during
the same period in 2004.

INCOME TAXES

Our effective tax rates were different than the statutory rate of 35
percent, primarily due to the effect of state income taxes in 2003 and 2004 and
the expiration of certain state net operating loss carryovers into 2004.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

Our liquidity needs have historically been provided through 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

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provides cash to us. We have historically provided cash advances to El Paso, and
we reflect these net advances as investing activities in our statement of cash
flows. As of March 31, 2004, we had receivables from El Paso of $948 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 March 31, 2004,
these receivables were classified as non-current notes receivable from
affiliates in our balance sheet. We believe that cash flows from operating
activities will be adequate to meet our short-term capital and debt service
requirements for our existing operations. However, as a result of announcements
by El Paso related to the restatement of its natural gas and oil reserves, our
ability to recover the amounts advanced under El Paso's cash management program
could be impacted.

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. Write-downs that cause our debt to EBITDA (as
defined in our agreements) ratio to exceed 5 to 1 could prohibit us from
incurring additional debt. However, this non-cash equity reduction would not
result in an event of default under our existing debt agreements. In addition,
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 interest in us and our equity investment in Bear Creek
serve as collateral under El Paso's revolving credit facility and other of El
Paso's financing transactions. If El Paso's lenders under this facility or those
financing transactions were to exercise their rights to this collateral, our
ownership could change and our investment in Bear Creek could be liquidated.
However, this change of control and liquidation would not constitute an event of
default under our existing debt agreements.

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.

Our cash flows for the quarters ended March 31 were as follows:

Cash Flows from Operating Activities

Net cash provided by operating activities was $116 million in 2004 versus
$37 million in 2003. This increase was primarily due to changes in assets and
liabilities and the timing of cash receipts on accounts receivable.

Cash Flows from Investing Activities

Net cash in investing activities in 2004 consisted of $107 million in
advances to El Paso under its cash management program and $9 million of capital
expenditures.

CAPITAL EXPENDITURES

Our capital expenditures for the quarter ended March 31, 2004 were
approximately $9 million. Under our current plan, we expect to spend $188
million during 2004 for capital expenditures consisting of $42 million to

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expand the capacity on our system and $146 million for maintenance capital. We
expect to fund our capital expenditures through a combination of internally
generated funds and/or by recovering amounts advanced to El Paso under its cash
management program, subject to the factors discussed above.

COMMITMENTS AND CONTINGENCIES

See Item 1, Financial Statements, Note 5, which is incorporated herein by
reference.

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RISK FACTORS AND CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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

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, 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.

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 is currently rated Caa1 by Moody's (with a negative outlook and under
review for a possible downgrade) and CCC+ by Standard & Poor's (with a negative
outlook), which are below investment grade ratings. Our senior unsecured
indebtedness 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 debt ratings will increase our cost of capital and collateral
requirements, and could impede our access to capital markets. As a result of its
downgrades over the last two years, 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 a long-range plan that, among other things, defines its 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 March 31,
2004, we have net receivables of approximately $935 million from El Paso and its
affiliates. El Paso provides cash management and other corporate services to 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 would 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 1, Financial Statements, Note 7.

In May 2004, El Paso announced that the results of its internal review of
its natural gas and oil reserves confirmed its previous assessment that the
financial statements for El Paso and its subsidiaries, El Paso CGP Company
(EPCGP) and El Paso Production Holding Company (EPPH), should be restated. At
this time, these restated financial statements have not been filed. Also, as a
result of its reduction in reserve estimates, several class action lawsuits have
been filed against El Paso and several of its subsidiaries, but not against us.
The reduction in reserve estimates has also become the subject of an SEC
investigation and may become the subject of 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 1, Financial Statements, Note 2 for a further discussion of
these matters.

14

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
FUTURE ISSUANCES OF 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 $3 billion revolving credit
facility, which were zero as of March 31, 2004. Under the $3 billion revolving
credit 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, and could preclude us from borrowing
under the facility in the future. We believe El Paso's announced restatement of
its prior period financial statements would have constituted an event of default
under the $3 billion credit facility; however, El Paso received waivers of the
potential defaults on its $3 billion credit facility, which continue to be
effective. See Item 1, Financial Statements, Note 2, for additional information
regarding these matters. The acceleration of our future borrowings, if any,
under the $3 billion revolving credit facility, or the inability to borrow under
the $3 billion revolving credit facility, could adversely affect our liquidity
position and, in turn, our financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 2003, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.

There are no material changes in our quantitative and qualitative
disclosures about market risks from those reported in our Annual Report on Form
10-K for the year ended December 31, 2003.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures and the internal controls over financial reporting as of
the end of the period covered by this Quarterly Report pursuant to Rules 13a-15
and 15d-15 under the Securities Exchange Act of 1934 (Exchange Act).

We strive to maintain disclosure controls and procedures and internal
controls over financial reporting that are designed to ensure that the
information required to be disclosed in our Exchange Act filings is recorded,
processed, summarized and reported within the required timeframes, and that this
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow for timely decisions regarding required disclosure. In doing so, we
recognize that the effectiveness of our or any system of controls and procedures
is subject to limitations, including the exercise of judgment in the design,
implementation and evaluation of controls and procedures, the assumptions used
in identifying future events and the ability to completely eliminate misconduct.
As a result, there is no assurance that our or any controls and procedures will
prevent all errors and all fraud. By their nature, controls and procedures can
provide only reasonable assurance regarding our control objectives.

Based on the controls evaluation, our principal executive officer and
principal financial officer have concluded that the disclosure controls are
effective. We are currently documenting and reviewing our internal controls to
ensure compliance with Section 404 of the Sarbanes Oxley Act of 2002 by December
31, 2004. While we are not aware of any items at this time that constitute
material weaknesses, as that term is defined in Auditing Standards (AU) Section
325, we are identifying areas where our processes can be improved, and are
actively working to implement those improvements. Furthermore, as we continue
our compliance review, we may identify additional matters which may need to be
reported or which may constitute material weaknesses in our internal controls
over financial reporting. Although we have identified deficiencies in our system
of internal controls over financial reporting, we do not believe these
deficiencies have had, or are reasonably likely to have, a material impact on
our financial statements. In addition, there have been no changes during the
period in our internal controls over financial reporting that would adversely
affect our ability to provide, with reasonable assurance, reliable information
required in our reports submitted under the Securities Exchange Act of 1934.

15

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Part I, Item 1, Financial Statements, Note 5, which is incorporated
herein by reference.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

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

Undertaking

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

b. Reports on Form 8-K

None.

16

SIGNATURES

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

TENNESSEE GAS PIPELINE COMPANY

Date: May 14, 2004 /s/ JOHN W. SOMERHALDER II
------------------------------------
John W. Somerhalder II
Chairman of the Board and Director
(Principal Executive Officer)

Date: May 14, 2004 /s/ GREG G. GRUBER
------------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer, Treasurer
and Director
(Principal Financial and Accounting
Officer)

17

TENNESSEE GAS PIPELINE COMPANY

EXHIBIT INDEX

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