EL PASO NATURAL GAS CO, 10-K, 1995-01-26

EL PASO NATURAL GAS CO
10-K, 1995-01-26
NATURAL GAS TRANSMISSION

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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 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 1-2700

EL PASO NATURAL GAS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 74-0608280
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

ONE PAUL KAYSER CENTER
100 NORTH STANTON STREET, EL PASO, TEXAS 79901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (915) 541-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $3 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS

<TABLE>
<S> <C>
6.90% NOTES DUE 1997
9.45% NOTES DUE 1999
7 3/4% NOTES DUE 2002
8 5/8% DEBENTURES DUE 2012
8 5/8% DEBENTURES DUE 2022
</TABLE>

THE ABOVE SECURITIES ARE REGISTERED ON THE NEW YORK STOCK EXCHANGE.
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/

STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.

Aggregate market value of the voting stock (which consists solely of shares
of common stock) held by non-affiliates of the registrant as of January 12,
1995, computed by reference to the closing sale price of the registrant's common
stock on the New York Stock Exchange on such date: $1,066,063,169.

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

Class: common stock, par value $3 per share. Shares outstanding on January
12, 1995: 35,387,989.
DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: El Paso Natural Gas Company's definitive Proxy Statement for the
1995 Annual Meeting of Stockholders, to be filed not later than 120 days after
the end of the fiscal year covered by this report, is incorporated by reference
into Part III.

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EL PASO NATURAL GAS COMPANY

TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM NO. CAPTION PAGE
- -------- ------- ----
<S> <C> <C>
PART I
1. and 2. Business and Properties.................................................... 1
3. Legal Proceedings.......................................................... 9
4. Submission of Matters to a Vote of Security Holders........................ 10

PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters...... 11
6. Selected Financial Data.................................................... 12
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
8. Financial Statements and Supplementary Data................................ 23
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 48

PART III
10. Directors and Executive Officers of the Registrant......................... 48
11. Executive Compensation..................................................... 48
12. Security Ownership of Certain Beneficial Owners and Management............. 48
13. Certain Relationships and Related Transactions............................. 48

PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 49
Signatures................................................................. 53
</TABLE>

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PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

Introduction

El Paso Natural Gas Company, incorporated in Delaware in 1928, owns and
operates one of the nation's largest mainline natural gas transmission and
gathering systems, connecting natural gas supply regions in New Mexico, Texas,
Oklahoma, and Colorado to markets in California, Nevada, Arizona, New Mexico,
Texas, and northern Mexico. As used herein, "Company" refers to El Paso Natural
Gas Company and its subsidiaries, and "EPG" refers to El Paso Natural Gas
Company, unless the context otherwise requires.

At December 31, 1991, EPG was a wholly owned subsidiary of Burlington
Resources Inc. ("BR"). In March 1992, EPG completed an initial public offering
of approximately 15 percent of its common stock in the form of newly issued
shares (the "Offering"). In June 1992, BR distributed all of the EPG common
shares it held to BR shareholders, the effect of which was to place all of EPG's
common stock in public ownership.

El Paso Gas Marketing Company ("EPGM") was incorporated in October 1992 as
a wholly owned subsidiary of EPG. EPGM commenced operations on November 1, 1992,
for the purpose of conducting all of EPG's new gas marketing business, while
also acting as EPG's agent in winding down its remaining role as a natural gas
merchant.

El Paso Field Services Company ("EPFS") was incorporated in June 1993 as a
wholly owned subsidiary of EPG. EPFS was formed for the purpose of owning,
operating, acquiring, and/or constructing natural gas gathering, processing, and
other related field services activities.

On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp., that subsidiary's 50 percent interest in Mojave Pipeline Company
("MPC"), a general partnership. This acquisition gave the Company 100 percent
ownership of MPC. MPC is a general partnership formed pursuant to the Uniform
Partnership Act of the State of Texas. MPC was formed for the purpose of
constructing, owning, and operating a federally regulated interstate natural gas
pipeline to serve the enhanced oil recovery operations and associated
cogeneration projects in the heavy oil fields in central California.

Components of Consolidated Operating Revenues

The following table sets forth the components of the Company's consolidated
operating revenues:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Reservation........................................ $506,122 $483,471 $346,027
Transportation..................................... 41,102 59,631 141,789
Gas and liquid sales............................... 225,857 280,839 237,965
Gathering and processing........................... 66,581 51,427 41,759
All other.......................................... 30,210 33,560 35,272
-------- -------- --------
Total.................................... $869,872 $908,928 $802,812
======== ======== ========
</TABLE>

In 1994, natural gas deliveries to Southern California Gas Company
("SoCal") and Pacific Gas & Electric Company ("PG&E") accounted for 22 percent
and 18 percent, respectively, of the Company's consolidated operating revenues.
No other customer accounted for 10 percent or more of the Company's consolidated
operating revenues.

EL PASO NATURAL GAS COMPANY

Operating Environment

EPG's pipeline facilities, services, and rates are regulated by the Federal
Energy Regulatory Commission ("FERC") in accordance with the Natural Gas Act of
1938 ("NGA") and the Natural Gas Policy Act of

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1978 ("NGPA"). Prior to the mid-1980s, EPG was engaged primarily in the business
of purchasing gas from producers at the wellhead and reselling such gas to local
distribution companies. Since 1984, the natural gas transmission industry has
undergone a major transformation in response to sweeping changes in market
conditions and regulatory policies. These developments have resulted in: (i) the
emergence of a nationwide spot market for natural gas and increasing competition
in natural gas markets; (ii) a restructuring of the contractual relationships
between pipelines and their traditional customers resulting in an increasing
displacement of sales service by transportation service; and (iii) the
renegotiation of gas purchase contracts between pipelines and producers to
reduce purchase obligations, reform pricing provisions, and settle take-or-pay
claims.

Beginning in April 1992, FERC issued a series of orders (the "Restructuring
Rules") directing a number of significant changes to the structure of the
services provided by interstate natural gas pipelines. The Restructuring Rules
are intended principally to assure "comparability" (i.e., that pipeline and
non-pipeline gas merchants are placed on an equal footing in competing for
sales), to provide a mechanism for the allocation of pipeline capacity, and to
eliminate competitive distortions arising from rate design differences between
United States and Canadian pipelines. Under the Restructuring Rules' rate
design, all fixed pipeline costs (including return on equity and related income
taxes) are recovered through reservation charges which do not vary with actual
throughput. Under the previously required rate design, return on equity and
related taxes were excluded from reservation charges but were recovered along
with variable costs through volumetric rates, which were rates paid for actual
volumes transported on the pipeline. Generally, under the Restructuring Rules'
rate design, volumetric rates are considerably lower than under the previously
required rate design, and pipeline earnings are less sensitive to variations in
actual throughput.

EPG is directly connected to three of the nation's most prolific gas
producing areas -- the San Juan, Permian, and Anadarko Basins. During 1994, EPG
delivered 1.3 trillion cubic feet ("Tcf") of natural gas, accounting for
approximately 6 percent of estimated total 1994 United States consumption.

EPG's system consists of approximately 17,000 miles of pipeline with 78
mainline compressor stations having an aggregate installed horsepower of
approximately 1.0 million. The system's present natural gas delivery capacity to
California and East-of-California markets, as discussed below, is approximately
4.6 billion cubic feet per day ("Bcf/d").

EPG's present capacity to deliver natural gas to California, the second
largest natural gas market in the United States, is approximately 3.3 Bcf/d.
EPG's system currently provides 48 percent of the total interstate pipeline
capacity serving the State. In 1994, EPG delivered approximately 40 percent of
all the natural gas consumed in California.

Demand for natural gas in the California market is projected to be less
than capacity for some time to come. EPG maintains a strong competitive position
in the market by virtue of the fact that its pipeline is, and is expected to
remain, the lowest-cost transporter of natural gas to California and the
principal means of moving gas from the San Juan Basin to the California border.
EPG's pipeline capacity to California is currently fully subscribed under
long-term contracts which provide for the payment of fixed reservation charges.

EPG is the principal interstate natural gas transmission system serving
Arizona, including the cities of Phoenix and Tucson; southern Nevada, including
Las Vegas; New Mexico; and El Paso, Texas. EPG's East-of-California market also
includes deliveries to the cities of Ciudad Juarez, Cananea, and Hermosillo in
northern Mexico, and the Samalayuca Power Plant outside of Ciudad Juarez. EPG's
delivery capacity to these East-of-California markets is approximately 1.3
Bcf/d.

Since the late 1980s, in response to changing market demands, EPG has been
delivering substantial quantities of gas from the San Juan Basin to
interconnecting pipelines for ultimate redelivery to off-system markets on the
Gulf Coast and in the Midwest. This alternate routing has been effectuated by
exchanges ("back-hauls") between EPG and an interconnecting pipeline. Volumes of
gas, which the interconnecting pipeline is otherwise scheduled to deliver to EPG
for redelivery in EPG's traditional markets, are traded for like volumes of San
Juan gas which EPG has accepted for delivery to the interconnecting pipeline.
With EPG's 1992 completion of a system modification which made an existing
pipeline segment linking the

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San Juan Basin and Permian Basin bi-directional, total delivery capacity to
off-system markets east of EPG's system can be as high as 1.1 Bcf/d depending on
the level of demand elsewhere on EPG's system. Although their contributions to
revenues and earnings are still comparatively small, off-system deliveries
represent a strategic long-term diversification of EPG's market base. Presently,
EPG is the largest provider of access to off-system markets for San Juan Basin
producers.

Set forth below is a breakdown of EPG's natural gas deliveries by market
area for the periods indicated (volumes shown are in million cubic feet per day
("MMcf/d")):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
California.................................................. 2,257 2,288 2,551
East-of-California.......................................... 630 599 596
Off-system.................................................. 747 691 560
----- ----- -----
Total throughput.................................. 3,634 3,578 3,707
===== ===== =====
</TABLE>

Rate Matters

In July 1991, EPG filed for FERC approval of new system rates and placed
the proposed new rates into effect on January 1, 1992, subject to refund. In
July 1992, EPG again filed for new system rates to recover increased costs and
return on rate base associated with EPG's expansion and modernization projects.
These rates became effective on February 1, 1993, subject to refund. In the July
1992 filing, EPG's rate base increased from $752 million to approximately $1.2
billion. EPG made its compliance filing in December 1992, in accordance with the
Restructuring Rules.

Producer Settlement and Cost Recovery

Since 1987, EPG has incurred approximately $1.5 billion in buy-out and
buy-down costs to resolve past and future take-or-pay exposure, to terminate and
reform gas purchase contracts, to amend pricing and take provisions of gas
purchase contracts, and to settle related litigation. EPG has filed to recover
$1.1 billion of its buy-out and buy-down costs under FERC cost recovery
procedures. The collection period for such costs extends through March 1996.
Through December 31, 1994, EPG had recovered approximately $1.0 billion. EPG has
established a reserve based on current throughput projections, for that portion
of the receivables balance which is unlikely to be collected over the period
through March 1996. The balance of this reserve was $9 million at December 31,
1994.

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decision of an Administrative Law Judge ("ALJ") which found that the valuation
proposed by EPG was excessive and required EPG to refund to its customers the
costs found to be ineligible for take-or-pay recovery. In July 1994, EPG filed
for rehearing of the June 1994 order. In accordance with the FERC decision, EPG
refunded $34 million, inclusive of interest, to its customers in September 1994.
In November 1994, FERC issued an order which denied EPG's request for rehearing.
EPG has filed a petition with the United States Court of Appeals for the
District of Columbia Circuit ("Court of Appeals") for the review of the June
1994 order.

In January 1992, EPG completed a sale of substantially all of its remaining
take-or-pay buy-out and buy-down receivables. See Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition and Liquidity -- Producer Settlement and Cost
Recovery.

Gathering and Processing Facilities

In January 1994, EPG filed an application with FERC seeking an order which
would terminate, effective January 1, 1996, certificates applicable to certain
gathering and processing facilities owned by EPG on the basis that such
facilities are not subject to FERC jurisdiction.

EPG intends, effective January 1, 1996, to transfer the facilities which
are subject to the January 1994 application together with its nonjurisdictional
gathering and processing facilities to EPFS. Such facilities are used for
gathering and other nonjurisdictional functions and are an inherent part of
EPG's current gathering operations. The facilities to be transferred consist of
approximately 6,700 miles of various sized pipelines, compressors with an
aggregate installed horsepower of 40,600, and various treating and processing
plants.

Several producers and other shippers filed protests and requests for a
formal hearing of the January 1994 application. The primary issues raised in the
protests focus on the extent of competition in EPG's producing basins and the
proper functionalization of its facilities. In response to the producer and
shipper protests, EPG made a filing in March 1994 asserting that the protests
raise issues already settled under EPG's settlement agreement.

In May 1994, FERC issued a series of orders which clarified its policy
regarding the regulation of gathering facilities. Under the policy announced in
these orders, FERC will have no authority to regulate the rates, terms, and
conditions that apply to service through gathering facilities owned by an
affiliate of a pipeline, except where the gatherer acts in concert with its
pipeline affiliate to frustrate FERC's effective regulation over interstate
transportation services. Although FERC has stated it will evaluate applications
to deregulate gathering and processing facilities on a case by case basis,
management believes EPG's January 1994 application will be approved.

Gas Supply

During 1994, approximately 219 wells first delivered gas into EPG's system.
The total gas well availability physically connected to EPG's gathering systems
was approximately 1.5 Bcf/d at year-end 1994. During 1994, EPG received an
average of 2.7 Bcf/d from physical points interconnected with other pipelines or
from receipt points pursuant to transportation and exchange agreements. EPG's
maximum mainline system inlet capacity is 4.7 Bcf/d.

System Expansions

In April 1992, EPG completed the addition of 400 MMcf/d of mainline
capacity from the San Juan Basin to the California border. This addition is
committed pursuant to firm long-term contracts with fixed reservation charges.
EPG also completed a system modification making an existing pipeline segment
linking the San Juan Basin and Permian Basin bi-directional to allow for the
eastward movement of up to 435 MMcf/d, of which 255 MMcf/d is committed pursuant
to firm contracts through June 1995. The total cost of the expansion and
modification projects was approximately $250 million.

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Baja California via new pipeline capacity of 348 MMcf/d. In June 1994, EPG
withdrew the July 1992 application, citing delays in the conversion to natural
gas and expansion of the existing Benito Juarez Power Plant in Rosarito, Baja
California Norte, Mexico. In withdrawing the pending application, EPG emphasized
that it is not abandoning the project. At such time as the Comision Federal de
Electricidad ("CFE"), the Mexican government-owned utility, proceeds with its
plans for the Benito Juarez Power Plant, EPG may refile its application.

EPG is a member of a consortium that plans to build the proposed Samalayuca
II Power Plant near Ciudad Juarez, Chihuahua, Mexico. In December 1992, an award
for construction was granted to the consortium by CFE. In August 1994, EPG
increased its prospective ownership interest in the Samalayuca II Power Plant
from 10 percent to 20 percent. CFE and the consortium signed a trust agreement
in August 1994. Additional annexes to the trust agreement are currently being
negotiated with CFE. The trust agreement, together with the annexes, will form
the basis for seeking international financing for the Samalayuca II Power Plant
project.

In March 1993, EPG filed an application with FERC to expand its system in
order to provide natural gas service to the proposed Samalayuca II Power Plant
and to an existing power plant in the same location. The proposed expansion
would provide an additional 300 MMcf/d of capacity at a cost of approximately
$57 million. In November 1993, FERC issued an order which approved the proposed
border crossing facility south of Clint, Texas that would connect EPG's
facilities with facilities in Mexico. FERC deferred action on the remainder of
the March 1993 filing until EPG demonstrates that it has executed long-term
contracts or binding precedent agreements for a substantial amount of the firm
capacity of the proposed facilities. FERC required the executed contracts or
agreements by January 1995. EPG has advised FERC that it does not have the
contracts or agreements at this time. EPG has requested that FERC not dismiss
the March 1993 application. Management believes that Mexico wants and needs this
natural gas project and the process of obtaining contracts is ongoing. In
December 1993, PG&E, SoCal, and the California Public Utilities Commission
("CPUC") jointly filed a motion with FERC seeking clarification or rehearing of
the November 1993 FERC order on the Samalayuca II Power Plant project discussed
above.

In April 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to build a 98 mile pipeline to parallel and
loop its existing Havasu Crossover Line. The proposed pipeline would allow for
the transfer of 468 MMcf/d of San Juan Basin gas to EPG's south system and would
enhance EPG's overall system flexibility to meet market demands. The project is
expected to cost approximately $62 million. At the request of several of EPG's
customers, FERC held a technical conference in August 1994 with respect to the
April 1994 application. The application is currently pending before FERC.

In June 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to expand its existing mainline system in the
San Juan Basin by approximately 300 MMcf/d at a cost of about $26 million. The
proposed expansion would accommodate increased volumes and provide markets with
enhanced access to San Juan Basin gas supplies. FERC held a technical conference
in August 1994 with respect to the June 1994 application. The application is
currently pending before FERC.

Master Separation Agreement

In contemplation of the separation of EPG from all other BR-controlled
entities, EPG, BR, and Meridian Oil Holding Inc. ("Meridian"), a wholly owned
subsidiary of BR, engaged in a comprehensive review of business and contractual
relationships necessary and appropriate for the efficient and effective business
operations and long-term planning of both EPG and Meridian. These business
relationships are addressed in detail in a Master Separation Agreement (the
"Separation Agreement"), dated January 15, 1992, and related operative
agreements provided for therein.

The Separation Agreement and related operative agreements provide for
specific and detailed operating agreements, transportation service agreements,
natural gas liquids marketing agreements, and gas supply arrangements between
EPG and Meridian, including Meridian's affiliates, which are appropriate to
facilitate stand-alone operations by the companies. The Separation Agreement
also provides to Meridian certain defined preferential purchase rights,
extending for a period of five years, with respect to EPG's San Juan Basin

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gathering system which is of significant importance to the business activities
of both EPG and Meridian. In addition, the Separation Agreement specifically
addresses matters relating to the allocation of pension fund assets and
liabilities, tax sharing and allocation, right-of-way access and usage, and
indemnification rights and obligations, among other things. The contractual and
business arrangements, insofar as they relate to FERC jurisdictional service
provided by EPG to Meridian, are representative of arrangements with respect to
FERC jurisdictional services which EPG can offer to non-affiliated companies
situated similarly to Meridian. In instances where Meridian may have a right to
acquire certain assets from EPG under the Separation Agreement, including any
acquisition of the San Juan Basin gathering system, Meridian would pay EPG the
fair market value for such assets. The foregoing discussion is only a summary of
certain provisions of the Separation Agreement and the related operative
agreements provided for therein and is qualified in its entirety by reference to
the Separation Agreement and such operative agreements.

Competition

Currently, EPG faces significant competition from other companies which
transport natural gas to the California market. Competition generally occurs on
the basis of price, quality, and reliability of service.

The total present interstate pipeline capacity for delivering natural gas
to the California border is approximately 6.9 Bcf/d. In addition to EPG, three
other major interstate pipelines presently deliver natural gas to California.
Transwestern Pipeline Company ("Transwestern") has the capacity to deliver
approximately 1.1 Bcf/d from Permian, Anadarko, and San Juan Basin supply
sources. Kern River Gas Transmission ("Kern River") has the capacity to deliver
approximately 700 MMcf/d from Rocky Mountain supply sources. In 1992, Kern River
held an open season to determine interest in expanding capacity to California;
however, they have asked FERC to postpone action on their pending certificate
application which would have expanded their system capacity by 452 MMcf/d.
Pacific Gas Transmission Company ("PGT") has the capacity to deliver about 1.8
Bcf/d of Canadian gas after completion of a 755 MMcf/d expansion in November
1993. This expansion consumed 500 MMcf/d of additional market that both
Transwestern and EPG would have competed to serve. However, the impact of the
PGT expansion to EPG in 1994 was offset by an increase in demand, which resulted
from a decrease in the availability of hydroelectric power.

EPG's largest single contract for interstate capacity to California is its
1,450 MMcf/d contract with SoCal, which has a primary term ending August 31,
2006. In 1992, SoCal relinquished 300 MMcf/d pursuant to this contract (out of
an original contract demand quantity of 1,750 MMcf/d), all of which was
subsequently subscribed by new firm shippers under long-term contracts. Pursuant
to its contract, SoCal has notified EPG of its intent to exercise its second
option provided in the contract to relinquish an additional 300 MMcf/d of
capacity on January 1, 1996. From and after the January 1, 1996 relinquishment,
SoCal's contract demand quantity will remain at the 1,150 MMcf/d level for the
balance of the term. PG&E has a contract for 1,140 MMcf/d of firm capacity
rights on EPG's system. This contract has a primary term ending December 31,
1997. The amount of firm capacity rights, if any, that PG&E will maintain on
EPG's system after the expiration of the current contract cannot be determined
at this time. EPG will seek to offset future reductions in existing firm
capacity commitments through new contracts with various natural gas users in
California which are now served indirectly through SoCal and PG&E, as well as
through the development of additional East-of-California and northern Mexico
markets. In seeking new customers in California for such capacity, EPG expects
to face significant competition from the other pipelines serving that state.

EPG also faces varying degrees of competition from the use of alternative
energy sources, such as electricity, coal, and oil. However, competitive
pressure from alternative energy sources is less prevalent in EPG's market area
due to strict environmental regulations in California.

MOJAVE PIPELINE COMPANY

Operating Environment

MPC's pipeline facilities, services, and rates are regulated by FERC in
accordance with the NGA and the NGPA.

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In 1990, FERC issued orders authorizing MPC to construct and operate its
pipeline facilities, which commenced operations in March 1992. MPC's system
consists of approximately 400 miles of pipeline with one mainline compressor
station. The system's present natural gas delivery capacity is 400 MMcf/d. MPC's
only business is natural gas transportation.

Set forth below are MPC's natural gas deliveries for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
--- --- ---
(MMCF/D)
<S> <C> <C> <C>
Total MPC throughput....................................... 247 231 197
</TABLE>

Mojave Pipeline Operating Company ("MPOC"), a wholly owned subsidiary of
MPC, is a Texas corporation. MPOC serves as MPC's agent in the management of
MPC's pipeline facilities and the design and construction of future MPC pipeline
expansions.

Rate Matters

MPC filed a service and rate design restructuring plan in November 1992 in
compliance with FERC's industry-wide Restructuring Rules. In March 1993, FERC
issued an order essentially approving MPC's compliance filing, subject to
changes, which were made in an amended restructuring plan in March 1993.

Several of MPC's customers filed protests and requests for rehearing of the
March 1993 FERC order. The rehearing requests were denied, and FERC approved the
amended restructuring plan in July 1993 with an effective date of August 1,
1993. In October 1993, FERC issued an order which denied requests for rehearing
of the July 1993 order. Several of MPC's customers have filed petitions with the
Court of Appeals for review of the March 1993, July 1993, and October 1993
orders. These petitions are currently pending before the Court of Appeals. The
primary issues on appeal pertain to FERC's requirement that MPC's rates for firm
transportation service be based upon Straight Fixed Variable ("SFV") rate design
rather than Modified Fixed Variable ("MFV") rate design. The application of SFV
rates requires MPC's existing firm shippers to pay a higher proportion of their
total transportation rate in the reservation component of the rate. Such
shippers have contended that FERC's application of SFV rate design to MPC
unlawfully abrogates the rate provisions of MPC's service agreements and
constitutes an unlawful rate increase. Management believes the Court of Appeals
will uphold SFV rates as applied to MPC.

Gas Supply

During 1994, MPC received an average of approximately 250 MMcf/d at
physical points of interconnection with other pipelines pursuant to
transportation agreements. MPC's designed mainline system inlet capacity is 400
MMcf/d.

System Expansion

In March 1993, MPC filed an application, which was amended in November 1993
and April 1994, for a certificate of public convenience and necessity to build
and operate a 475 MMcf/d expansion of its existing system at an estimated cost
of approximately $500 million.

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the expansion project, is entitled to any compensation from MPC and/or EPG as a
result of MPC's bypass of PG&E gas service. MPC and EPG have provided FERC with
the requested information. The preliminary determination did not address the
jurisdictional issues pending before FERC on rehearing of the February 1994
order. In December 1994, MPC and other parties filed requests for rehearing of
the preliminary determination asking for reconsideration of rate and other
modifications ordered by FERC. If FERC does not make significant changes to the
preliminary determination, MPC will not go forward with the expansion. MPC
expects to receive a final FERC certificate in the second quarter of 1995.

EL PASO GAS MARKETING COMPANY

EPGM buys and sells natural gas under both short-term and long-term
transactions, capitalizing on the strength of EPG's traditional market areas, as
well as the new markets developing in the southwestern United States and
northern Mexico.

As EPG's agent, EPGM is responsible for managing EPG's gas sales
arrangements with West Coast and Southwestern utilities and municipalities. EPGM
is also responsible for managing EPG's remaining long-term gas purchase
agreements which decline to a level of 25 MMcf/d in 1995 and will continue to
decline in subsequent years.

OTHER MATTERS

Environmental

EPG is subject to extensive federal, state, and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require EPG to remove or remedy the effect on the environment of the
disposal or release of specified substances at ongoing and former operating
sites. EPG currently has environmental contingencies for the cleanup of
hazardous wastes found contaminating soil and ground and surface water. As of
December 31, 1994, EPG had a reserve of approximately $40 million to cover these
remediation activities. EPG believes the Clean Air Act Amendments of 1990
("CAAA") will impact the Company's operations in the following areas: (i)
potential required reductions in the emissions of nitrogen oxides ("NOx") in
non-attainment areas; (ii) the requirement for air emissions permitting of
existing facilities; and (iii) enhanced monitoring of air emissions. EPG
anticipates capitalizing the equipment costs associated with complying with CAAA
and estimates that approximately $30 million will be spent from 1995 through
2005. However, the United States Environmental Protection Agency's ("EPA's")
proposed enhanced monitoring rules, when finalized, could potentially impose
greater costs to the Company. Additionally, EPG estimates it will spend
approximately $14 million through 1995 for additional remediation projects of a
capital nature. Details regarding specific environmental contingencies are
presented in Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition and
Liquidity -- Environmental and in Note 4 of Notes to Consolidated Financial
Statements.

Encumbrances

Substantial portions of the Company's pipeline systems are constructed and
maintained pursuant to rights-of-way, easements, permits, and licenses or
consents on and across properties owned by others. Compressor stations, related
facilities, and a natural gas liquid extraction plant are located in whole or in
part upon land owned by the Company or upon sites held under leases or under
permits issued or approved by public authorities.

Employees

The Company had 2,403 and 2,460 full-time employees on December 31, 1994,
and 1993, respectively.

8
<PAGE> 11

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of EPG as of January 12, 1995, were as follows:

<TABLE>
<CAPTION>
OFFICER
NAME OFFICE SINCE AGE
- ----------------------- ---------------------------------------- -------- ----
<S> <C> <C> <C>
William A. Wise Chairman of the Board, President, and 1983 49
Chief Executive Officer
Luino Dell'Osso, Jr. Vice Chairman of the Board and Chief 1990 55
Operating Officer
Richard Owen Baish Executive Vice President 1987 48
H. Brent Austin Senior Vice President and Chief 1992 40
Financial Officer
Michael C. Holland Senior Vice President 1982 53
Joel Richards III Senior Vice President 1990 48
John W. Somerhalder II Senior Vice President 1990 39
Larry R. Tarver Senior Vice President 1988 51
Britton White, Jr. Senior Vice President and General 1991 51
Counsel
</TABLE>

Mr. Wise has been Chairman of the Board of EPG since January 1994. He has
been Chief Executive Officer since January 1990 and President since April 1989.

Mr. Dell'Osso has been Vice Chairman of the Board of EPG since September
1994 and Chief Operating Officer since November 1990. He was Executive Vice
President from November 1990 to August 1994. He was Senior Vice President and
Chief Financial Officer of BR from April 1989 to October 1990.

Mr. Baish has been Executive Vice President of EPG since September 1994. He
was Senior Vice President from November 1990 to August 1994. He was General
Counsel and Corporate Secretary from November 1990 to December 1990 and Vice
President and Associate General Counsel from March 1987 to October 1990.

Mr. Austin has been Senior Vice President and Chief Financial Officer of
EPG since April 1992. He was Vice President, Planning and Treasurer of BR from
November 1990 to March 1992 and Assistant Vice President, Planning of BR from
January 1989 to October 1990.

Mr. Holland has been Senior Vice President of EPG since January 1991. He
was a Vice President from June 1982 to December 1990. Mr. Holland has also been
President and Chief Executive Officer of MPOC since October 1989.

Mr. Richards has been Senior Vice President of EPG since January 1991. He
was Vice President from June 1990 to December 1990. He was Senior Vice
President, Finance and Human Resources of Meridian Minerals Company, a wholly
owned subsidiary of BR, from October 1988 to June 1990.

Mr. Somerhalder has been Senior Vice President of EPG since August 1992. He
was Vice President from January 1990 to July 1992.

Mr. Tarver has been Senior Vice President of EPG since September 1994. He
was Vice President from December 1988 to August 1994.

Mr. White has been Senior Vice President and General Counsel of EPG since
March 1991. From March 1991 to April 1992, he was also Corporate Secretary of
EPG. For more than five years prior to that time, Mr. White was a partner in the
law firm of Holland & Hart.

ITEM 3. LEGAL PROCEEDINGS

In El Paso Natural Gas Company and Meridian Oil Gathering Inc. v. Amoco
Production Company, filed in Delaware Chancery Court ("the Court") on May 8,
1991, Amoco Production Company ("Amoco") alleged breaches by EPG and a then
affiliated company, Meridian Oil Gathering Inc. ("MOGI"), of certain gas
purchase, gathering, and transportation agreements pertaining to natural gas
produced by Amoco in the

9
<PAGE> 12

San Juan Basin. Amoco alleged breach of "favored nations" contractual provisions
regarding services to be performed by EPG, including those relating to
transportation capacity and rates. Amoco sought a court order requiring specific
performance by EPG and MOGI with respect to future transportation services and
an award of monetary damages of an undetermined amount for alleged past breaches
of contract. On March 4, 1992, the Court issued a Memorandum Opinion which,
among other things, denied Amoco's motion for partial summary judgment and
concluded that the Amoco contracts at issue do not contain the general "favored
nations" rights claimed by Amoco. The Court further concluded that EPG's and
MOGI's motions for summary judgment, seeking dismissal of Amoco's counterclaim
against MOGI, should be granted. Conoco Inc. ("Conoco") asserted claims similar
to Amoco's original claims, involving lesser quantities of gas, in a separate
Delaware Chancery Court proceeding filed on December 30, 1991, Conoco Inc. v. El
Paso Natural Gas Company. In August 1992, the Amoco and Conoco cases were
consolidated, MOGI was dismissed as a party, and Amoco and Conoco filed amended
pleadings to restate their claims in light of the court's March 4, 1992 ruling.
EPG and Conoco concluded a settlement agreement which resulted in dismissal of
the Conoco claims. Trial of the Amoco claims concluded on July 15, 1993, and
post-trial briefing and oral arguments concluded in early November 1993. On
March 29, 1994, the Court rendered a decision in favor of Amoco. As a result of
the Court's decision, EPG will be required to refund to Amoco approximately $15
million, plus accrued interest. In connection with the Amoco decision, EPG
recorded a litigation special charge of approximately $19 million in the first
quarter of 1994. After additional briefing, the Court issued its opinion
respecting certain contested damages issues on December 16, 1994. EPG intends to
appeal the final order, which will be entered as soon as the parties reach
agreement as to its form.

TransAmerican Natural Gas Corporation ("TransAmerican") has filed a
complaint in a Texas state court against various parties, including EPG,
alleging fraud, tortious interference with contractual relationships, economic
duress, civil conspiracy, and violation of state antitrust laws. The complaint,
as amended, seeks unspecified actual and exemplary damages. EPG is actively
defending the matter and has initiated collateral proceedings challenging both
the validity of TransAmerican's claims and the jurisdiction of the forum in
which they were filed. No discovery has been commenced pending resolution of
these threshold issues. Based on information available at this time, management
believes that the claims made by TransAmerican have no factual or legal basis
and that the ultimate resolution of this matter will not have a materially
adverse effect on the Company's financial condition.

The United States Department of Justice ("Justice Department") terminated
an investigation of EPG's natural gas meter sales and installation practices in
the San Juan Basin on January 6, 1995. EPG and the Justice Department agreed to
a consent decree which was filed in the United States District Court for the
District of Columbia on January 12, 1995. The consent decree stipulates that EPG
may not require a well operator to purchase meter facilities or meter
installation equipment as a condition of access to its gathering system in the
San Juan Basin, and requires EPG to inform well operators that they have the
legal right to provide their own meter installation services. The consent decree
further provides that any meter installation undertaken by third parties must be
done in accordance with environmental and safety standards specified by EPG.
Moreover, EPG has the right to inspect such installations to ensure that they
conform to standards that apply uniformly on EPG's gathering system. Records of
EPG's inspection activities will be maintained to document compliance with EPG's
standards and procedures. Based on its participation in the Justice Department
investigation, management concluded that there was no evidence that EPG's meter
installation practices violated any applicable law, and no fines or monetary
penalties were imposed on EPG. The consent decree, which may be entered as a
binding, final judgment following a required sixty-day public comment period,
requires no material change in EPG's existing business practices.

The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management does not expect these matters to
have a materially adverse effect on the Company's financial condition.

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

During the fourth quarter of 1994, no matters were submitted to a vote of
security holders.

10
<PAGE> 13

PART II

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

All outstanding common stock of EPG was owned by BR until March 1992. In
March 1992, EPG completed the Offering. In June 1992, BR distributed its 31.4
million shares of EPG common stock, which represented approximately 85 percent
of EPG's outstanding common stock, to BR shareholders. As a result, BR no longer
retains an ownership interest in EPG.

EPG's common stock is traded on the New York Stock Exchange. As of January
12, 1995, the approximate number of holders of record of common stock was
22,046. This does not include individual participants on whose behalf a clearing
agency or its nominee holds EPG's common stock.

The following table reflects the high and low sales prices for, and cash
dividends declared on, EPG's common stock based on the daily composite listing
of stock transactions for the New York Stock Exchange.

<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------- ------- ---------
(PER SHARE)
<S> <C> <C> <C>
1994
First Quarter.............................. $41.875 $35.250 $0.3025
Second Quarter............................. $39.000 $31.500 $0.3025
Third Quarter.............................. $35.375 $31.625 $0.3025
Fourth Quarter............................. $34.750 $29.875 $0.3025
1993
First Quarter.............................. $38.000 $30.250 $0.2750
Second Quarter............................. $40.250 $35.250 $0.2750
Third Quarter.............................. $40.375 $36.125 $0.2750
Fourth Quarter............................. $39.500 $33.750 $0.2750
</TABLE>

In January 1995, EPG's Board of Directors ("the Board") declared a
quarterly dividend of $0.33 per share on EPG's common stock, payable on April 3,
1995 to shareholders of record on March 10, 1995.

EPG has made available a Continuous Odd-Lot Stock Sales Program ("Program")
in which shareholders of EPG owning beneficially fewer than 100 shares of EPG's
common stock ("Odd-lot Holders") are offered a convenient method of disposing of
all their shares without incurring the customary brokerage costs associated with
the sale of an odd-lot. Only Odd-lot Holders are eligible to participate in the
Program. The Program is strictly voluntary, and no Odd-lot Holder is obligated
to sell pursuant to the Program. A brochure and related materials describing the
Program were sent to Odd-lot Holders in February 1994. The Program currently
does not have a termination date, but EPG may suspend the Program at any time.
Inquiries regarding the Program should be directed to The First National Bank of
Boston.

EPG has made available a Dividend Reinvestment and Common Stock Purchase
Plan ("Plan") which provides all shareholders of record a convenient and
economical means of increasing their holdings in EPG's common stock. A
shareholder who owns shares of common stock in street name or broker name and
who wishes to participate in the Plan will need to have his or her broker or
nominee transfer the shares into the shareholder's name. The Plan is strictly
voluntary, and no shareholder of record is obligated to participate in the Plan.
A brochure and related materials describing the Plan were sent to shareholders
of record in November 1994. The Plan currently does not have a termination date,
but EPG may suspend the Plan at any time. Inquiries regarding the Plan should be
directed to The First National Bank of Boston.

11
<PAGE> 14

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1993(E) 1992 1991 1990
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
For the Year:
Operating revenues............. $ 869,872 $ 908,928 $ 802,812 $ 735,196 $ 851,750
Depreciation and
amortization................ 65,037 54,051 73,229 61,300 67,098
Litigation special charge(a)... 15,062 -- -- -- --
Operating income............... 222,295 229,245 184,910 184,919 190,012
Income from continuing
operations before income
taxes....................... 148,076 150,826 123,289 140,500 128,481
Income taxes................... 58,463 59,153 46,963 51,956 44,847
Income from continuing
operations.................. 89,613 91,673 76,326 88,544 83,634
Earnings per common share --
continuing operations....... 2.45 2.46 2.12 2.82 2.66
Average common shares
outstanding................. 36,632 37,212 36,049 31,422 31,422
Cash dividends declared per
common share(b)............. 1.21 1.10 .75 -- --
At Year End:
Total assets(c)................ 2,331,771 2,269,663 2,050,729 2,301,932 3,817,896
Payable to BR, including
current portion............. -- -- -- 624,804 --
Long-term debt(d).............. 779,097 795,783 637,074 249,942 848,633
Stockholders' equity(c)........ 709,636 707,548 668,992 814,878 1,828,261
</TABLE>

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

(a) Litigation special charge related to the Amoco decision (See Item 3 -- Legal
Proceedings).

(b) Represents dividends declared subsequent to the Offering.

(c) In May 1991, EPG declared and paid a dividend of $175 million to its then
parent company, The El Paso Company ("TEPCO"). In September 1991, EPG
declared a dividend of all its Oil and Gas Operations Segment to TEPCO. The
total amount of that dividend was $925 million. In addition, EPG declared
and paid dividends to BR totaling $55 million in 1991 and $274 million prior
to the Offering in 1992.

(d) Excludes current maturities.

(e) MPC was consolidated for May 1993 through December 1993.

12
<PAGE> 15

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

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities was $253 million for 1994 compared
with $236 million for 1993. The increase from the previous year was primarily
due to net insurance claims received, lower net tax payments, lower insurance
prepayments, higher collections of EPG's investment in its underground storage
facility, and timing differences in working capital receipts and disbursements,
partially offset by lower reserves for regulatory issues and take-or-pay refunds
to customers.

Cash provided by operating activities was $236 million for 1993 compared
with $334 million for 1992. The decrease from the previous year was primarily
due to proceeds received in 1992 from the sale of the direct bill portion of the
take-or-pay receivables, lower take-or-pay collections in 1993, rate refund
payments resulting from the settlement agreement, and costs incurred to repair
flood damaged pipelines (see Other of this section), partially offset by
decreased tax payments in 1993.

Acquisitions

On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp., that subsidiary's 50 percent interest in MPC, for approximately $40
million in cash, representing the approximate book value of the investment. The
acquisition, which was funded by internally generated cash flow, gave the
Company 100 percent ownership of MPC. The acquisition was accounted for using
the purchase method.

In conjunction with the acquisition, the following liabilities were
assumed:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired.................................. $145,643
Cash paid...................................................... 39,396
----------
Liabilities assumed....................................... $106,247
==========
</TABLE>

The operating results of MPC are included in the Company's consolidated
results of operations for 1994 and May 1993 through December 1993. The Company's
previously owned 50 percent equity interest in MPC is included in other-net in
the Consolidated Statement of Income.

The following pro forma summary presents the consolidated results of
operations of the Company as if the acquisition had occurred as of January 1,
1993 or January 1, 1992. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what may have
resulted had the acquisition occurred as of those dates or of results which may
occur in the future.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Operating revenue.............................................. $922,593 $834,181
Net income..................................................... 93,102 78,603
Earnings per common share...................................... 2.50 2.18
</TABLE>

EPG is currently in negotiations to effect a merger with Hadson
Corporation. The terms of the deal have not been finalized and are subject to
the approval of the Board.

Rates and Regulatory Matters

13
<PAGE> 16

increased from $752 million to approximately $1.2 billion. EPG made its
compliance filing in December 1992, in accordance with the Restructuring Rules.

In January 1993, EPG, certain of its customers, and FERC staff reached a
settlement agreement which led to the resolution of the above mentioned rate and
restructuring proceedings. The settlement agreement was filed in January 1993 to
supersede EPG's December 1992 compliance filing. As required by the FERC order,
EPG filed revised rates in September 1993, which implemented the settlement
agreement effective October 1, 1993. Under the settlement agreement, EPG
refunded a total of approximately $56 million, inclusive of interest, in the
fourth quarter of 1993. EPG had provided for these rate refunds as revenues were
collected.

The settlement agreement provided, in part, for the accelerated recovery of
a substantial portion of EPG's investment in its underground storage facility.
The amount to be recovered was approximately $56.7 million plus interest which
began accruing February 1, 1993, at the FERC allowed rate, which approximates
the prime rate. In March 1994, EPG received a final FERC letter order approving
recovery of the $56.7 million of underground storage facility costs. Such costs
are being recovered through December 31, 1996, by a demand charge mechanism. The
amount recovered through December 31, 1994 was $32 million. The outstanding
balances at December 31, 1994, and 1993 were $24 million and $37 million,
respectively, of which $12 million is reflected in the current portion of other
regulatory assets for both periods and $12 million and $25 million,
respectively, are included in other regulatory assets in the Consolidated
Balance Sheet. The settlement agreement also established new depreciation rates
for certain of EPG's facilities effective January 1, 1992.

As specified in the settlement agreement, EPG is obligated to file a rate
change to be effective not later than January 1, 1996.

14
<PAGE> 17

Court of Appeals. The primary issues on appeal pertain to FERC's requirement
that MPC's rates for firm transportation service be based upon SFV rate design
rather than MFV rate design. The application of SFV rates requires MPC's
existing firm shippers to pay a higher proportion of their total transportation
rate in the reservation component of the rate. Such shippers have contended that
FERC's application of SFV rate design to MPC unlawfully abrogates the rate
provisions of MPC's service agreements and constitutes an unlawful rate
increase. Management believes the Court of Appeals will uphold SFV rates as
applied to MPC.

MPC is required to file a rate change three years after its in-service date
of March 1, 1992. MPC expects to make a filing early in 1995.

Producer Settlement and Cost Recovery

Since 1987, EPG has made, or has committed to make, buy-out and buy-down
payments totaling $1.5 billion to resolve past and future take-or-pay exposure,
to terminate and reform gas purchase contracts, to amend pricing and take
provisions of gas purchase contracts, and to settle related litigation. These
payments resolved virtually all the outstanding producer claims asserted against
EPG and terminated or prospectively reformed substantially all of EPG's
remaining gas purchase contracts, with the result that EPG no longer has any
material take-or-pay exposure. In certain cases, EPG resolved claims by making
recoupable prepayments. At December 31, 1994, and 1993, the recoupable
prepayment balances were $6 million and $9 million, respectively.

EPG has filed to recover $1.1 billion of its buy-out and buy-down costs
under FERC cost recovery procedures. The collection period for such costs
extends through March 1996. Through December 31, 1994, EPG had recovered
approximately $1.0 billion. EPG has established a reserve, based on current
throughput projections, for that portion of the receivables balance which is
unlikely to be collected over the period through March 1996. The balances of
this reserve were $9 million and $19 million at December 31, 1994, and 1993,
respectively.

Under FERC procedures, take-or-pay cost recovery filings may be challenged
by pipeline customers on prudence and certain other grounds. In October 1992,
FERC approved an order, subject to rehearing, resolving all but one of the
outstanding issues regarding EPG's take-or-pay proceedings. However, certain of
EPG's customers have sought review of the eligibility of certain costs for which
EPG has received FERC approval for recovery. The remaining issue unresolved by
FERC involved the claim by several customers that EPG sought to recover an
excessive amount for the value of certain production properties which were
transferred to a producer as part of a 1989 take-or-pay settlement. In June
1994, FERC affirmed a 1993 decision of an ALJ which found that the valuation
proposed by EPG was excessive and required EPG to refund to its customers the
costs found to be ineligible for take-or-pay recovery. In July 1994, EPG filed
for rehearing of the June 1994 order. In accordance with the FERC decision, EPG
refunded $34 million, inclusive of interest, to its customers in September 1994.
In November 1994, FERC issued an order which denied EPG's request for rehearing.
EPG has filed a petition with the Court of Appeals for the review of the June
1994 order.

In January 1992, EPG completed a sale of substantially all of its remaining
take-or-pay buy-out and buy-down receivables. The sale totaled $325 million,
including $305 million of cash received at closing, which was used to repay $300
million of a payable to BR. The receivables sold in this transaction included
$104 million which was recovered through direct bill and $221 million to be
recovered through volumetric surcharge. The volumetric surcharge portion of the
sale has been accounted for as a financing transaction because EPG is subject to
certain recourse provisions related to such receivables. At December 31, 1994,
and 1993, $47 million and $87 million, respectively, of the volumetric surcharge
portion of the receivables sold remained outstanding. Amounts collected related
to the take-or-pay receivables sold are remitted to the purchasers of the
receivables.

Financing and Restructuring Transactions

EPG filed a shelf registration statement in August 1994, pursuant to which
EPG may offer up to $400 million of unsecured debt securities, preferred stock,
and common stock from time to time as determined

15
<PAGE> 18

by market conditions. As of December 31, 1994, EPG had not requested that the
registration statement be declared effective by the Securities and Exchange
Commission.

In February 1992, EPG established a $300 million revolving credit facility
with a group of banks which would have expired in March 1996. This facility was
replaced in August 1994 when EPG established with a group of banks a revolving
credit facility of $400 million which expires in five years. As of December 31,
1994, and 1993, there were no borrowings outstanding under these facilities.
Approximately $107 million and $1 million of commercial paper were outstanding
as of December 31, 1994, and 1993, respectively.

During 1992, EPG completed several transactions in preparation for its
separation from BR and to establish an appropriate capital structure for its
post-separation operations. EPG had a Commitment Agreement with BR under which
it could borrow up to $300 million and Loan Agreements for borrowings up to $500
million. The proceeds from the sale of the take-or-pay receivables, previously
discussed herein, were used to repay the borrowings under the Commitment
Agreement. In January 1992, EPG purchased notes and debentures totaling $134
million. Funds were provided by proceeds from borrowings under the Loan
Agreements. In addition, all of the outstanding 9 5/8% debentures were called
for redemption at 106.84 percent of their principal amount. In January 1992, EPG
received net proceeds of $569 million from the issuance of new debt securities.
The proceeds were used for repayment of borrowings under the Loan Agreements,
redemption of debentures, and payment of general corporate costs.

The Commitment Agreement and the Loan Agreements with BR were terminated
prior to the completion of the Offering.

In January and February 1992, EPG declared and paid dividends totaling $274
million to BR. These dividends were paid from the balance owed to EPG under an
intercorporate cash management arrangement. In March 1992, EPG completed the
Offering. The proceeds from the Offering, net of related costs, totaled
approximately $96 million. In June 1992, BR distributed its 31.4 million shares
of EPG's common stock to BR shareholders, which represented approximately 85
percent of EPG's outstanding stock. As a result, BR no longer retains an
ownership interest in EPG.

The Company, through a subsidiary, plans to enter into a 7.75 year lease.
The lease will be an unconditional "triple net" lease with the trustee of a
special purpose trust. The trust will obtain financing for construction of the
plant from a consortium of financial institutions. The total amount financed via
the operating lease will not exceed $80 million, and the annual lease obligation
will be a function of the amount financed and a variable interest rate. The
Company will have an option at the end of the lease term, and will have an
obligation upon the occurrence of certain events, to purchase the plant for a
price sufficient to pay the entire amount financed and accrued interest. If the
Company does not purchase the plant at the end of the lease term, it will have
an obligation to pay a residual guaranty amount equal to approximately 87
percent of the amount financed. Construction of the plant is expected to be
completed in early 1996.

Competition

The total present interstate pipeline capacity for delivering natural gas
to the California border is approximately 6.9 Bcf/d. In addition to EPG, three
other major interstate pipelines presently deliver natural gas to California.
Transwestern has the capacity to deliver approximately 1.1 Bcf/d from Permian,
Anadarko, and San Juan Basin supply sources. Kern River has the capacity to
deliver approximately 700 MMcf/d from Rocky Mountain supply sources. In 1992,
Kern River held an open season to determine interest in expanding capacity to
California; however, they have asked FERC to postpone action on their pending
certificate application which would have expanded their system capacity by 452
MMcf/d. PGT has the capacity to deliver about 1.8 Bcf/d of Canadian gas after
completion of a 755 MMcf/d expansion in November 1993. This expansion consumed
500 MMcf/d of additional market that both Transwestern and EPG would have
competed to serve. However, the impact of the PGT expansion to EPG in 1994 was
offset by an increase in demand, which resulted from a decrease in the
availability of hydroelectric power.

16
<PAGE> 19

EPG's largest single contract for interstate capacity to California is its
1,450 MMcf/d contract with SoCal, which has a primary term ending August 31,
2006. In 1992, SoCal relinquished 300 MMcf/d pursuant to this contract (out of
an original contract demand quantity of 1,750 MMcf/d), all of which was
subsequently subscribed by new firm shippers under long-term contracts. Pursuant
to its contract, SoCal has notified EPG of its intent to exercise its second
option to relinquish an additional 300 MMcf/d of capacity on January 1, 1996.
From and after the January 1, 1996 relinquishment, SoCal's contract demand
quantity will remain at the 1,150 MMcf/d level for the balance of the term. PG&E
has a contract for 1,140 MMcf/d of firm capacity rights on EPG's system. This
contract has a primary term ending December 31, 1997. The amount of firm
capacity rights, if any, that PG&E will maintain on EPG's system after the
expiration of the current contract cannot be determined at this time. EPG will
seek to offset future reductions in existing firm capacity commitments through
new contracts with various natural gas users in California which are now served
indirectly through SoCal and PG&E, as well as through the development of
additional East-of-California and northern Mexico markets. In seeking new
customers in California for such capacity, EPG expects to face significant
competition from the other pipelines serving that state.

Environmental

As of December 31, 1994, EPG had a reserve of approximately $40 million for
the following environmental contingencies with income statement impact:

1 -- EPG has been conducting remediation of polychlorinated biphenyl
("PCB") contamination at certain of its facilities. The majority of the
required PCB remediation has been completed. Future PCB remediation costs
are estimated to range between $7 million and $11 million over the next 5
years.

2 -- EPG executed an Administrative Order on Consent with EPA in June 1993
to conduct a Remedial Investigation/Feasibility Study ("RI/FS") for a
Burlington Industries, Inc. ("BI") site located in Statesville, North
Carolina, that has been identified for cleanup. BI and EPG have entered
into an agreement to jointly fund the RI/FS for the site. EPG's share of
the potential remediation costs is estimated to be between $17 million and
$29 million over a 30 year period.

3 -- In November 1993, in accordance with an EPA order, EPG and Atlantic
Richfield Company ("ARCO") submitted work plans for remediation of the
subsurface at the Prewitt Refinery in McKinley County, New Mexico. EPG and
ARCO have a cost sharing agreement to each pay one-half of any remediation
costs at this site. EPG's share of the remediation costs is estimated to be
between $12 million and $20 million over a 30 year period.

4 -- In December 1993, EPA issued EPG a Notice of Liability for the
Colorado School of Mines Research Institute ("CSMRI") site in Golden,
Colorado. EPA has determined that the volume of hazardous substances sent
to the site by EPG represent less than 2.5 percent of the total volumes
sent by all the potentially responsible parties ("PRPs"). Based on this
percentage, EPG's share of the potential remediation costs is estimated to
be less than $500,000.

5 -- EPG and Texaco Exploration and Production Inc. ("Texaco") have been
conducting environmental assessments of groundwater and soil contamination
at various sites in southeastern Utah. Based upon currently available
information, EPG estimates costs for remediation will be approximately $4
million. However, costs could be higher once the environmental assessment
has been completed. EPG and Texaco are engaged in negotiations over the
appropriate allocation of the remediation costs.

6 -- In August 1992, EPG received a notice from the current owner of a site
in Etowah, Tennessee requesting compensation for remediation expenses
associated with the site. These costs are estimated to be approximately
$1.7 million. EPG and the other PRP are engaged in negotiations over the
appropriate allocation of the alleged costs.

17
<PAGE> 20

7 -- EPG and other PRPs entered into an agreement to conduct a RI/FS for a
site located in Fountain Inn, South Carolina. The RI/FS was completed in
October 1994, and EPA issued a Record of Decision for the site in November
1994. The proposed remediation and EPA oversight costs are estimated to be
$800,000. The allocation of these costs between EPG and the other PRPs is
currently being negotiated. EPG's share of the costs is estimated to be
between $300,000 and $500,000 over a 5 year period.

8 -- EPG has entered into a de minimis administrative order on consent with
EPA for EPG's share of the environmental remediation costs associated with
a site in Odessa, Texas. In accordance with the order, EPG paid total costs
of approximately $32,000 in the fourth quarter of 1994.

Management believes the amount reserved as of December 31, 1994, is
sufficient to cover these and other small environmental assessments and
remediation activities.

The State of Tennessee has asserted a claim that EPG is a liable party
under state environmental laws for cleanup costs associated with a site in
Elizabethton, Tennessee. The State and EPA are in the preliminary stages of
investigating the nature and extent of contamination, as well as identifying
other PRPs. Since testing is in the initial stages, EPG is unable to estimate
its potential share of any remediation costs.

EPG also has potential expenditures, of a capital nature, for the following
environmental projects:

1 -- EPG has analyzed CAAA, and believes that these rules will impact the
Company's operations primarily in the following areas: (i) potential
required reductions in the emissions of NOx in non-attainment areas; (ii)
the requirement for air emissions permitting of existing facilities; and
(iii) enhanced monitoring of air emissions. EPG anticipates capitalizing
the equipment costs associated with complying with CAAA and estimates that
approximately $30 million will be spent from 1995 through 2005. However,
EPA's proposed enhanced monitoring rules, when finalized, could potentially
impose greater costs to the Company.

2 -- EPG has been conducting remediation of mercury contamination at
certain facilities and is replacing mercury containing meters with other
measurement devices. The project is expected to be completed in 1995 at a
cost of approximately $8 million. EPG will close and retire about 1,500
earthen siphon/dehydration pits in the San Juan Basin as required by
certain environmental regulations. The project is expected to be completed
in 1995 at a cost of approximately $6 million. The mercury remediation and
pit closure costs, which are associated with the retirement of equipment,
will be recorded as adjustments to accumulated depreciation, as permitted
by regulatory accounting.

It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
As such information or developments occur, related accrual amounts will be
adjusted accordingly.

Common Stock Transactions Subsequent to the Offering

For the years ended December 31, 1994, 1993, and 1992 EPG paid
approximately $43 million, $40 million, and $19 million in dividends,
respectively. In January 1995, the Board declared a quarterly dividend of $0.33
per share on EPG's common stock, payable on April 3, 1995 to shareholders of
record on March 10, 1995.

In October 1992, the Board authorized the repurchase of up to two million
shares of EPG's outstanding common stock from time to time in the open market.
Shares repurchased are held in EPG's treasury and are expected to be used in
connection with EPG employee stock option plans to minimize dilution to existing
shareholders. During 1992, EPG acquired 812,773 shares of its common stock for
an aggregate value of $24 million and reissued, in connection with employee
stock option plans, 628,258 shares of common stock out of treasury stock for an
aggregate value of $11 million. The 184,515 remaining shares were reissued
through April 1993, in connection with employee stock option plans, for an
aggregate value of $5 million.

During 1993, EPG acquired 509,095 shares of its common stock for an
aggregate value of $18 million and subsequently reissued, in connection with
employee stock option plans, 22,734 shares of its common stock out of treasury
stock for an aggregate value of $0.5 million. As of December 31, 1993, EPG had
486,361 shares of

18
<PAGE> 21

treasury stock. In addition, from April 1993 through December 1993, EPG issued
43,394 shares of common stock in connection with employee stock option plans.

In November 1994, the Board authorized the repurchase of an additional 3.5
million shares of EPG's outstanding common stock from time to time in the open
market. Shares repurchased are held in EPG's treasury and are expected to be
used in connection with EPG employee stock option plans and for other corporate
purposes. During 1994, EPG acquired 1,362,937 shares of its common stock for an
aggregate value of $44 million and subsequently reissued, in connection with
employee stock option plans, 50,162 shares of its common stock out of treasury
stock for an aggregate value of $1.8 million. As of December 31, 1994, EPG had
1,799,136 shares of treasury stock.

A total of 800, 2,300, and 132,700 restricted shares of EPG's common stock
were granted to certain employees during 1994, 1993, and 1992, respectively. The
market value at grant date of such shares awarded was approximately $26,000,
$76,000, and $2.8 million in 1994, 1993, and 1992, respectively.

Capital Expenditures

The Company's planned capital expenditures for 1995 of approximately $225
million are primarily for maintenance of business, system expansion, and system
enhancement. These expenditures are expected to be financed through internally
generated funds and short-term and long-term borrowings. Capital expenditures
for 1994 were $173 million compared to $164 million for 1993. The increase was
due primarily to 1994 system enhancements.

In July 1992, EPG filed an application with FERC, which was amended in
November 1992, to expand the delivery capacity of its system in the vicinity of
Yuma, Arizona and, through an extension of its system south to San Luis Rio
Colorado, Sonora, Mexico, to serve northern Mexican markets. The proposed
expansion would have provided shippers the opportunity to deliver natural gas to
Mexican markets in northern Baja California via new pipeline capacity of 348
MMcf/d. The project cost was estimated to be approximately $71 million. In June
1994, EPG withdrew the July 1992 application, citing delays in the conversion to
natural gas and expansion of the existing Benito Juarez Power Plant in Rosarito,
Baja California Norte, Mexico. In withdrawing the pending application, EPG
emphasized that it is not abandoning the project. At such time as CFE proceeds
with its plans for the Benito Juarez Power Plant, EPG may refile its
application.

In March 1993, EPG filed an application with FERC to expand its system in
order to provide natural gas service to the proposed Samalayuca II Power Plant
and to an existing power plant in the same location. The proposed expansion
would provide an additional 300 MMcf/d of capacity at a cost of approximately
$57 million. In November 1993, FERC issued an order which approved the proposed
border crossing facility south of Clint, Texas that would connect EPG's
facilities with facilities in Mexico. FERC deferred action on the remainder of
the March 1993 filing until EPG demonstrates that it has executed long-term
contracts or binding precedent agreements for a substantial amount of the firm
capacity of the proposed facilities. FERC required the executed contracts or
agreements by January 1995. EPG has advised FERC that it does not have the
contracts or agreements at this time. EPG has requested that FERC not dismiss
the March 1993 application. Management believes that Mexico wants and needs this
natural gas project and the process of obtaining contracts is ongoing. In
December 1993, PG&E, CPUC, and SoCal jointly filed a motion with FERC seeking
clarification or rehearing of the November 1993 FERC order on the Samalayuca II
Power Plant project discussed above.

19
<PAGE> 22

In June 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to expand its existing mainline system in the
San Juan Basin by approximately 300 MMcf/d at a cost of about $26 million. At
December 31, 1994, EPG had a commitment to purchase approximately $9 million of
pipe in connection with the proposed expansion. The proposed expansion would
accommodate increased volumes and provide markets with enhanced access to San
Juan Basin gas supplies. FERC held a technical conference in August 1994 with
respect to the June 1994 application. The application is currently pending
before FERC.

In December 1993, FERC held a public conference to examine the question
raised by CPUC and PG&E regarding MPC's proposed expansion. The primary issue
was whether FERC or CPUC should have jurisdiction over the expansion. In
February 1994, FERC issued an order determining that it has exclusive
jurisdiction over MPC and its proposed expansion. In March 1994, CPUC, PG&E, and
other parties filed for rehearing or clarification of FERC's February 1994
order. The petitions for rehearing and/or clarification are pending action by
FERC. In November 1994, FERC unanimously approved an order granting MPC a
preliminary determination, subject to possible later modification, issuing the
requested certificate of public convenience and necessity for the proposed
expansion. FERC requested certain further information from the parties to
determine whether PG&E, which is currently the principal gas supplier in the
region to be served by the expansion project, is entitled to any compensation
from MPC and/or EPG as a result of MPC's bypass of PG&E gas service. MPC and EPG
have provided FERC with the requested information. The preliminary determination
did not address the jurisdictional issues pending before FERC on rehearing of
the February 1994 order. In December 1994, MPC and other parties filed requests
for rehearing of the preliminary determination asking for reconsideration of
rate and other modifications ordered by FERC. If FERC does not make significant
changes to the preliminary determination, MPC will not go forward with the
expansion. MPC expects to receive a final FERC certificate in the second quarter
of 1995.

The capital projects discussed above are expected to be financed through
internally generated funds and short-term and long-term borrowings.

Other

In January 1993, EPG experienced flood damage to its pipeline system in the
Gila, Arizona area due to heavy rain. During 1994, EPG received approximately
$22 million of insurance reimbursements, which represent substantially all costs
incurred related to the flood damage.

In June 1994, EPG and Meridian Oil Production Inc. ("MOPI") entered into an
agreement concerning production from MOPI's conventional gas wells located on
1.5 million acres in the San Juan Basin. Under the terms of the agreement,
MOPI's gas is committed to flow exclusively through EPG's gathering and
processing facilities from May 1994 through February 2000. The agreement
provides for new rates for gathering and processing of natural gas liquids
effective January 1, 1994 through February 29, 2000.

RESULTS OF OPERATIONS

Year Ended December 31, 1994, Compared to Year Ended December 31, 1993

Operating revenues for the year ended December 31, 1994, were $39 million
lower than for the same period of 1993. New system rates that became effective
January 1, 1994, resulted in lower reservation revenues of $28 million and lower
transportation revenues of $28 million. Additionally, lower gas sales rates,
lower gas

20
<PAGE> 23

sales volumes, and the 1993 sale of gas in storage contributed $25 million, $12
million, and $18 million, respectively, to the decrease to operating revenues.
The decrease due to the 1993 sale of gas in storage is offset in operating
charges. Lower accruals for regulatory issues, the consolidation of MPC, and
higher rates for gathering and processing offset the decrease in operating
revenues by $41 million, $18 million, and $15 million, respectively.

Operating charges were $32 million lower for the year ended December 31,
1994, than for the same period of 1993. Lower gas sales volumes and the 1993
sale of gas in storage contributed $11 million and $18 million, respectively, to
the decrease in operating charges. The decrease due to the 1993 sale of gas in
storage is offset in operating revenues. Additionally, operation and maintenance
expense decreased primarily due to a 1993 accrual for estimated take-or-pay
undercollections, a 1993 litigation settlement, lower plant and pipeline
maintenance, 1994 adjustments to the 1993 take-or-pay undercollections accrual,
and lower environmental cleanup expenses. Offsetting the decrease in operating
charges was a litigation special charge of $15 million related to the Amoco
decision. In addition, higher average cost of gas, an increase in depreciation
expense, and the consolidation of MPC further offset the decrease in operating
charges by $15 million, $8 million, and $9 million respectively.

Interest and debt expense for the year ended December 31, 1994, was $3
million higher than for the same period of 1993 due primarily to the
consolidation of MPC.

Allowance for funds used during construction ("AFUDC") was $5 million lower
for the year ended December 31, 1994, than for the same period of 1993 due
primarily to a decrease in the average construction work in progress balance.

Other-net income was $13 million higher for the year ended December 31,
1994, than for the same period of 1993. Contributing to the higher other income
in 1994 were $14 million related to the recovery of EPG's investment in its
underground storage facility and lower environmental clean-up expenses. The
increase in other income was partially offset by interest expense related to the
special charge for litigation in connection with the Amoco decision of
approximately $4 million, and a reduction in partnership earnings due to the
consolidation of MPC.

EPG's mainline throughput for the year ended December 31, 1994, was 1,326
Bcf compared to 1,306 Bcf for the same period of 1993. Thoughput was higher due
to an increase in deliveries to off-system and East-of-California markets. The
increase in throughput was partially offset by lower deliveries to the
California market due to higher storage withdrawals and increased competition.
Gathered volumes for the year ended December 31, 1994, were relatively unchanged
compared to the same period of 1993.

Year Ended December 31, 1993, Compared to Year Ended December 31, 1992

Operating revenues for the year ended December 31, 1993, were $106 million
higher than for the same period of 1992. New system rates and a new rate design
placed into effect February 1, 1993, resulted in a $41 million increase in
revenues which was comprised of an increase in reservation revenues of $111
million offset by a decrease in transportation revenues of $70 million. The
consolidation of MPC contributed $27 million to the increase. Higher rates and
volumes for gathering and processing increased revenues by $3 million and $7
million, respectively. Higher sales rates increased revenues by $34 million;
however, lower sales volumes offset that increase by $5 million. In addition,
the sale of gas in storage contributed $18 million to the increase in revenues;
this increase is offset in operating charges. Offsetting the increase in
operating revenues was a decrease of $13 million due to lower transportation
volumes, a decrease in return on take-or-pay receivables of $4 million, and a
decrease in liquid revenues of $2 million.

Operating charges were $62 million higher for the year ended December 31,
1993, compared to the same period for 1992. Higher average cost of gas
contributed $39 million to the increase. In addition, the sale of gas in storage
contributed $18 million to the increase in operating charges; this increase is
offset in operating revenues. Higher operation and maintenance costs of $26
million were due primarily to an accrual for estimated take-or-pay
undercollections, the consolidation of MPC, and increases in employee benefit
costs and outside contractors fees, primarily related to environmental clean-up.
This increase is partially offset by

21
<PAGE> 24

lower stock related benefit costs. An increase of $3 million in other taxes is
primarily due to the consolidation of MPC and an increase in ad valorem taxes.
The increase in operating charges was partially offset by lower depreciation
rates after giving effect to the rate settlement. Additionally, lower gas sales
volumes resulted in a decrease in operating charges of $4 million.

Interest and debt expense for the year ended December 31, 1993, was $7
million higher than for the same period of 1992 due primarily to the
consolidation of MPC.

AFUDC was $2 million lower for the year ended December 31, 1993, than for
the same period in 1992 due to a decrease in expansion project expenditures
during 1993.

Other-net was $6 million higher for the year ended December 31, 1993,
compared to the same period for 1992. Contributing to the higher expense was a
$6 million increase related to environmental accruals; a $4 million reduction in
direct bill interest income; and a $4 million reduction in partnership earnings
due to the consolidation of MPC. The increase was offset by lower interest
expense of $4 million on tax adjustments and $3 million of interest income
related to the recovery of EPG's investment in its underground storage facility.

EPG's throughput for 1993 was 1,306 Bcf compared to 1,357 Bcf in 1992. This
decrease is due to lower deliveries to the utility electric generation market
resulting from the availability of excess hydroelectric power in the California
markets. The lower deliveries to California were partially offset by higher
throughput to off-system markets.

OTHER

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 106 which requires companies to account for
other postretirement employee benefits ("OPEBs") (principally retiree medical
costs) on an accrual basis versus the pay-as-you-go basis traditionally followed
by most United States companies. The Company adopted SFAS No. 106 effective
January 1, 1993.

The Company provides a non-contributory defined benefit postretirement
medical plan that covers employees who retired on or before March 1, 1986, and
limited postretirement life insurance for employees who retire after January 1,
1985. As such, the Company's obligation to accrue for OPEBs is primarily limited
to the fixed population of retirees who retired on or before March 1, 1986. The
medical plan is funded to the extent employer contributions are recoverable
through rates.

EPG began recovering through its rates the OPEB costs included in the
settlement agreement. To the extent actual OPEB costs differ from the amounts
funded, a regulatory asset or liability is recorded. Management expects to seek
inclusion of such amounts in its rates.

The Financial Accounting Standards Board issued SFAS No. 112 which requires
companies to account for benefits to former or inactive employees after
employment but before retirement (referred to in SFAS No. 112 as "postemployment
benefits"). SFAS No. 112 is effective for the fiscal years beginning after
December 15, 1993. These postemployment benefits include every form of benefit
provided to former or inactive employees, their beneficiaries, and covered
dependents. Benefits include, but are not limited to salary continuation,
supplemental unemployment benefits, severance benefits, disability-related
benefits (including workers' compensation), job training and counseling, and
continuation of benefits such as health care benefits and life insurance
coverage. Effective January 1, 1994, the Company adopted SFAS No. 112. The
Company has recorded a liability for postemployment benefit costs of
approximately $8 million to reflect the initial adoption of SFAS No. 112.
Management expects to seek recovery of the $8 million through rates and has
recorded a regulatory asset equal to that amount.

Deferred credits, in the Consolidated Balance Sheet, include excess
deferrals resulting from the reduction of the statutory federal tax rate from 46
to 34 percent on July 1, 1987. Regulatory assets in the Consolidated Balance
Sheet include expected future recoveries resulting from the increase of the
statutory federal rate from 34 to 35 percent on January 1, 1993. Management
expects to seek recovery of such amounts through its rates.

22
<PAGE> 25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EL PASO NATURAL GAS COMPANY

CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating revenues
Reservation.............................................. $506,122 $483,471 $346,027
Transportation........................................... 41,102 59,631 141,789
Gas and liquid sales..................................... 225,857 280,839 237,965
Gathering and processing................................. 66,581 51,427 41,759
Other.................................................... 30,210 33,560 35,272
-------- -------- --------
869,872 908,928 802,812
-------- -------- --------
Operating charges
Operation and maintenance................................ 295,182 340,818 314,782
Natural gas and liquids.................................. 233,823 249,484 197,759
Depreciation and amortization............................ 65,037 54,051 73,229
Litigation special charge................................ 15,062 -- --
Taxes, other than income taxes........................... 38,473 35,330 32,132
-------- -------- --------
647,577 679,683 617,902
-------- -------- --------
Operating income........................................... 222,295 229,245 184,910
-------- -------- --------
Other (income) and income deductions
Interest and debt expense................................ 78,850 75,429 68,075
Allowance for funds used during construction............. (485) (5,438) (7,096)
Interest income from BR.................................. -- -- (1,602)
Other -- net............................................. (4,146) 8,428 2,244
-------- -------- --------
74,219 78,419 61,621
-------- -------- --------
Income before income taxes................................. 148,076 150,826 123,289
Income taxes............................................... 58,463 59,153 46,963
-------- -------- --------
Net income................................................. $ 89,613 $ 91,673 $ 76,326
======== ======== ========
Earnings per common share.................................. $ 2.45 $ 2.46 $ 2.12
======== ======== ========
Average common shares outstanding.......................... 36,632 37,212 36,049
======== ======== ========
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

23
<PAGE> 26

EL PASO NATURAL GAS COMPANY

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Current assets
Cash and temporary investments................................... $ 27,636 $ --
Accounts and notes receivable, net............................... 131,650 133,437
Materials and supplies inventory................................. 34,666 34,665
Take-or-pay buy-outs, buy-downs, and prepayments, net............ 33,356 34,019
Other regulatory assets.......................................... 12,000 12,000
Deferred income tax benefit...................................... 41,257 44,141
Costs recoverable through insurance.............................. 291 23,260
Other............................................................ 18,303 22,490
------------ ------------
Total current assets..................................... 299,159 304,012
------------ ------------
Property, plant, and equipment, net................................ 1,865,897 1,765,486
Take-or-pay buy-outs, buy-downs, and prepayments, net.............. 14,502 48,106
Other regulatory assets............................................ 59,021 62,249
Other.............................................................. 93,192 89,810
------------ ------------
2,032,612 1,965,651
------------ ------------
Total assets............................................. $ 2,331,771 $ 2,269,663
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Trade......................................................... $ 117,575 $ 125,944
Other......................................................... 111,781 73,939
Commercial paper................................................. 106,800 1,300
Take-or-pay financing liability.................................. 36,700 40,125
Accrual for regulatory issues.................................... -- 47,263
Current maturities of long-term debt............................. 6,824 6,184
Accrued interest................................................. 31,236 30,447
Accrued taxes, other than income taxes........................... 27,373 21,135
Other............................................................ 13,766 10,127
------------ ------------
Total current liabilities................................ 452,055 356,464
------------ ------------
Long-term debt, less current maturities............................ 779,097 795,783
Deferred income taxes, less current portion........................ 304,918 298,080
Take-or-pay financing liability, less current portion.............. -- 40,383
Deferred credits................................................... 40,325 25,540
Other liabilities.................................................. 45,740 45,865
------------ ------------
1,170,080 1,205,651
------------ ------------
Commitments and contingent liabilities (see Notes 2, 4, and 13)
Stockholders' equity
Common stock, par value $3 per share; authorized, 100,000 shares;
issued, 37,351 shares and 37,350 shares....................... 112,053 112,051
Additional paid-in capital....................................... 454,705 455,496
Retained earnings................................................ 202,558 157,506
Less: Treasury stock 1,799 shares and 486 shares................. 59,680 17,505
------------ ------------
Total stockholders' equity............................... 709,636 707,548
------------ ------------
Total liabilities and stockholders' equity............... $ 2,331,771 $ 2,269,663
============ ============
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

24
<PAGE> 27

EL PASO NATURAL GAS COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Income from operations................................ $ 89,613 $ 91,673 $ 76,326
Adjustments to reconcile income to net cash provided
by operating activities
Depreciation and amortization...................... 65,037 54,051 73,229
Deferred income taxes.............................. 49,394 8,550 (54,468)
Net take-or-pay recoveries......................... 31,932 60,799 213,748
Costs recovered (recoverable) through insurance.... 22,969 (22,578) 1,096
Other working capital changes
Accounts and notes receivable.................... 862 34,877 7,215
Inventories...................................... (2,527) 11,530 3,700
Other current assets............................. 4,684 10,209 (16,707)
Accounts payable................................. 33,322 (38,644) 17,680
Accrual for regulatory issues.................... (34,903) 1,210 15,267
Accrued taxes, other than income taxes........... 4,132 5,291 4,566
Other current liabilities........................ (4,037) 3,609 (24,693)
Other.............................................. (7,276) 14,975 16,579
--------- --------- ---------
Net cash provided by operating activities..... 253,202 235,552 333,538
--------- --------- ---------
Cash flows from investing activities
Capital expenditures.................................. (173,252) (164,333) (245,799)
Mojave acquisition.................................... -- (35,695) --
Proceeds from property dispositions................... 7,299 1,674 4,812
Other................................................. (23,381) (7,553) (2,111)
--------- --------- ---------
Net cash used in investing activities......... (189,334) (205,907) (243,098)
--------- --------- ---------
Cash flows from financing activities
Proceeds from sale of common stock, net............... 26 947 95,557
Proceeds from reissuance of treasury stock............ 1,204 3,869 10,754
Proceeds from long-term financings.................... -- -- 575,000
Long-term debt retirements............................ (16,174) (2,871) (186,416)
Net commercial paper borrowings....................... 105,500 1,300 --
Proceeds from sale of volumetric take-or-pay
receivables........................................ -- -- 210,621
Repayment of volumetric take-or-pay receivable........ (43,808) (35,313) (94,800)
Repayment of payable to BR............................ -- -- (624,804)
Acquisition of treasury stock......................... (43,994) (18,001) (23,988)
Dividends paid prior to initial public offering....... -- -- (274,000)
Dividends paid subsequent to initial public
offering........................................... (43,491) (39,935) (18,651)
Other................................................. 4,505 11,721 (35,846)
--------- --------- ---------
Net cash used in financing activities......... (36,232) (78,283) (366,573)
--------- --------- ---------
Increase (decrease) in cash and temporary cash
investments........................................... 27,636 (48,638) (276,133)
Cash and temporary cash investments
Beginning of period........................... -- 48,638 324,771
--------- --------- ---------
End of period................................. $ 27,636 $ -- $ 48,638
========= ========= =========
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

25
<PAGE> 28

EL PASO NATURAL GAS COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
-------------------- PAID-IN RETAINED --------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
--------- -------- -------- --------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1992.............. 31,421,731 $ 94,265 $382,260 $ 338,353 $ -- $ 814,878
Net income................. 76,326 76,326
Issuance of common stock,
net of related costs.... 5,882,700 17,648 72,220 89,868
Common stock dividends,
prior to the Offering... (274,000) (274,000)
Common stock dividends,
subsequent to the
Offering
($.75 per share)........ (27,817) (27,817)
Acquisition of treasury
stock................... (812,773) (23,988) (23,988)
Reissuance of treasury
stock................... (4,837) 628,258 18,562 13,725
---------- -------- -------- --------- ---------- -------- -------------
December 31, 1992............ 37,304,431 111,913 454,480 108,025 (184,515) (5,426) 668,992
Net income................. 91,673 91,673
Issuance of common stock,
net of related costs.... 45,694 138 1,016 1,154
Common stock dividends,
($1.10 per share)....... (40,904) (40,904)
Acquisition of treasury
stock................... (509,095) (18,001) (18,001)
Reissuance of treasury
stock................... (1,288) 207,249 5,922 4,634
---------- -------- -------- --------- ---------- -------- -------------
December 31, 1993............ 37,350,125 112,051 455,496 157,506 (486,361) (17,505) 707,548
Net income................. 89,613 89,613
Issuance of common stock,
net of related costs.... 800 2 24 26
Common stock dividends,
($1.21 per share)....... (44,179) (44,179)
Acquisition of treasury
stock................... (1,362,937) (43,994) (43,994)
Reissuance of treasury
stock................... (382) 50,162 1,819 1,437
Other...................... (815) (815)
---------- -------- -------- --------- ---------- -------- -------------
December 31, 1994............ 37,350,925 $112,053 $454,705 $ 202,558 (1,799,136) $(59,680) $ 709,636
========== ======== ======== ========= ========= ======== ==========
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

26
<PAGE> 29

EL PASO NATURAL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of the Company.
All significant intercompany transactions are accounted for at market prices and
have been eliminated in consolidation. The financial statements for previous
periods include certain reclassifications that were made to conform to the
current presentation. Such reclassifications have no impact on reported income
or stockholders' equity.

On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp., that subsidiary's 50 percent interest in MPC, a general
partnership. This acquisition gave the Company 100 percent ownership of MPC. The
operating results of MPC are included in the Company's consolidated results of
operations for 1994 and the months of May 1993 through December 1993. The
Company's previously owned 50 percent equity interest in MPC is included in
other-net in the Consolidated Statement of Income.

Accounting for Regulated Operations

EPG and MPC are subject to the regulations and accounting procedures of
FERC and therefore, continue to follow the reporting and accounting requirements
of SFAS No. 71. Accounting methods for companies subject to cost-of-service
regulation may differ from those used by non-regulated companies. However, when
the accounting method prescribed by the regulatory authority is used for
rate-making, such accounting conforms to the generally accepted accounting
principle of matching costs against the revenues to which they apply.

Transactions which EPG has recorded differently than a non-regulated entity
include the following: (i) take-or-pay payments recoverable from customers,
based upon transportation volumes, have been recorded as an asset, net of
allowance; (ii) losses on reacquired debt have been recorded in other assets and
are being amortized over the life of the original or replacement debt; (iii)
revenue related to the implementation of SFAS No. 109 has been recorded as a
deferred credit and is being amortized into income; (iv) adjustment to reflect
the increase in the federal income tax rate has been recorded in other
regulatory assets to be recovered in future rates; (v) OPEB costs that differ
from the amounts funded are recorded either as a regulatory asset or liability
to be included in future rates; (vi) postemployment benefit costs have been
recorded in other regulatory assets to be recovered in future rates; (vii) a
portion of EPG's investment in its underground storage facility has been
recorded as an asset and is being recovered in accordance with the settlement
agreement; and (viii) the cost of equity funds used during construction has been
capitalized.

Transactions which MPC has recorded differently than a non-regulated entity
include the following: (i) the cost of equity funds used during construction has
been capitalized; (ii) excess amounts due to straight-line depreciation rates
have been recorded as other regulatory assets to be recovered in future rates;
and (iii) deferred taxes on the equity portion of AFUDC have been recorded in
other regulatory assets to be recovered in future rates.

Management believes that MPC remains "regulated" as the term is used in the
relevant accounting literature. However, management is currently evaluating
whether or not the application of these principles will continue to be
appropriate for MPC in the future. At December 31, 1994, the Consolidated
Balance Sheet contains assets and liabilities related to MPC's operations which
have been recorded pursuant to regulatory accounting principles. If these
accounting principles should no longer be applied to MPC's operations, an amount
would be charged to earnings as an extraordinary item. At December 31, 1994,
this amount was estimated to be approximately $8 million.

27
<PAGE> 30

Cash and Temporary Investments

Short-term investments purchased with an original maturity of three months
or less are considered cash equivalents.

Accumulated Provision for Uncollectible Accounts Receivable

The Company has established a provision for losses on trade accounts
receivable which may become uncollectible. Collectibility of trade receivables
is reviewed regularly, and the allowance for bad debts is adjusted as necessary
under the specific identification method. The balances of this provision at
December 31, 1994, and 1993 were $6.2 million and $3.9 million, respectively.

Gas Imbalances

The Company currently accounts for gas imbalances due to or due from
shippers and operators. Gas imbalances are valued at the appropriate index
price.

The Company has established a provision for gas imbalances which may become
uncollectible. Collectibility of gas imbalances is reviewed regularly and the
provision is adjusted as necessary under the specific identification method. The
balances of the provision at December 31, 1994, and 1993 were $8.8 million and
$5.6 million, respectively.

Materials and Supplies Inventory

Inventory is valued at cost and relieved using the average cost method.

Take-or-Pay Settlements

Assets resulting from the resolution of take-or-pay obligations include
recoupable take-or-pay prepayments and take-or-pay buy-out and buy-down
receivables. Recoupable prepayments result when EPG pays for, but does not
physically receive, gas and retains the right to take such gas in the future,
generally over five years. Take-or-pay buy-outs and buy-downs represent costs
paid to natural gas producers for the termination or modification of gas
purchase contracts. In exchange for EPG's agreement to absorb 25 percent of its
take-or-pay buy-out and buy-down costs, FERC regulations provide for the direct
billing of 25 percent of such costs to EPG's customers. In addition, such
regulations allow EPG to recover the remaining 50 percent of its buy-out and
buy-down costs through a surcharge added to its transportation rates.

Property, Plant, and Equipment

Included in the Company's property, plant, and equipment is construction
work in progress of approximately $78 million and $53 million at December 31,
1994, and 1993, respectively. An allowance for both debt and equity funds used
during construction is included in the cost of the Company's property, plant,
and equipment.

EPG's properties are depreciated using the composite method. The
straight-line depreciation rate for 1994 and 1993 was 1.6 percent for
transmission facilities. For 1992, the depreciation rate for transmission
facilities was 2.67 percent adjusted to 1.6 percent in accordance with the
settlement agreement. The depreciation rate for gathering facilities was 3.5
percent for 1994, 1993, and 1992.

MPC's depreciation rates reflect a levelized cost-of-service approach and a
25-year depreciable life. MPC's depreciation rate for its plant during the first
15 years increases gradually from 1.48 percent in 1992 to 8.76 percent in 2007.
The depreciation rates are designed to recover approximately 80 percent of MPC's
plant balance by March 1, 2007. The depreciation rate related to years 16
through 25 will be determined in future rate proceedings. (See "Accounting for
Regulated Operations" of this note.)

Additional acquisition cost assigned to utility plant represents EPG's
portion of the excess of allocated acquisition cost over historical cost that
resulted from the 1983 acquisition of EPG's former parent, TEPCO,

28
<PAGE> 31

by BR's former parent, Burlington Northern Inc. ("BNI"). These costs are being
amortized on a straight-line basis over the estimated remaining life of the
properties.

Costs of properties that are not operating units, as defined by FERC, which
are retired, sold or abandoned are charged or credited, net of salvage, to
accumulated depreciation and amortization. Gains or losses on sales of operating
units are credited or charged to income.

Environmental Costs

Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to existing conditions
caused by past operations and that do not contribute to current or future
revenue generation are expensed. Reserves for estimated costs are recorded when
environmental remedial efforts are probable and the costs can be reasonably
estimated. The most current information available, including similar past
experiences, available technology, regulations in effect, the timing of
remediation, and cost-sharing arrangements are used in determining the reserves.
The environmental reserves are based on management's estimate of the most likely
cost to be incurred and are reviewed periodically and adjusted as additional or
new information becomes available.

Financial Instruments With Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to reduce its exposure to fluctuations in
interest rates and the price of natural gas. These financial instruments include
interest rate swaps, price swap agreements, futures, and options.

Gains or losses on futures and options contracts are deferred until the
hedged commodity transaction occurs. The difference paid or received under the
interest rate swap agreements is charged or credited to interest expense. Gains
or losses on price swaps, futures, and options are recognized and reported as a
component of the related transaction. Any cash flow activities resulting from
holding these financial instruments are treated in the same manner as the
underlying instrument.

Income Taxes

Income taxes are based on income reported for tax return purposes and a
provision for deferred income taxes. Deferred income taxes are provided to
reflect the tax consequences in future years of differences between the
financial statement and tax bases of assets and liabilities at each year end.
Tax credits are accounted for under the flow-through method, which reduces the
provision for income taxes in the year the tax credits first become available.

Pursuant to a tax sharing agreement between EPG and BR covering periods
prior to July 1992, EPG is responsible for its tax liabilities and those of its
subsidiaries. EPG is required to pay BR its allocable portion of the
consolidated federal tax liability and combined state income tax liability.

Treasury Stock

Treasury stock is accounted for using the cost method and is shown as a
reduction to stockholders' equity in the Consolidated Balance Sheet. Treasury
stock sold or reissued is valued on a first-in first-out basis. Included in
treasury stock at December 31, 1994, are 430,000 shares that have been used to
secure benefits under certain of the Company's benefit plans.

Earnings Per Share

Earnings per share of common stock is based on the weighted average number
of shares of common stock outstanding during the year. The weighted average
shares of common stock outstanding for 1994, 1993, and 1992 were 36,632,236,
37,212,192, and 36,049,135, respectively. Stock options are the only common
stock equivalents and are currently not dilutive.

29
<PAGE> 32

2. RATES AND REGULATORY MATTERS

General Rate Filings and Other

In July 1991, EPG filed for FERC approval of new system rates and placed
the proposed new rates into effect on January 1, 1992, subject to refund. In
July 1992, EPG again filed for new rates to recover increased costs and return
on rate base associated with EPG's expansion and modernization projects. These
rates became effective on February 1, 1993, subject to refund. In the July 1992
filing, EPG's rate base increased from $752 million to approximately $1.2
billion. EPG made its compliance filing in December 1992, in accordance with the
Restructuring Rules.

Several of MPC's customers filed protests and requests for rehearing of the
March 1993 FERC order. The rehearing requests were denied, and FERC approved the
amended restructuring plan in July 1993 with an effective date of August 1,
1993. In October 1993, FERC issued an order which denied requests for rehearing
of the July 1993 order. Several of MPC's customers have filed petitions with the
Court of Appeals for review of the March 1993, July 1993, and October 1993
orders. These petitions are currently pending before the Court of Appeals. The
primary issues on appeal pertain to FERC's requirement that MPC's rates for firm
transportation service be based upon SFV rate design rather than MFV rate
design. The application of SFV rates requires MPC's existing firm shippers to
pay a higher proportion of their total transportation rate in the reservation
component of the rate. Such shippers have contended that FERC's application of
SFV rate design to MPC unlawfully abrogates the rate provisions of MPC's service
agreements and constitutes an unlawful rate increase. Management believes the
Court of Appeals will uphold SFV rates as applied to MPC.

Producer Settlement and Cost Recovery

30
<PAGE> 33

3. LONG-TERM DEBT AND OTHER FINANCING

Long-term debt outstanding is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt
EPG
6.90% Notes, due January 1997..................... $100,000 $100,000
9.45% Notes, due September 1999................... 47,447 47,442
7 3/4% Notes, due January 2002.................... 214,624 214,570
8 5/8% Debentures, due March 2012................. 16,811 16,791
8 5/8% Debentures, due January 2022............... 258,420 258,362
Other............................................. 35 43
MPC
Project financing loan, due March 2007, average
interest rates of 8.0% and 7.6%................. 148,584 164,759
-------- --------
785,921 801,967
Less current maturities........................... 6,824 6,184
-------- --------
Total long-term debt............................ $779,097 $795,783
======== ========
</TABLE>

31
<PAGE> 34

The following are aggregate maturities of long-term debt for the next five
years and in total thereafter:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995............................................................. $ 6,824
1996............................................................. 7,517
1997............................................................. 108,279
1998............................................................. 18,081
1999............................................................. 65,366
Thereafter....................................................... 579,854
-----------
Total long-term debt, including current
maturities.................................... $785,921
===========
</TABLE>

In January 1992, EPG completed a purchase of $46 million and $41 million of
aggregate principal amounts of the 9.45% Notes and 8 5/8% Debentures,
respectively. Funds for these purchases were provided by proceeds from
borrowings under the BR Loan Agreements described below. In addition, in
December 1991 EPG called for redemption, on January 23, 1992, of all the
outstanding 9 5/8% Debentures ($100 million aggregate principal amount) at a
price equal to 106.84 percent of their principal amount.

EPG had a Commitment Agreement with BR under which it could borrow up to
$300 million and Loan Agreements for borrowings up to $500 million. Proceeds
from the sale of the take-or-pay receivables were used to repay the borrowings
under the Commitment Agreement. In January 1992, EPG borrowed $109 million under
the Loan Agreements. Borrowings under the Loan Agreements were used to pay for
the purchase of the 9.45% Notes and the 8 5/8% Debentures in January 1992 and
the payment of related transaction costs.

In January 1992, EPG issued $575 million principal amount of new debt
securities consisting of $100 million of 6.90% Notes due 1997, $215 million of
7 3/4% Notes due 2002, and $260 million of 8 5/8% Debentures due 2022. The net
proceeds of $569 million received from such issuance were used to repay $434
million of borrowings under the Loan Agreements with BR, to redeem $107 million
of 9 5/8% Debentures, and for general corporate purposes ($28 million) including
costs related to the transactions discussed above. The Commitment Agreement and
the Loan Agreements with BR were terminated prior to the completion of the
Offering.

In February 1992, EPG established a $300 million revolving credit facility
with a group of banks which would have expired in March 1996. This facility was
replaced in August 1994 when EPG established with a group of banks a revolving
credit facility of $400 million which expires in five years. As of December 31,
1994, and 1993, respectively, there were no borrowings outstanding under these
facilities. Approximately $107 million and $1 million of commercial paper were
outstanding as of December 31, 1994, and 1993, respectively. The weighted
average interest rates on these borrowings for 1994 and 1993 were 4.58 percent
and 3.24 percent, respectively.

EPG must comply with various restrictive covenants contained in its debt
agreements which include, among others, maintaining a consolidated debt and
guaranties to capitalization ratio no greater than 70 percent. Also, EPG must
maintain consolidated tangible net worth of at least $400 million. Furthermore,
certain EPG subsidiaries (other than any project financing subsidiary, as
defined in the agreements) may not incur debt obligations which would exceed $75
million in the aggregate. As of December 31, 1994, EPG's consolidated debt and
guaranties to capitalization ratio was 51.2 percent, its consolidated tangible
net worth exceeded the minimum restrictive covenant requirement by approximately
$300 million, and there were no subsidiary debt obligations of those
subsidiaries limited by the debt agreements.

EPG filed a shelf registration statement in August 1994 pursuant to which
EPG may offer up to $400 million of unsecured debt securities, preferred stock,
and common stock from time to time as determined by market conditions. As of
December 31, 1994, EPG had not requested that the registration statement be
declared effective by the Securities and Exchange Commission.

32
<PAGE> 35

In September 1991, MPC entered into a credit agreement ("Credit Agreement")
with a group of banks which provided a 15 year project financing loan to MPC of
up to $180 million. Total outstanding loan balances under the Credit Agreement
were $149 million and $165 million at December 31, 1994, and 1993, respectively.
The loan is repayable in semiannual installments through March 2007. Interest on
the loan is payable quarterly.

Borrowings under the Credit Agreement are collateralized by a priority
interest in the Company's partnership interests and certain other distributed
and undistributed partnership property. The Credit Agreement also contains
covenants relating to, among other things, partnership distributions and
additional indebtedness.

MPC has entered into interest rate swap agreements which effectively
convert $114.3 million of the current loan balance from floating-rate debt to
fixed-rate debt. MPC makes payments to counterparties at fixed rates and in
return receives payments at floating rates. Substantially all of the remaining
$34.3 million of loan principal had interest rates ranging from 4.1 percent to
6.0 percent during 1994. With the impact of the interest rate swap agreements,
the overall effective interest rates on the loan were approximately 8.0 percent
and 7.6 percent during 1994 and 1993, respectively.

4. ENVIRONMENTAL

As of December 31, 1994, EPG had a reserve of approximately $40 million for
the following environmental contingencies with income statement impact:

1 -- EPG has been conducting remediation of PCB contamination at certain of
its facilities. The majority of the required PCB remediation has been
completed. Future PCB remediation costs are estimated to range between $7
million and $11 million over the next 5 years.

2 -- EPG executed an Administrative Order on Consent with EPA in June 1993
to conduct a RI/FS for a BI site located in Statesville, North Carolina,
that has been identified for cleanup. BI and EPG have entered into an
agreement to jointly fund the RI/FS for the site. EPG's share of the
potential remediation costs is estimated to be between $17 million and $29
million over a 30 year period.

3 -- In November 1993, in accordance with an EPA order, EPG and ARCO
submitted work plans for remediation of the subsurface at the Prewitt
Refinery in McKinley County, New Mexico. EPG and ARCO have a cost sharing
agreement to each pay one-half of any remediation costs at this site. EPG's
share of the remediation costs is estimated to be between $12 million and
$20 million over a 30 year period.

4 -- In December 1993, EPA issued EPG a Notice of Liability for the CSMRI
site in Golden, Colorado. EPA has determined that the volume of hazardous
substances sent to the site by EPG represent less than 2.5 percent of the
total volumes sent by all PRPs. Based on this percentage, EPG's share of
the potential remediation costs is estimated to be less than $500,000.

5 -- EPG and Texaco have been conducting environmental assessments of
groundwater and soil contamination at various sites in southeastern Utah.
Based upon currently available information, EPG estimates costs for
remediation will be approximately $4 million. However, costs could be
higher once the environmental assessment has been completed. EPG and Texaco
are engaged in negotiations over the appropriate allocation of the
remediation costs.

33
<PAGE> 36

being negotiated. EPG's share of the costs is estimated to be between
$300,000 and $500,000 over a 5 year period.

Management believes the amount reserved as of December 31, 1994 is
sufficient to cover these and other small environmental assessments and
remediation activities.

EPG also has potential expenditures, of a capital nature, for the following
environmental projects:

2 -- EPG has been conducting remediation of mercury contamination at
certain facilities and is replacing mercury containing meters with other
measurement devices. The mercury remediation project is expected to be
completed in 1995 at a cost of approximately $8 million. EPG will close and
retire about 1,500 earthen siphon/dehydration pits in the San Juan Basin as
required by certain environmental regulations. The project is expected to
be completed in 1995 at a cost of approximately $6 million. The mercury
remediation and pit closure costs, which are associated with the retirement
of equipment, will be recorded as adjustments to accumulated depreciation,
as permitted by regulatory accounting.

5. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of SFAS No. 107.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies.

As of December 31, 1994, and 1993, the carrying amounts of certain
financial instruments employed by the Company, including cash, cash equivalents,
short-term borrowings and investments, and trade receivables and payables are
representative of fair value because of the short-term maturity of these
instruments. The fair value of the long-term debt has been estimated based on
quoted market prices for the same or similar issues. The fair value of the
project financing is representative of the carrying amount due to the short-term
nature of the interest rates. The fair value of all derivative financial
instruments is the amount at which they could be

34
<PAGE> 37

settled, based on quoted market prices or estimates obtained from dealers. The
following table reflects the carrying amount and estimated fair value of the
Company's financial instruments.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1994 1993
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance sheet financial instruments
Long-term debt........................ $637,337 $ 621,400 $637,208 $ 696,200
Project financing..................... 148,584 148,584 164,759 164,759
Other financial instruments
Interest rate swap agreements......... -- 2,144 -- 19,264
Price rate swap agreements............ -- 1,190 -- 1,004
Futures contracts..................... -- 84 -- --
-------- ---------- -------- ----------
Total......................... $785,921 $ 773,402 $801,967 $ 881,227
======== ========= ======== =========
</TABLE>

Derivative Financial Instruments

The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses
derivatives to manage well-defined interest rate and commodity price risks.
Those financial instruments held for hedging purposes are used to hedge only
firm commitments. In 1993, both EPG and EPGM entered into separate price swap
agreements; however, all contracts held by EPG were settled by the end of 1993.
There were no futures or option contracts held in 1993. With the exception of
MPC's interest rate swap agreements, all derivative financial instrument
contracts at December 31, 1994, are held by EPGM.

1. Interest Rate Swap Agreements

MPC has entered into interest rate swap agreements which effectively
converted $114.3 million of floating-rate debt to fixed-rate debt. MPC
makes payments to counterparties at fixed rates and in return receives
payments at floating rates. At December 31, 1994, and 1993, MPC had two
interest rate swap agreements outstanding with an aggregate notional amount
of $114.3 million. The two swap agreements were entered into in March 1992
and have remaining terms of approximately 5 years and 7 years,
respectively.

The primary risks associated with swaps are the exposure to movements
in interest rates and the ability of the counterparties to meet the terms
of the contracts. Based on review and assessment of counterparty risk, MPC
does not anticipate non-performance by the other party.

2. Price Swap Agreements

In 1994 and 1993, EPG and EPGM entered into certain price swap
agreements with counterparties to effectively manage a portion of the
market risk associated with the fluctuations in the price of natural gas.
The agreements include both (i) transactions in which one party agrees to
pay a fixed price while the other party agrees to pay a price based on a
published index, and (ii) transactions in which the parties agree to pay
based on different indices. At December 31, 1994, and 1993, EPGM had swap
agreements used on the buying side of natural gas transactions with
notional contract amounts of approximately $22.3 million and $22.5 million,
respectively. EPGM had swap agreements used on the selling side of natural
gas transactions with notional contract amounts of approximately $6.3
million and $7.5 million, at December 31, 1994, and 1993, respectively.
EPGM also held two swap agreements in which payment by both parties is
based on different indices. These agreements had a notional contract amount
of approximately $0.7 million at December 31, 1994. The price swap
agreements entered into in 1994 extend for periods of up to 5 years, while
those originating in 1993 have current terms of up to 4 years. During 1994,
EPGM realized a pretax loss of approximately $1.4 million pertaining to
price swap agreements. During 1993, EPG and EPGM, collectively, realized a
pretax loss of approximately $0.2 million pertaining to price swap
agreements.

35
<PAGE> 38

The primary risks associated with swaps are the exposure to movements
in the value of natural gas and the ability of the counterparties to meet
the terms of the contracts. While the notional contract amounts reflect the
extent of involvement in the price swap agreements, the amounts potentially
subject to credit risk, in the event of non-performance by the other
parties, are substantially smaller. EPG periodically reviews and assesses
counterparty risk to limit any material impact to its financial position or
results of operations; consequently, EPGM does not anticipate
non-performance by the other parties.

3. Futures Contracts

In 1994, EPGM entered into futures contracts to effectively manage a
portion of the market risk associated with fluctuations in the price of
natural gas. At December 31, 1994, EPGM held in its portfolio 25 futures
contracts for an aggregate notional value of $0.5 million, expiring in
March 1995. During 1994, EPGM realized a pretax loss of approximately $0.5
million pertaining to futures contracts. At December 31, 1994, EPGM had an
unrealized loss of approximately $1.2 million pertaining to such contracts
which is reflected in the Consolidated Balance Sheet. Risks on futures
contracts stem from market movements in the value of natural gas.

4. Option Contracts

Options give EPGM the right, but not the obligation, to buy or sell
natural gas at a predetermined price during a specified period. EPGM
purchased option contracts during 1994; however, at December 31, 1994, did
not hold any in its portfolio. Risks on option contracts stem from
movements in the value of natural gas.

Risk Management

The Company does not obtain collateral or other security to support
financial instruments subject to credit risk, but monitors the credit standing
of counterparties. MPC's objective in entering into the interest rate swap
agreements was to avoid the interest rate risk associated with the floating rate
debt. EPGM is engaged in the trading of natural gas in the spot (30 day),
intermediate (up to 1 year), and long-term (in excess of 1 year) markets.
Volatility of prices for natural gas has inherently created financial risk in
conducting seasonal and long-term marketing. The primary reason EPGM's risk
management program includes the use of these instruments is to guard against
adverse changes in the price of natural gas and attempt to ensure a margin on
purchases or sales of natural gas. EPGM has established policies and procedures
governing the use of derivative financial instruments in over-the-counter and
listed exchange-based markets to manage the risks of buying and selling natural
gas.

A designated committee oversees risk management activities of EPGM to
ensure that specific risk management strategies have been developed, reviewed,
and implemented, which comply with the stated objectives approved by management.

6. ACQUISITION

On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp., that subsidiary's 50 percent interest in MPC for approximately $40
million in cash, representing the approximate book value of the investment. The
acquisition, which was funded by internally generated cash flow, gave the
Company 100 percent ownership of MPC. The acquisition was accounted for using
the purchase method.

In conjunction with the acquisition, the following liabilities were
assumed:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired.......................................... $145,643
Cash paid.............................................................. 39,396
-----------
Liabilities assumed............................................... $106,247
===========
</TABLE>

36
<PAGE> 39

7. CORPORATE REORGANIZATION

During 1992, EPG completed several transactions in preparation for its
separation from BR. In January and February 1992, EPG declared and paid
dividends totaling $274 million to BR. These dividends were paid from the
balance owed to EPG under an intercorporate cash management arrangement.

In March 1992, EPG completed the Offering. The proceeds from the Offering,
net of related costs, totaled approximately $96 million. In June 1992, BR
distributed its 31.4 million shares of EPG's common stock, which represented
approximately 85 percent of EPG's outstanding common stock, to BR shareholders.
As a result, BR no longer retains an ownership interest in EPG.

8. CAPITAL STOCK

Under EPG's employee stock option plans, options may be granted to officers
and key employees at fair market value on the date of grant, exercisable in
whole or part by the optionee after completion of one to three years of
continuous employment from the grant date. Options are also granted to
non-employee members of the Board at fair market value on the date of grant and
are exercisable immediately. Under the terms of these plans, EPG may grant stock
appreciation rights ("SARs") to certain holders of stock options. SARs are
subject to the same terms and conditions as the related stock options. The stock
option holder who has been granted tandem SARs can elect to exercise either an
option or a SAR. SARs entitle an option holder to receive a payment equal to the
difference between the option price and the fair market value of the common
stock of EPG at the date of exercise of the SAR. To the extent a SAR is
exercised, the related option is cancelled, and to the extent an option is
exercised, the related SAR is cancelled.

In January 1992, the Board granted options exercisable for 722,300 shares
of common stock effective upon the closing of the Offering. One-third of the
options became exercisable on December 19, 1992; one-third became exercisable on
January 15, 1994; and one-third became exercisable on January 15, 1995.

After the Offering, 597,838 BR stock options and 100,730 BR SARs, at prices
ranging from $25.50 to $44.75 per share, were converted to EPG stock options and
SARs at prices ranging from $13.51 to $22.91 per share.

37
<PAGE> 40

Additionally, the Board granted the following stock options:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
STOCK PRICE PER EXERCISABLE
GRANT DATE OPTIONS SHARE DATE
- ---------- --------- --------- -----------
<S> <C> <C> <C>
1/12/93 554,000 $ 30.81 1/12/94
3/18/93 3,000 36.19 3/18/93
5/1/93 3,000 38.19 5/1/93
7/22/93 15,000 37.25 1/22/94
1/14/94 655,100 36.88 1/14/95
1/14/94 3,000 36.88 1/14/94
3/17/94 5,000 39.56 3/17/94
1/13/95 633,000 29.94 1/13/96
</TABLE>

Activity in EPG's stock option plans for 1992, 1993, and 1994 was as
follows:

<TABLE>
<CAPTION>
EXERCISE
PRICE PER
OPTIONS SARS SHARE
--------- -------- -----------------
<S> <C> <C> <C>
Balance, June 30, 1992....................... 1,705,498 631,702 $13.51 to $21.81
Converted.................................. 13,821 -- 20.82 to 22.91
Granted.................................... 3,000 -- 25.69
Exercised.................................. 628,258 441,499 13.51 to 19.00
Cancelled.................................. 30,800 85,000 13.51 to 19.00
--------- --------
Balance, December 31, 1992................... 1,063,261 105,203 $13.51 to $25.69
Granted.................................... 575,000 -- 30.81 to 38.19
Exercised.................................. 247,143 35,049 13.51 to 22.91
Cancelled.................................. 41,382 -- 19.00 to 30.81
--------- --------
Balance, December 31, 1993................... 1,349,736 70,154 $13.51 to $38.19
Granted.................................... 663,100 -- 36.88 to 39.56
Exercised.................................. 50,162 22,000 13.51 to 30.81
Cancelled.................................. 29,983 -- 19.00 to 36.88
--------- --------
Balance, December 31, 1994................... 1,932,691 48,154 $18.14 to $39.56
========= ========
</TABLE>

At December 31, 1994, 1,062,871 stock options and 48,154 SARs were
exercisable at prices ranging from $18.14 to $39.56 per share.

Stock options shown as cancelled in the table above may be a result of the
tandem SAR being exercised. SARs shown as cancelled in the table above were
cancelled when the underlying stock options were exercised.

The maximum number of shares for which stock options may be granted under
EPG's current stock option plans is approximately 7 million shares of common
stock, to be issued from shares held in EPG's treasury or out of authorized but
unissued shares of EPG's common stock, or partly out of each, as shall be
determined by the Board.

In October 1992, the Board authorized the repurchase of up to 2 million
shares of EPG's outstanding shares of common stock from time to time in the open
market. Shares repurchased are held in EPG's treasury and are expected to be
used in connection with EPG employee stock option plans to minimize dilution to
existing shareholders. During 1992, EPG acquired 812,773 shares of its common
stock for an aggregate value of $24 million and reissued, in connection with
EPG's employee stock option plans, 628,258 shares of common stock out of
treasury stock for an aggregate value of $11 million. The 184,515 remaining
shares were reissued through April 1993, in connection with employee stock
option plans, for an aggregate value of $5 million.

38
<PAGE> 41

treasury stock. In addition, from April 1993 through December 1993, EPG issued
43,394 shares of common stock in connection with EPG's employee stock option
plans.

In November 1994, the Board authorized the repurchase of an additional 3.5
million shares of EPG's outstanding common stock from time to time in the open
market. Shares repurchased are held in EPG's treasury and are expected to be
used in connection with EPG employee stock option plans and for other corporate
purposes. During 1994, EPG acquired 1,362,937 shares of its common stock for an
aggregate value of $44 million and subsequently reissued, in connection with
employee stock option plans, 50,162 shares of its common stock out of treasury
stock for an aggregate value of $1.8 million. In addition, 430,000 shares of
treasury stock have been used to secure benefits under certain of the Company's
benefit plans. These shares are subject to certain restrictions. As of December
31, 1994, EPG had 1,799,136 shares of treasury stock.

A total of 800, 2,300, and 132,700 restricted shares of EPG's common stock
were granted to certain employees during 1994, 1993, and 1992, respectively. The
market value of such shares awarded was approximately $26,000, $76,000, and $2.8
million in 1994, 1993, and 1992, respectively.

EPG has 25,000,000 shares of authorized preferred stock, par value $0.01
per share, none of which have been issued.

EPG filed a shelf registration statement in August 1994 pursuant to which
EPG may offer up to $400 million of unsecured debt securities, preferred stock,
and common stock from time to time as determined by market conditions. As of
December 31, 1994, there had been no securities issued under this registration
statement.

9. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>

Property, plant, and equipment, at cost............. $2,979,368 $2,873,301
Less accumulated depreciation....................... 1,212,477 1,212,233
---------- ----------
1,766,891 1,661,068
Additional acquisition cost assigned to utility
plant, net of accumulated amortization............ 99,006 104,418
---------- ----------
Total property, plant, and equipment,
net..................................... $1,865,897 $1,765,486
========== ==========
</TABLE>

39
<PAGE> 42

10. INCOME TAXES

The following table reflects the components of income tax expense.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................ $ 14,678 $ 42,112 $ 84,315
State.............................................. (5,609) 8,491 17,116
-------- -------- --------
9,069 50,603 101,431
-------- -------- --------
Deferred
Federal............................................ 35,062 7,506 (42,590)
Change in enacted tax rate......................... -- 503 --
State.............................................. 14,332 541 (11,878)
-------- -------- --------
49,394 8,550 (54,468)
-------- -------- --------
Total tax expense.......................... $ 58,463 $ 59,153 $ 46,963
======== ======== ========
</TABLE>

The following table reflects the components of deferred tax expense
(benefit).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gas cost settlements and recovery.................... $ 3,904 $ 17,633 $(51,602)
Financial accruals and reserves...................... 28,176 (13,001) (8,481)
Depreciation and amortization........................ 33,363 7,355 10,567
Alternative minimum tax.............................. (15,134) 2,103 (2,103)
Change in enacted tax rate........................... -- 503 --
Other................................................ (915) (6,043) (2,849)
-------- -------- --------
Total deferred tax expense (benefit)....... $ 49,394 $ 8,550 $(54,468)
======== ======== ========
</TABLE>

The following table reflects the components of the net deferred tax
liability.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment............................ $275,214 $253,639
Regulatory and other assets.............................. 62,168 71,896
-------- --------
Total deferred tax liability..................... 337,382 325,535
-------- --------
Deferred tax assets
Take-or-pay buy-outs, buy-downs and prepayments.......... 2,509 2,186
Accrual for regulatory issues............................ -- 22,119
Other liabilities........................................ 55,740 40,842
Other.................................................... 15,472 6,449
-------- --------
Total deferred tax asset......................... 73,721 71,596
-------- --------
Net deferred tax liability................................. $263,661 $253,939
======== ========
</TABLE>

40
<PAGE> 43

Tax expense of the Company differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The reasons for this
difference are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at the statutory federal rate of 35% for
1994 and 1993 and 34% for 1992...................... $51,827 $52,789 $41,918
Increase (decrease)
State income tax, net of federal income tax
benefit.......................................... 5,670 5,871 3,458
Change in enacted tax rate.......................... -- 503 --
Other............................................... 966 (10) 1,587
------- ------- -------
Income tax expense.................................... $58,463 $59,153 $46,963
======= ======= =======
Effective tax rate.................................... 39% 39% 38%
</TABLE>

11. PENSION PLANS

Prior to July 1992, the Company participated in BR's pension plans, which
were non-contributory defined benefit plans covering substantially all
employees. The benefits were based on the number of years of credited service
and the highest five-year average compensation levels. Contributions to the
plans were determined by BR and were limited to amounts that were deductible for
tax purposes.

In 1992, the Company established its own pension plans with provisions
similar to those of the BR plans. On July 1, 1992, the Company's qualified
pension plan received from BR's plan assets equal to the accumulated benefit
obligation relating to the Company's employees.

The following table sets forth the qualified pension plan's funded status
and amounts recognized in the Company's Consolidated Balance Sheet.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits............................................. $430,499 $471,600
Nonvested benefits.......................................... 818 896
-------- --------
Accumulated benefit obligation................................ $431,317 $472,496
======== ========
Projected benefit obligation for service rendered to date..... $489,121 $546,180
Plan assets at fair value, primarily listed stocks and U.S.
bonds....................................................... 407,620 434,505
-------- --------
Projected benefit obligation in excess of plan assets......... $ 81,501 $111,675
======== ========
Unrecognized net loss......................................... $ 36,686 $ 64,194
Unrecognized net transition obligation........................ 19,305 22,008
Recognized pension liability.................................. 25,510 37,991
Minimum liability adjustment included in recognized pension
liability................................................... -- (12,518)
-------- --------
$ 81,501 $111,675
======== ========
</TABLE>

41
<PAGE> 44

The following table reflects the components of net periodic pension cost.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period.... $ 9,345 $ 7,568 $ 3,311
Interest cost on projected benefit obligation........ 39,458 38,786 19,364
Actual return on plan assets......................... 4,721 (43,850) (27,641)
Pension cost allocated from BR plan.................. -- -- 4,922
Net amortization and deferral........................ (39,669) 10,724 11,328
-------- -------- --------
Net periodic pension cost............................ $ 13,855 $ 13,228 $ 11,284
======== ======== ========
</TABLE>

The following table reflects the actuarial assumptions used in the
valuation of the projected benefit obligation.

<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Weighted average discount rate..................................... 8.75% 7.50%
Rate of increase in future compensation levels..................... 5.00% 5.00%
Weighted average expected long-term rate of return on plan
assets........................................................... 9.25% 9.00%
</TABLE>

Contributions to the plans are limited to amounts currently deductible for
tax purposes. The accumulated vested benefit obligation is the actuarial present
value of the vested benefits to which the employee is currently entitled, but it
is based on the employee's expected date of termination.

12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS

The Financial Accounting Standards Board issued SFAS No. 106 which requires
companies to account for OPEBs, (principally retiree medical costs) on an
accrual basis versus the pay-as-you-go basis traditionally followed by most
United States companies. The Company adopted SFAS No. 106 effective January 1,
1993.

The following table sets forth the postretirement plan's funded status and
amounts recognized in the Company's Consolidated Balance Sheet.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation.................. $ 86,656 $124,914
Plan assets at fair value, primarily U.S. stocks and U.S.
bonds........................................................ 16,758 8,751
-------- --------
Accumulated postretirement benefit obligation in excess of plan
assets....................................................... $ 69,898 $116,163
======== ========
Unrecognized net (gain) loss................................... $(26,441) $ 9,285
Unrecognized transition obligation............................. 96,987 105,796
(Prepaid) accrued postretirement benefit costs................. (648) 1,082
-------- --------
$ 69,898 $116,163
======== ========
</TABLE>

42
<PAGE> 45

The following table reflects the components of net periodic postretirement
benefit cost.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest cost on accumulated postretirement benefit
obligation................................................... $ 6,983 $ 9,377
Actual return on plan assets................................... 472 (254)
Net amortization and deferral.................................. 6,585 9,062
-------- --------
Net periodic postretirement benefit cost....................... $ 14,040 $ 18,185
======== ========
</TABLE>

A 10 percent annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1995, gradually decreasing to 6 percent by
the year 1999. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1994, by approximately $8.0 million and
increase the interest cost components of net periodic postretirement benefit
cost for 1994 by approximately $0.7 million. A discount rate of 8.75 percent and
7.5 percent was used to determine the accumulated postretirement benefit
obligation at December 31, 1994, and 1993, respectively. The weighted average of
expected long-term rate of return for 1994 was 7.7 percent.

The Financial Accounting Standards Board issued SFAS No. 112 which requires
companies to account for benefits to former or inactive employees after
employment but before retirement (referred to in SFAS No. 112 as "postemployment
benefits"). SFAS No. 112 is effective for the fiscal years beginning after
December 15, 1993. These postemployment benefits include every form of benefit
provided to former or inactive employees, their beneficiaries and covered
dependents. Benefits include, but are not limited to, salary continuation,
supplemental unemployment benefits, severance benefits, disability-related
benefits (including workers' compensation), job training and counseling, and
continuation of benefits such as health care benefits and life insurance
coverage. Effective January 1, 1994, the Company adopted SFAS No. 112. The
Company has recorded a liability for postemployment benefit costs of
approximately $8 million to reflect the initial adoption of SFAS No. 112.
Management expects to seek recovery of the $8 million through rates and has
recorded a regulatory asset equal to that amount.

13. COMMITMENTS AND CONTINGENT LIABILITIES

See Note 2 and 4 of Notes to Consolidated Financial Statements, Items 1 and
2 -- Business and Properties, El Paso Natural Gas Company, Master Separation
Agreement, and Item 3 -- Legal Proceedings for discussions of litigation and
other contingencies.

Minimum annual rental commitments at December 31, 1994, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES
------------------------------------------------------- ----------------
(IN THOUSANDS)
<S> <C>
1995................................................... $ 9,167
1996................................................... 9,576
1997................................................... 10,010
1998................................................... 10,465
1999................................................... 10,943
Thereafter............................................. 94,154
------------
Total........................................ $144,315
============
</TABLE>

Rental expense for operating leases was $9 million in 1994 and $8 million
in 1993 and 1992.

EPG has a lease agreement for approximately 391,207 square feet of space
which is currently used as the Company headquarters and its gas control center.
The lease expires in May 2007, and grants EPG two ten year options to extend the
term of the lease.

At December 31, 1994, EPG had a commitment to purchase approximately $9
million of pipe in connection with the expansion of its existing mainline system
in the San Juan Basin.

43
<PAGE> 46

Management is not aware of other commitments or contingent liabilities
which would have a materially adverse effect on the Company's financial
condition or results of operations.

14. SIGNIFICANT CUSTOMERS

The Company had gross revenues equal to or in excess of 10 percent of
consolidated operating revenues from the following customers:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Southern California Gas Company.................... $190,989 $238,885 $249,277
Pacific Gas & Electric Company..................... 154,674 168,246 137,968
Southwest Gas Corporation.......................... -- (a) 95,188 79,784
</TABLE>

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

(a) Less than 10 percent of consolidated operating revenues.

15. SUPPLEMENTAL CASH FLOW INFORMATION

The following provides additional information concerning supplemental
disclosures of cash flow activities:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest........................................... $ 70,906 $ 66,773 $ 47,047
Income taxes, net of refunds....................... 31,231 38,993 140,766
</TABLE>

16. RELATED PARTY TRANSACTIONS

For the first six months of 1992, BR and Meridian were considered related
parties of EPG. Through February 1992, EPG participated in an intercorporate
cash management arrangement with BR, pursuant to which excess cash balances from
each of BR's operating subsidiaries were advanced to BR on a daily basis and
cash requirements of BR's operating subsidiaries were funded daily through
advances from BR. Balances under the arrangement accrued interest at rates
approximating short-term market rates. In January and February 1992, EPG
declared and paid dividends totaling $274 million to BR from the balance owed to
EPG under the intercorporate cash management arrangement.

In April 1992, the Board declared a quarterly dividend on common stock of
$0.25 per share to the June 1, 1992, stockholders of record. EPG paid the
dividend on June 19, 1992, in the amount of $9.3 million, $8 million of which
was paid to BR.

Revenues associated with the transportation of gas for Meridian by EPG were
$15 million for the six months ended June 30, 1992.

Certain BR corporate overhead expenses were allocated to EPG for the first
six months of 1992. The allocated amounts were not material and management
believes the allocation methodology was appropriate.

44
<PAGE> 47

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
El Paso Natural Gas Company

We have audited the consolidated financial statements and the financial
statement schedules of El Paso Natural Gas Company listed in Item 14(a) of this
Form 10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of El Paso Natural
Gas Company as of December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.

COOPERS & LYBRAND L.L.P.

El Paso, Texas
January 20, 1995

45
<PAGE> 48

EL PASO NATURAL GAS COMPANY

CONSOLIDATED QUARTERLY INFORMATION

YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1994
Operating revenues............................ $227,698 $209,424 $210,805 $221,945
======== ======== ======== ========
Operating income.............................. $ 58,881 $ 56,019 $ 59,598 $ 47,797
======== ======== ======== ========
Net income.................................... $ 23,391 $ 21,096 $ 24,011 $ 21,115
======== ======== ======== ========
Earnings per common share..................... $ 0.65 $ 0.58 $ 0.65 $ 0.57
======== ======== ======== ========
1993
Operating revenues............................ $232,349 $245,056 $220,611 $210,912
======== ======== ======== ========
Operating income.............................. $ 53,177 $ 55,487 $ 57,397 $ 63,184
======== ======== ======== ========
Net income.................................... $ 21,785 $ 18,365 $ 20,683 $ 30,840
======== ======== ======== ========
Earnings per common share..................... $ 0.59 $ 0.49 $ 0.55 $ 0.83
======== ======== ======== ========
</TABLE>

46
<PAGE> 49

SCHEDULE II

EL PASO NATURAL GAS COMPANY

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ------------------- -------- --------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -------------------------------------------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1994
Allowance for bad debts................... $ 3,868 $ 2,029 $ 734 $ 476 $ 6,155
Allowance for gas imbalances.............. 5,597 -- 3,243 -- 8,840
Allowance for take-or-pay receivables..... 19,387 -- -- 10,061 9,326
1993
Allowance for bad debts................... $ 5,084 $ -- $ 145 $ 1,361(b) $ 3,868
Allowance for gas imbalances.............. 12,097 -- -- 6,500(c) 5,597
Allowance for take-or-pay receivables..... -- 19,387 -- -- 19,387
1992(a)
Allowance for bad debts................... $ 8,229 $ -- $ 115 $ 3,260(b) $ 5,084
Allowance for gas imbalances.............. 2,082 10,015 -- -- 12,097
</TABLE>

(a) Presentation of prior years has been changed to conform to current year
presentation.

(b) Primarily accounts charged off.

47
<PAGE> 50

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

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information appearing under the caption "Proposal No. 1 -- Election of
Directors" in the Company's proxy statement for the 1995 Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.
Information regarding executive officers of the Company is presented in Items 1
and 2 of this Form 10-K under the caption "Executive Officers of the
Registrant."

ITEM 11. EXECUTIVE COMPENSATION

Information appearing under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information appearing under the caption "Security Ownership of a Certain
Beneficial Owner and Management" in the Proxy Statement is incorporated herein
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

48
<PAGE> 51

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

1. Financial statements.

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated statement of income...................................... 23
Consolidated balance sheet............................................ 24
Consolidated statement of cash flows.................................. 25
Consolidated statement of stockholders' equity........................ 26
Notes to consolidated financial statements............................ 27
Report of independent accountants..................................... 45

2. Financial statement schedules and supplementary information required
to be submitted.

Consolidated quarterly information.................................... 46
Schedule II - Valuation and qualifying accounts....................... 47
Schedules other than those listed above are omitted because they are
not applicable
3. Exhibit list.......................................................... 50

</TABLE>

(B) REPORTS ON FORM 8-K:

No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1994.

49
<PAGE> 52

EL PASO NATURAL GAS COMPANY

EXHIBIT LIST
DECEMBER 31, 1994

<TABLE>
<S> <C>
3(i) -- Restated Certificate of Incorporation of EPG dated January 22, 1992,
(Form 10-K, No. 1-2700, filed January 29, 1992); Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of EPG, dated July 7, 1992, (Form 10-K, No. 1-2700,
filed February 3, 1993).
*3(ii) -- By-laws of EPG, as amended September 1, 1994.
4.B.1 -- Indenture, dated as of March 1, 1987, between EPG and Citibank, N.A.,
Trustee, with respect to EPG's 8 5/8% Debentures due 2012 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).
4.B.2 -- Indenture, dated as of August 1, 1987, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 9.45% Notes due 1999 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).
4.B.3 -- Indenture, dated as of January 1, 1992, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 6.90% Notes due 1997, 7 3/4%
Notes due 2002 and 8 5/8% Debentures due 2022 (Form 10-K, No. 1-2700,
filed January 29, 1992).
4.C. -- Shareholder Rights Plan (Form 10-Q, No. 1-2700, filed November 12,
1992).
10.A -- Mojave Pipeline General Partnership Agreement by and among El Paso
Mojave Pipeline Co., HNG Mojave, Inc., and Pacific Interstate Mojave
Company, dated as of March 26, 1985, (Form 10-Q, No. 1-2700, filed
May 15, 1985); Amendment No. 1 to General Partnership Agreement dated
as of September 29, 1986, (Form 10-Q, No. 1-2700, filed May 13,
1988); Amendment No. 2 to General Partnership Agreement dated as of
September 30, 1991,
(Form 10-Q, No. 1-2700, filed November 14, 1991).
10.B -- Lease, dated May 27, 1982, between EPG and First Capital Kayser
Center (Form 10-Q, No. 1-2700, filed November 14, 1991).
*10.C -- Transportation Service Agreement as Amended and Restated, effective
November 1, 1993, between EPG and Pacific Gas and Electric Company.
*10.D -- Transportation Service Agreement as Amended and Restated effective
July 16, 1993, between EPG and Southern California Gas Company.
10.E -- Transportation Service Agreement, dated August 9, 1991, and effective
September 1, 1991, between EPG and Southwest Gas Corporation for
service to Arizona; Transportation Service Agreement, dated August 9,
1991, and effective September 1, 1991, between EPG and Southwest Gas
Corporation for service to Nevada (Form 10-Q, No. 1-2700, filed
November 14, 1991); Amendatory Agreement and replacement of Exhibit B
to Transportation Service Agreement dated August 9, 1991, and
effective May 8, 1992, between EPG and Southwest Gas Corporation for
service to Nevada.
(Form 10-K, No. 1-2700, filed February 3, 1993).
*10.E.1 -- Exhibit B to the Transportation Service Agreement dated August 9,
1991, and effective March 1, 1994, between EPG and Southwest Gas
Corporation for service to Arizona.
</TABLE>

50
<PAGE> 53

<TABLE>
<S> <C>
10.F -- Credit Agreement among Mojave Pipeline Company and Deutsche Bank AG,
New York Branch, and Swiss Bank Corporation, New York Branch,
individually and as Agents, and the Banks named therein, dated as of
September 30, 1991, and the following documents related thereto:
Sponsor Performance Agreement among EPG and Deutsche Bank AG, New
York Branch, as Collateral Agent and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch, as Agents, dated
as of September 30, 1991; Partner Performance Agreement among El Paso
Mojave Pipeline Co. and Deutsche Bank AG, New York Branch, as
Collateral Agent and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch, as Agents, dated as of September 30,
1991; Pledge Agreement made by El Paso Mojave Pipeline Co. with and
to Deutsche Bank AG, New York Branch (as Collateral Agent) for the
Secured Creditors, dated as of September 30, 1991; $90,000,000 Note
dated September 30, 1991, executed by Mojave Pipeline Company and
payable to Deutsche Bank AG, New York Branch; $90,000,000 Note dated
September 30, 1991, executed by Mojave Pipeline Company and payable
to Swiss Bank Corporation, New York Branch (Form 10-Q, No. 1-2700,
filed November 14, 1991); Syndication and replacement of Notes with a
$52,750,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Swiss Bank Corporation, New York
Branch; a $40,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Deutsche Bank AG, New York
Branch; a $30,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Banque Indosuez; a $20,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to the Sumitomo Bank, Limited, Houston Agency; a
$20,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to the Bank of Nova Scotia; a
$17,250,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands Branch
(Form 10-K, No. 1-2700, filed January 29, 1992). First Amendment to
Credit Agreement dated as effective December 23, 1992, among Mojave
Pipeline Company and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch; Amendment to Sponsor and Partner
Performance Agreements entered into effective as of December 23,
1992; Syndication and replacement of Note for $52,750,000 payable to
Swiss Bank Corporation, New York Branch and Note for $17,250,000
payable to Credit Lyonnais Cayman Islands Branch with a $40,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to Swiss Bank Corporation, New York Branch; and a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands
Branch. Second Amendment to Credit Agreement dated as effective June
1, 1993, among Mojave Pipeline Company and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch; Amended and
Restated Sponsor Performance Agreement dated as effective June 1,
1993, among El Paso Natural Gas Company and Deutsche Bank AG, New
York Branch and Swiss Bank Corporation, New York Branch; Amendment
and Ratification of Partner Documents dated as effective June 1,
1993, among EPNG Mojave, Inc. and El Paso Mojave Pipeline Co. and
Deutsche Bank AG, New York Branch and Swiss Bank Corporation, New
York Branch (Form 10-Q, No. 1-2700, filed August 16, 1993).
Replacement of $30,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Banque Indosuez with a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Bank of Scotland.
(Form 10-Q, No. 1-2700, filed May 13, 1994).
10.G -- Master Separation Agreement and documents related thereto dated
January 15, 1992, by and among Burlington Resources Inc., EPG and
Meridian Oil Holding Inc., including Exhibits (Form 10-K, No. 1-2700,
filed January 29, 1992).
</TABLE>

51
<PAGE> 54

<TABLE>
<S> <C>
10.H -- Revolving Credit and Competitive Advance Facility Agreement dated as
of August 10, 1994, between EPG, Chemical Bank and certain other
banks (Form 10-Q, No. 1-2700, filed November 14, 1994).
10.I -- Omnibus Compensation Plan dated as of January 1, 1992, (Amendment No.
1 to Form S-2, No. 33-45369, filed February 27, 1992).
10.J -- Incentive Compensation Plan dated as of January 1, 1992, (Amendment
No. 1 to Form S-2, No. 33-45369, filed February 27, 1992).
10.K -- Compensation Plan for Non-Employee Directors dated as of January 1,
1992, (Amendment No. 1 to Form S-2, No. 33-45369, filed February 27,
1992).
10.L -- Stock Option Plan for Non-Employee Directors dated as of January 1,
1992, (Amendment No. 1 to Form S-2, No. 33-45369, filed February 27,
1992).
10.M -- Rights Plan dated as of January 1, 1992, (Amendment No. 1 to Form
S-2, No. 33-45369, filed February 27, 1992).
*10.N -- Supplemental Benefits Plan, Amended and Restated Effective as of
January 13, 1995.
10.O -- Senior Executive Survivor Benefit Plan effective January 1, 1992,
(Amendment No. 1 to Form S-2, No. 33-45369, filed February 27, 1992).
*10.P -- Deferred Compensation Plan, Amended and Restated Effective as of
January 13, 1995.
*10.Q -- Retirement Income Plan for Non-Employee Directors, Amended and
Restated Effective as of January 13, 1995.
*10.R -- Key Executive Severance Protection Plan, Amended and Restated
Effective as of January 13, 1995.
*10.S -- Director Charitable Award Plan, Amended and Restated Effective as of
January 13, 1995.
10.T -- Receivables Purchase and Sale Agreement dated as of January 14, 1992,
between EPG, CIESCO L.P., Corporate Asset Funding Company, Inc. and
Citicorp North America, Inc. (Form 10-K, No. 1-2700, filed February
3, 1993).
10.U -- Employment Agreement dated July 31, 1992, between The Company and
William A. Wise (Form 10-K, No. 1-2700, filed February 3, 1993).
10.V -- Letter Agreement dated October 22, 1990, between The Company and
Luino Dell'Osso, Jr. (Form 10-K, No. 1-2700, filed February 3, 1993).
10.W -- Letter Agreement dated February 22, 1991, between The Company and
Britton White, Jr. (Form 10-K, No. 1-2700, filed February 3, 1993).
*10.X -- Letter Agreement dated January 13, 1995, between The Company and
William A. Wise.
*11 -- Computation of Earnings per Common Share.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- Subsidiaries of the Registrant.
*23 -- Consents of Experts and Counsel.
*27 -- Financial Data Schedule.
</TABLE>

Each exhibit identified on this Exhibit List is filed as a part of this
report. 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.

52
<PAGE> 55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, El Paso Natural Gas Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

EL PASO NATURAL GAS COMPANY
Registrant

By /s/ WILLIAM A. WISE
William A. Wise
Chairman of the Board,
President, and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of El Paso
Natural Gas Company and in the capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------ -----------------

<C> <S> <C>
/s/ WILLIAM A. WISE Chairman of the Board, January 13, 1995
(William A. Wise) President, Chief
Executive Officer, and
Director

/s/ LUINO DELL'OSSO JR. Vice Chairman of the January 13, 1995
(Luino Dell'Osso Jr.) Board, Chief Operating
Officer, and Director

/s/ H. BRENT AUSTIN Senior Vice President January 13, 1995
(H. Brent Austin) and Chief Financial
Officer

/s/ THOMAS E. RICKS Vice President, Chief January 13, 1995
(Thomas E. Ricks) Accounting Officer, and
Controller

/s/ BYRON ALLUMBAUGH Director January 13, 1995
(Byron Allumbaugh)

Director January 13, 1995
(Eugenio Garza Laguera)

/s/ JAMES F. GIBBONS Director January 12, 1995
(James F. Gibbons)

/s/ BEN F. LOVE Director January 13, 1995
(Ben F. Love)

/s/ KENNETH L. SMALLEY Director January 13, 1995
(Kenneth L. Smalley)
</TABLE>

53
<PAGE> 56

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S> <C>
3(i) -- Restated Certificate of Incorporation of The Company dated January 2,
1992, (Form 10-K, No. 1-2700, filed January 29, 1992); Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of EPG, dated July 7, 1992, (Form 10-K, No. 1-2700,
filed February 3, 1993).
3(ii) -- By-laws of EPG, as amended September 1, 1994.
4.B.1 -- Indenture, dated as of March 1, 1987, between EPG and Citibank, N.A.,
Trustee, with respect to EPG's 8 5/8% Debentures due 2012 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).
4.B.2 -- Indenture, dated as of August 1, 1987, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 9.45% Notes due 1999 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).
4.B.3 -- Indenture, dated as of January 1, 1992, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 6.90% Notes due 1997, 7 3/4%
Notes due 2002 and 8 5/8% Debentures due 2022 (Form 10-K, No. 1-2700,
filed January 29, 1992).
4.C. -- Shareholder Rights Plan (Form 10-Q, No. 1-2700, filed November 12,
1992).
10.A -- Mojave Pipeline General Partnership Agreement by and among El Paso
Mojave Pipeline Co., HNG Mojave, Inc., and Pacific Interstate Mojave
Company, dated as of March 26, 1985, (Form 10-Q, No. 1-2700, filed
May 15, 1985); Amendment No. 1 to General Partnership Agreement dated
as of September 29, 1986, (Form 10-Q, No. 1-2700, filed May 13,
1988); Amendment No. 2 to General Partnership Agreement dated as of
September 30, 1991, (Form 10-Q, No. 1-2700, filed November 14, 1991).
10.B -- Lease, dated May 27, 1982, between EPG and First Capital Kayser
Center (Form 10-Q, No. 1-2700, filed November 14, 1991).
10.C -- Transportation Service Agreement as amended and Restated, effective
November 1, 1993, between EPG and Pacific Gas and Electric Company.
10.D -- Transportation Service Agreement as amended and Restated effective
July 16, 1993, between EPG and Southern California Gas Company.
10.E -- Transportation Service Agreement, dated August 9, 1991, and effective
September 1, 1991, between EPG and Southwest Gas Corporation for
service to Arizona; Transportation Service Agreement, dated August 9,
1991, and effective September 1, 1991, between EPG and Southwest Gas
Corporation for service to Nevada (Form 10-Q, No. 1-2700, filed
November 14, 1991); Amendatory Agreement and replacement of Exhibit B
to Transportation Service Agreement dated August 9, 1991, and
effective May 8, 1992, between EPG and Southwest Gas Corporation for
service to Nevada. (Form 10-K, No. 1-2700, filed February 3, 1993).
10.E.1 -- Exhibit B to the Transportation Service Agreement dated August 9,
1991, and effective March 1, 1994, between EPG and Southwest Gas
Corporation for service to Arizona.
</TABLE>
<PAGE> 57

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S> <C>
10.F -- Credit Agreement among Mojave Pipeline Company and Deutsche Bank AG,
New York Branch, and Swiss Bank Corporation, New York Branch,
individually and as Agents, and the Banks named therein, dated as of
September 30, 1991, and the following documents related thereto:
Sponsor Performance Agreement among EPG and Deutsche Bank AG, New
York Branch, as Collateral Agent and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch, as Agents, dated
as of September 30, 1991; Partner Performance Agreement among El Paso
Mojave Pipeline Co. and Deutsche Bank AG, New York Branch, as
Collateral Agent and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch, as Agents, dated as of September 30,
1991; Pledge Agreement made by El Paso Mojave Pipeline Co. with and
to Deutsche Bank AG, New York Branch (as Collateral Agent) for the
Secured Creditors, dated as of September 30, 1991; $90,000,000 Note
dated September 30, 1991, executed by Mojave Pipeline Company and
payable to Deutsche Bank AG, New York Branch; $90,000,000 Note dated
September 30, 1991, executed by Mojave Pipeline Company and payable
to Swiss Bank Corporation, New York Branch (Form 10-Q, No. 1-2700,
filed November 14, 1991); Syndication and replacement of Notes with a
$52,750,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Swiss Bank Corporation, New York
Branch; a $40,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Deutsche Bank AG, New York
Branch; a $30,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Banque Indosuez; a $20,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to the Sumitomo Bank, Limited, Houston Agency; a
$20,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to the Bank of Nova Scotia; a
$17,250,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands Branch
(Form 10-K, No. 1-2700, filed January 29, 1992). First Amendment to
Credit Agreement dated as effective December 23, 1992, among Mojave
Pipeline Company and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch; Amendment to Sponsor and Partner
Performance Agreements entered into effective as of December 23,
1992; Syndication and replacement of Note for $52,750,000 payable to
Swiss Bank Corporation, New York Branch and Note for $17,250,000
payable to Credit Lyonnais Cayman Islands Branch with a $40,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to Swiss Bank Corporation, New York Branch; and a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands
Branch. Second Amendment to Credit Agreement dated as effective June
1, 1993, among Mojave Pipeline Company and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch; Amended and
Restated Sponsor Performance Agreement dated as effective June 1,
1993, among El Paso Natural Gas Company and Deutsche Bank AG, New
York Branch and Swiss Bank Corporation, New York Branch; Amendment
and Ratification of Partner Documents dated as effective June 1,
1993, among EPNG Mojave, Inc. and El Paso Mojave Pipeline Co. and
Deutsche Bank AG, New York Branch and Swiss Bank Corporation, New
York Branch (Form 10-Q, No. 1-2700, filed August 16, 1993).
Replacement of $30,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Banque Indosuez with a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Bank of Scotland. (Form 10-Q, No.
1-2700, filed May 13, 1994).
10.G -- Master Separation Agreement and documents related thereto dated
January 15, 1992, by and among Burlington Resources Inc., EPG and
Meridian Oil Holding Inc., including Exhibits (Form 10-K, No. 1-2700,
filed January 29, 1992).
</TABLE>
<PAGE> 58

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S> <C>
10.H -- Revolving Credit and Competitive Advance Facility Agreement dated as
of August 10, 1994, between EPG, Chemical Bank and certain other
banks (Form 10-Q, No. 1-2700, filed November 14, 1994).
10.I -- Omnibus Compensation Plan dated as of January 1, 1992, (Amendment No.
1 to Form S-2, No. 33-45369, filed February 27, 1992).
10.J -- Incentive Compensation Plan dated as of January 1, 1992, (Amendment
No. 1 to Form S-2, No. 33-45369, filed February 27, 1992).
10.K -- Compensation Plan for Non-Employee Directors dated as of January 1,
1992, (Amendment No. 1 to Form S-2, No. 33-45369, filed February 27,
1992).
10.L -- Stock Option Plan for Non-Employee Directors dated as of January 1,
1992, (Amendment No. 1 to Form S-2, No. 33-45369, filed February 27,
1992).
10.M -- Rights Plan dated as of January 1, 1992, (Amendment No. 1 to Form
S-2, No. 33-45369, filed February 27, 1992).
10.N -- Supplemental Benefits Plan, Amended and Restated Effective as of
January 13, 1995.
10.O -- Senior Executive Survivor Benefit Plan effective January 1, 1992,
(Amendment No. 1 to Form S-2, No. 33-45369, filed February 27, 1992).
10.P -- Deferred Compensation Plan, Amended and Restated Effective as of
January 13, 1995.
10.Q -- Retirement Income Plan for Non-Employee Directors, Amended and
Restated Effective as of January 13, 1995.
10.R -- Key Executive Severance Protection Plan, Amended and Restated
Effective as of January 13, 1995.
10.S -- Director Charitable Award Plan, Amended and Restated Effective as of
January 13, 1995.
10.T -- Receivables Purchase and Sale Agreement dated as of January 14, 1992,
between EPG, CIESCO L.P., Corporate Asset Funding Company, Inc. and
Citicorp North America, Inc. (Form 10-K, No. 1-2700, filed February
3, 1993).
10.U -- Employment Agreement dated July 31, 1992, between The Company and
William A. Wise (Form 10-K, No. 1-2700, filed February 3, 1993).
10.V -- Letter Agreement dated October 22, 1990, between The Company and
Luino Dell'Osso, Jr. (Form 10-K, No. 1-2700, filed February 3, 1993).
10.W -- Letter Agreement dated February 22, 1991, between The Company and
Britton White, Jr. (Form 10-K, No. 1-2700, filed February 3, 1993).
10.X -- Letter Agreement dated January 13, 1995, between The Company and
William A. Wise.
11 -- Computation of Earnings per Common Share.
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of the Registrant.
23 -- Consents of Experts and Counsel.
27 -- Financial Data Schedule.
</TABLE>

<PAGE> 1

BY-LAWS

EL PASO NATURAL GAS COMPANY

As amended September 1, 1994
<PAGE> 2
BY-LAWS

EL PASO NATURAL GAS COMPANY

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1 - Registered Office and Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2 - Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II. STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1 - Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2 - Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3 - Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4 - Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5 - Fixing of Record Date for Determining
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6 - Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7 - Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 8 - Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9 - Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 10 - List of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 11 - Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE III. BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1 - Number, Qualification and Term of Office . . . . . . . . . . . . . . . . . . . . . 5
Section 2 - Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3 - Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4 - Removals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5 - Place of Meetings; Books and Records . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6 - Annual Meeting of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 7 - Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 8 - Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 9 - Quorum and Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 10 - Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 11 - Consent of Directors in Lieu of Meeting . . . . . . . . . . . . . . . . . . . . . 8
Section 12 - Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 13 - Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 14 - Interested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1 - Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2 - Finance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3 - Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4 - Committee Chairman, Books and Records . . . . . . . . . . . . . . . . . . . . . . 10
Section 5 - Alternates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6 - Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7 - Quorum and Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1 - Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2 - Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3 - Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4 - Removals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5 - Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6 - Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7 - President and Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . 12
Section 8 - Vice Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9 - Chief Operating Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10 - Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 11 - Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 12 - General Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 13 - Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 14 - Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 15 - Controller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 16 - Absence or Disability of Officers . . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1 - Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2 - Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3 - Transfer Agents and Registrars . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4 - Additional Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5 - Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . 17

ARTICLE VII. DIVIDENDS, SURPLUS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ARTICLE VIII. SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE IX. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE X. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1 - Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2 - Right of Indemnitee to Bring Suit . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>

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<PAGE> 4
<TABLE>
<S> <C>
Section 3 - Nonexclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4 - Insurance, Contracts and Funding . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5 - Wholly Owned Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6 - Indemnification of Agents of the
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1 - Checks, Drafts, Etc.; Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2 - Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLE XII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE XIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>

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<PAGE> 5
BY-LAWS

EL PASO NATURAL GAS COMPANY

ARTICLE I

OFFICES

SECTION 1. REGISTERED OFFICE AND AGENT

The registered office of the corporation is located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle,
State of Delaware, and the name of its registered agent at such address is The
Corporation Trust Company.

SECTION 2. OTHER OFFICES

The corporation may have offices at such other places both within and
without the State of Delaware as the Board of Directors (the "Board") may from
time to time determine or the business of the corporation may require.

ARTICLE II

STOCKHOLDERS

SECTION 1. ANNUAL MEETINGS

A meeting of the stockholders for the purpose of electing Directors and
for the transaction of such other business as may properly be brought before
the meeting shall be held annually at 10:00 o'clock A.M. on the third Thursday
of March, beginning with the year 1993, or at such other time on such other
date as shall be fixed by resolution of the Board. If the day fixed for the
annual meeting shall be a legal holiday such meeting shall be held on the next
succeeding business day.

SECTION 2. SPECIAL MEETINGS

Special meetings of the stockholders for any purpose or purposes may be
called only by a majority of the Board, the Chairman of the Board, the
President and Chief Executive Officer or the Vice Chairman of the Board.

<PAGE> 6
SECTION 3. PLACE OF MEETINGS

The annual meeting of the stockholders of the corporation shall be held at
the general offices of the corporation in the City of El Paso, State of Texas,
or at such other place in the United States as may be stated in the notice of
the meeting. All other meetings of the stockholders shall be held at such
places within or without the State of Delaware as shall be stated in the notice
of the meeting.

SECTION 4. NOTICE OF MEETINGS

4.1 GIVING OF NOTICE. Except as otherwise provided by statute, written
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting. If mailed, notice shall
be given when deposited in the United States mails, postage prepaid, directed
to such stockholder at his address as it appears in the stock ledger of the
corporation. Each such notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.

4.2 NOTICE OF ADJOURNED MEETINGS. When a meeting is adjourned to another
time and place, notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
given. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.

4.3 WAIVER OF NOTICE

4.3.1 Whenever any notice is required to be given to any stockholder
under the provisions of these By-laws, the Restated Certificate of
Incorporation or the general Corporation Law of the State of Delaware, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.

4.3.2 The attendance of a stockholder at a meeting shall constitute a
waiver of notice of such meeting, except when a stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

SECTION 5. FIXING OF RECORD DATE FOR DETERMINING STOCKHOLDERS

5.1 MEETINGS. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board, the record
date for determining stockholders shall be at the close of business on the day
next preceding the day on

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<PAGE> 7
which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at the meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.

5.2 DIVIDENDS, DISTRIBUTIONS AND OTHER RIGHTS. For the purpose of
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than sixty
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto.

SECTION 6. QUORUM

A majority of the outstanding shares of stock of the corporation entitled
to vote, present in person or represented by proxy, shall constitute a quorum
at a meeting of the stockholders; provided that where a separate vote by a
class or classes or by a series of a class is required, a majority of the
outstanding shares of such class or classes or of such series of a class,
present in person or represented by proxy at the meeting, shall constitute a
quorum entitled to take action with respect to the vote on that matter. Shares
of stock will be counted toward a quorum if they are either (i) present in
person at the meeting or (ii) represented at the meeting by a valid proxy,
whether the instrument granting such proxy is marked as casting a vote or
abstaining, is left blank or does not empower such proxy to vote with respect
to some or all matters to be voted upon at the meeting. If less than a
majority of the outstanding shares entitled to vote are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. If a quorum is present or represented at
a reconvened meeting following such an adjournment, any business may be
transacted that might have been transacted at the meeting as originally called.
The stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.

SECTION 7. ORGANIZATION

At each meeting of the stockholders, the Chairman of the Board, or in his
absence the President and Chief Executive Officer or the Vice Chairman of the
Board, or if both all of the said officers are absent, a person designated by
the Board, the Chairman of the Board, the President and Chief Executive
Officer or the Vice Chairman of the Board, or in the absence of such designated
person, a person elected by the holders of a majority in number of shares of
stock present in person or represented by proxy and entitled to vote, shall act
as chairman of the meeting.

The Secretary, or in his absence or in the event he shall be presiding
over the meeting in accordance with the provisions of this Section, an
Assistant Secretary or, in the absence of the

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<PAGE> 8
Secretary and all of the Assistant Secretaries, any person appointed by the
chairman of the meeting, shall act as secretary of the meeting.

SECTION 8. VOTING

8.1 GENERAL PROVISIONS. Unless otherwise provided in the Restated
Certificate of Incorporation or a resolution of the Board creating a series of
stock, at each meeting of the stockholders, each holder of any share of any
series or class of stock entitled to vote at such meeting shall be entitled to
one vote for each share of stock having voting power in respect of each matter
upon which a vote is to be taken, standing in his name on the stock ledger of
the corporation on the record date fixed as provided in these By-laws for
determining the stockholders entitled to vote at such meeting. In all matters
other than the election of Directors, if a quorum is present, the affirmative
vote of the majority of the shares present in person or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater number is required by these By-laws,
the Restated Certificate of Incorporation or the General Corporation Law of the
State of Delaware. In determining the number of votes cast for or against a
proposal, shares abstaining from voting on a matter (including elections) will
not be treated as a vote for or against the proposal. A non-vote by a broker
will be treated as if the broker never voted, but a non-vote by a stockholder
will be counted as a vote "for" the management's position. Where a separate
vote by a class or classes or by a series of a class is required, if a quorum
is present, the affirmative vote of the majority of shares of such class or
classes or series of a class present in person or represented by proxy at the
meeting shall be the act of such class or classes or series of a class. The
provisions of this Section will govern with respect to all votes of
stockholders except as otherwise provided for in these By-laws, the Restated
Certificate of Incorporation or the General Corporation Law of the State of
Delaware.

8.2 VOTING FOR DIRECTORS. At each election of Directors the voting shall
be by written ballot. Directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of Directors.

8.3 SHARES HELD OR CONTROLLED BY THE CORPORATION. Shares of its own
capital stock belonging to the corporation, or to another corporation if a
majority of the shares entitled to vote in the election of Directors of such
other corporation is held by the corporation, shall neither be entitled to vote
nor counted for quorum purposes.

8.4 PROXIES. A stockholder may vote by proxy executed in writing by the
stockholder or by his attorney-in-fact. Such proxy shall be filed with the
Secretary of the corporation before or at the time of the meeting. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation. A proxy shall become invalid three years after the date of
its execution, unless otherwise provided in the proxy. A proxy with respect to
a specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.

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<PAGE> 9
SECTION 9. INSPECTORS

Prior to each meeting of stockholders, the Board shall appoint two
Inspectors who are not Directors, candidates for Directors or officers of the
corporation, who shall receive and determine the validity of proxies and the
qualifications of voters, and receive, inspect, count and report to the meeting
in writing the votes cast on all matters submitted to a vote at such meeting.
In case of failure of the Board to make such appointments or in case of failure
of any Inspector so appointed to act, the Chairman of the Board shall make such
appointment or fill such vacancies. Each Inspector, immediately before
entering upon his duties, shall subscribe to an oath or affirmation faithfully
to execute the duties of Inspector at such meeting with strict impartiality and
according to the best of his ability.

SECTION 10. LIST OF STOCKHOLDERS

The Secretary or other officer or agent having charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at said meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares of each class and series registered in the
name of each such stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. Such list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present. The stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by this section, or the books of the corporation, or
to vote in person or by proxy at any such meeting.

SECTION 11. STOCKHOLDER PROPOSALS

Stockholder proposals for inclusion in any proxy statement to be issued in
connection with the annual meeting of stockholders must be mailed to the
Corporate Secretary, El Paso Natural Gas Company, P. O. Box 1492, El Paso,
Texas 79978, and must be received by the Corporate Secretary at least by the
150th day preceding the annual meeting of stockholders unless the specific
deadline for stockholder proposals is set forth in the corporation's proxy
statement.

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<PAGE> 10
ARTICLE III

BOARD OF DIRECTORS

SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE

The business, property and affairs of the corporation shall be managed by
a Board consisting of not less than one Director. The Board shall from time to
time by a vote of a majority of the Directors then in office fix the specific
number of Directors to constitute the Board. At each annual meeting of
stockholders a Board shall be elected by the stockholders for a term of one
year. Each Director shall serve until his successor is duly elected and shall
qualify.

SECTION 2. VACANCIES

Vacancies in the Board and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a vote of the
majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director, at any regular or special meeting of the Board.

SECTION 3. RESIGNATIONS

Any Director may resign at any time upon written notice to the Board, the
Chairman of the Board, the President and Chief Executive Officer, the Vice
Chairman of the Board or the Secretary of the corporation. Such resignation
shall take effect on the date of receipt of such notice or at any later time
specified therein; and the acceptance of such resignation, unless otherwise
required by the terms thereof, shall not be necessary to make it effective.
When one or more Directors shall resign effective at a future date, a majority
of the Directors then in office, including those who have resigned, shall have
power to fill such vacancy or vacancies to take effect when such resignation or
resignations shall become effective.

SECTION 4. REMOVALS

Any Director may be removed, with or without cause, at any special meeting
of the stockholders called for that purpose, by the affirmative vote of the
holders of a majority in number of shares of the corporation entitled to vote
for the election of such Director, and the vacancy in the Board caused by any
such removal may be filled by the stockholders at such a meeting.

SECTION 5. PLACE OF MEETINGS; BOOKS AND RECORDS

The Board may hold its meetings, and have an office or offices, at such
place or places within or without the State of Delaware as the Board from time
to time may determine.

The Board, subject to the provisions of applicable statutes, may authorize
the books and records of the corporation, and offices or agencies for the
issue, transfer and registration of the

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<PAGE> 11
capital stock of the corporation, to be kept at such place or places outside of
the State of Delaware as, from time to time, may be designated by the Board.

SECTION 6. ANNUAL MEETING OF THE BOARD

The first meeting of each newly elected Board, to be known as the Annual
Meeting of the Board, for the purpose of electing officers, designating
committees and the transaction of such other business as may come before the
Board, shall be held as soon as practicable after the adjournment of the annual
meeting of stockholders, and no notice of such meeting shall be necessary to
the newly elected Directors, provided a quorum shall be present. In the event
such meeting is not held due to the absence of a quorum, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board, or as shall be
specified in a written waiver signed by all of the newly elected Directors.

SECTION 7. REGULAR MEETINGS

The Board shall, by resolution, provide for regular meetings of the Board
at such times and at such places as it deems desirable. Notice of regular
meetings need not be given.

SECTION 8. SPECIAL MEETINGS

Special meetings of the Board may be called by the Chairman of the Board,
the President and Chief Executive Officer, or the Vice Chairman of the Board
and shall be called by the Secretary on the written request of three Directors
on such notice as the person or persons calling the meeting shall deem
appropriate in the circumstances. Notice of each such special meeting shall be
mailed to each Director or delivered to him by telephone, telegraph or any
other means of electronic communication, in each case addressed to his
residence or usual place of business, or delivered to him in person or given to
him orally. The notice of meeting shall state the time and place of the
meeting but need not state the purpose thereof. Whenever any notice is
required to be given to any Director under the provisions of these By-laws, the
Restated Certificate of Incorporation or the General Corporation Law of the
State of Delaware, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
or any committee appointed by the Board need be specified in the waiver of
notice of such meeting. Attendance of a Director at any meeting shall
constitute a waiver of notice of such meeting except when a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.

SECTION 9. QUORUM AND MANNER OF ACTING

Except as otherwise provided by statute, the Restated Certificate of
Incorporation, or these By-laws, the presence of a majority of the total number
of Directors shall constitute a quorum for the transaction of business at any
regular or special meeting of the Board, and the act of a majority of the
Directors present at any such meeting at which a quorum is present shall be the
act

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<PAGE> 12
of the Board. In the absence of a quorum, a majority of the Directors present
may adjourn the meeting, from time to time, until a quorum is present. Notice
of any such adjourned meeting need not be given.

SECTION 10. ORGANIZATION

At every meeting of the Board, the Chairman of the Board or in his absence
the President and Chief Executive Officer or the Vice Chairman of the Board, or
if all of the said officers are absent, a chairman chosen by a majority of
the Directors present shall act as chairman of the meeting. The Secretary, or
in his absence, an Assistant Secretary, or in the absence of the Secretary and
all the Assistant Secretaries, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting.

SECTION 11. CONSENT OF DIRECTORS IN LIEU OF MEETING

Unless otherwise restricted by the Restated Certificate of Incorporation
or by these By-laws, any action required or permitted to be taken at any
meeting of the Board, or any committee designated by the Board, may be taken
without a meeting if all members of the Board or committee consent thereto in
writing, and such written consent is filed with the minutes of the proceedings
of the Board or committee.

SECTION 12. TELEPHONIC MEETINGS

Members of the Board, or any committee designated by the Board, may
participate in any meeting of the Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person at such meeting.

SECTION 13. COMPENSATION

Each Director, who is not a full-time salaried officer of the corporation
or any of its wholly owned subsidiaries, when authorized by resolution of the
Board, may receive as a Director a stated salary or an annual retainer, and any
other benefits as the Board may determine, and in addition may be allowed a
fixed fee or reimbursement of his reasonable expenses for attendance at each
regular or special meeting of the Board or any committee thereof.

SECTION 14. INTERESTED DIRECTORS

No contract or transaction between the corporation and one or more of its
Directors or officers, or between the corporation and any other corporation,
partnership, association or other organization in which one or more of its
Directors or officers are Directors or officers of this corporation, or have a
financial interest in such contract or transaction, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the Board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes
are counted for such purpose, if: (1) the material facts as to his

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<PAGE> 13
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or (2) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the corporation as of the time
it is authorized, approved or ratified by the Board, a committee thereof or the
stockholders. Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.

ARTICLE IV

COMMITTEES OF THE BOARD OF DIRECTORS

SECTION 1. EXECUTIVE COMMITTEE

The Board may, in its discretion, designate an Executive Committee,
consisting of such number of Directors as the Board may from time to time
determine. The committee shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it, but the committee shall have no power or authority
to amend the Restated Certificate of Incorporation (except that the committee
may, to the extent authorized in the resolution or resolutions providing for
the issuance of shares of stock adopted by the Board, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series). The committee
shall have such other powers as the Board may from time to time prescribe.

SECTION 2. FINANCE COMMITTEE

The Board may, in its discretion, designate a Finance Committee,
consisting of such number of Directors as the Board may from time to time
determine. The committee shall monitor, review, appraise and recommend to the
Board appropriate action with respect to the corporation's capital structure,
its source of funds and its financial position; review and recommend
appropriate delegations of authority to management on expenditures and other
financial commitments; review terms and conditions of financing plans; develop
and recommend dividend policies and recommend to the Board specific dividend
payments; and review the performance of the trustee of the corporation's
pension trust fund, and any proposed change in the investment policy of the
trustee with respect to such fund. The committee shall have such other duties,
functions and powers as the Board may from time to time prescribe.

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<PAGE> 14
SECTION 3. AUDIT COMMITTEE

The Board shall designate annually an Audit Committee consisting of not
less than two Directors as it may from time to time determine, none of whom
shall be officers of the corporation. The committee shall review with the
independent accountants the corporation's financial statements, basic
accounting and financial policies and practices, adequacy of controls, standard
and special tests used in verifying the corporation's statements of account and
in determining the soundness of the corporation's financial condition, and the
committee shall report to the Board the results of such reviews; review the
policies and practices pertaining to publication of quarterly and annual
statements to assure consistency with audited results and the implementation of
policies and practices recommended by the independent accountants; ensure that
suitable independent audits are made of the operations and results of
subsidiary corporations and affiliates; and monitor compliance with the
corporation's code of business conduct. The committee shall have such other
duties, functions and powers as the Board may from time to time prescribe.

SECTION 4. COMMITTEE CHAIRMAN, BOOKS AND RECORDS

Each committee shall elect a chairman to serve for such term as it may
determine, shall fix its own rules of procedure and shall meet at such times
and places and upon such call or notice as shall be provided by such rules. It
shall keep a record of its acts and proceedings, and all action of the
committee shall be reported to the Board at the next meeting of the Board.

SECTION 5. ALTERNATES

Alternate members of the committees prescribed by this Article IV may be
designated by the Board from among the Directors to serve as occasion may
require. Whenever a quorum cannot be secured for any meeting of any such
committee from among the regular members thereof and designated alternates, the
member or members of such committee present at such meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of such absent or disqualified member.

Alternative members of such committees shall receive a reimbursement for
expenses and compensation at the same rate as regular members of such
committees.

SECTION 6. OTHER COMMITTEES

The Board may designate such other committees, consisting of such number
of Directors as the Board may from time to time determine, and each such
committee shall serve for such term and shall have and may exercise, during
intervals between meetings of the Board, such duties, functions and powers as
the Board may from time to time prescribe.

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<PAGE> 15
SECTION 7. QUORUM AND MANNER OF ACTING

At each meeting of any committee the presence of a majority of the members
of such committee, whether regular or alternate, shall be necessary to
constitute a quorum for the transaction of business, and if a quorum is present
the concurrence of a majority of those present shall be necessary for the
taking of any action; provided, however, that no action may be taken by the
Executive Committee or the Finance Committee when one or more officers of the
corporation are present as members at a meeting of either such committee unless
such action shall be concurred in by the vote of at least one member of such
committee who is not an officer of the corporation.

ARTICLE V

OFFICERS

SECTION 1. NUMBER

The officers of the corporation shall consist of such of the following as
the Board may from time to time elect or appoint, or as the President and Chief
Executive Officer may from time to time appoint pursuant to Section 7 of this
Article V: a Chairman of the Board, a President and Chief Executive Officer, a
Vice Chairman of the Board, a Chief Operating Officer, a Chief Financial
Officer, a General Counsel, a Secretary, a Treasurer, a Controller and one or
more of the following: Executive Vice President, Senior Vice President, Vice
President, Assistant Vice President, Associate or Assistant General Counsel,
Assistant Secretary, Assistant Treasurer, Assistant Controller and such other
officers with such titles and powers and/or duties as the Board or the
President and Chief Executive Officer, as the case may be, shall from time to
time determine. Officers of the corporation may simultaneously serve as
officers of subsidiaries or divisions thereof. Any number of offices may be
held by the same person.

SECTION 2. ELECTION

The officers of the corporation, except those who may be appointed by the
President and Chief Executive Officer as provided in Section 7 of this Article
V, shall be elected or appointed as soon as practicable after the annual
meeting of stockholders in each year to hold office until the first meeting of
the Board after the annual meeting of stockholders next succeeding his
election, or until his successor is elected and qualified or until his earlier
death, resignation or removal..

SECTION 3. RESIGNATIONS

Any elected or appointed officer may resign at any time upon written
notice to the President and Chief Executive Officer or the Secretary of the
corporation. Such resignation shall take effect upon the date of its receipt
or at such later time as may be specified therein, and unless otherwise
required by the terms thereof, no acceptance of such resignation shall be
necessary to make it effective.

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SECTION 4. REMOVALS

Any elected or appointed officer may be removed, with or without cause, by
the Board at any regular or special meeting of the Board, and in the case of an
officer appointed pursuant to Section 7 of this Article V, may be so removed by
the President and Chief Executive Officer. Any such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation, but the election or appointment of any officer shall not of itself
create contractual rights.

SECTION 5. VACANCIES

Any vacancy occurring in any office by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board at
any regular or special meeting or as otherwise provided in these By-laws.

SECTION 6. CHAIRMAN OF THE BOARD

The Chairman of the Board shall, when present, preside at all meetings of
the stockholders and the Board; have authority to call special meetings of the
stockholders and of the Board; have authority to sign and acknowledge in the
name and on behalf of the corporation all stock certificates, contracts or
other documents and instruments except where the signing thereof shall be
expressly delegated to some other officer or agent by the Board or required by
law to be otherwise signed or executed and, unless otherwise provided by law or
by the Board may authorize any officer, employee or agent of the corporation to
sign, execute and acknowledge in his place and stead all such documents and
instruments. He shall have such other powers and perform such other duties as
from time to time may be assigned to him by the Board or the Executive
Committee.

SECTION 7. PRESIDENT AND CHIEF EXECUTIVE OFFICER

The President and Chief Executive Officer shall have general authority
over the property, business and affairs of the corporation, and over all
subordinate officers, agents and employees of the corporation, subject to the
control and direction of the Board and the Executive Committee, including the
power to sign and acknowledge in the name and on behalf of the corporation all
stock certificates, deeds, mortgages, bonds, contracts or other documents and
instruments except when the signing thereof shall be expressly delegated to
some other officer or agent by the Board or required by law to be otherwise
signed or executed and, unless otherwise provided by law or by the Board, may
delegate to any officer, employee or agent of the corporation authority to
sign, execute and acknowledge in his place and stead all such documents and
instruments; he shall fix the compensation of officers of the corporation,
other than his own compensation, and the compensation of officers of its
principal operating subsidiaries reporting directly to him unless such
authority is otherwise reserved to the Board or a committee thereof; and he
shall approve proposed employee compensation and benefit plans of subsidiary
companies not involving the issuance or purchase of capital stock of the
corporation. He shall have the power to appoint and

12
<PAGE> 17
remove any Vice President, Controller, General Counsel, Secretary or Treasurer
of the corporation. He shall also have the power to appoint and remove such
associate or assistant officers of the corporation with such titles and duties
as he may from time to time deem necessary or appropriate.

The President and Chief Executive Officer is hereby authorized, without
further approval of the Finance Committee or the Board:

(a) To approve individual expenditures by the corporation of up to $10
million each for those expenditure categories presented to the Board
in the annual budget and up to $5 million each for individual
expenditures in categories not presented to the Board, including but
not limited to individual expenditures pertaining to operating
expenses, purchases, leases, options to purchase or lease assets,
investments, business acquisitions, land purchases, products or
services acquisitions, litigation settlements, charitable donations
and political contributions.

(b) To approve individual cost overruns of up to 10% of any amounts
approved by or presented to the Board.

(c) To enter into leases or extensions thereof and other agreements with
respect to the assets of the corporation, including interests in
minerals and real estate, for a term of not more than 10 years or
for an unlimited term if the aggregate initial rentals, over the
term of the lease, including renewal options, do not exceed $3
million.

(d) To approve capital contributions to the corporation's wholly owned
subsidiaries.

(e) To approve disposition of assets and interests in securities of
subsidiaries or related commitments, provided that the aggregate
market value of the assets being disposed of in any one such
transaction does not exceed $10 million.

(f) To approve increases in the capital budgets of the corporation's
operating subsidiaries provided such increases in the aggregate do
not exceed 10% of the corporation's capital budget for the fiscal
year.

(g) To approve in emergency situations commitments in excess of the
above-described limits provided they are in the interests of the
corporation.

The above delegation of authority does not authorize the corporation or its
subsidiaries to make a significant change in its business or to issue the
corporation's capital stock without the specific approval of the Board.
Notwithstanding these limitations, the President and Chief Executive Officer
shall have such power and authority as is usual, customary and desirable to
perform all the duties of the office.

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<PAGE> 18
SECTION 8. VICE CHAIRMAN OF THE BOARD

The Vice Chairman of the Board shall assist the Chairman of the Board and
the President and Chief Executive Officer in the performance of their duties
and shall perform those duties assigned to him in other provisions of the
By-laws and such other duties as may from time to time be assigned to him by
the Board, the Chairman of the Board or the President and Chief Executive
Officer. In the absence or disability of the Chairman of the Board or the
President and Chief Executive Officer, or at the request of either of them, the
Vice Chairman of the Board may preside at any meeting of the stockholders or of
the Board and, in such circumstances, may exercise any of the other powers or
perform any of the other duties of the Chairman of the Board or the President
and Chief Executive Officer. Subject to delegations by the President and Chief
Executive Officer pursuant to Section 7 of this Article V, the Vice Chairman of
the Board may sign or execute, in the name of the corporation, all stock
certificates, deeds, mortgages, bonds, contracts or other documents and
instruments, except in cases where the signing or execution thereof shall be
required by law or shall have been expressly delegated by the Board or these
By-laws to some other officer or agent of the corporation.

SECTION 9. CHIEF OPERATING OFFICER

The Chief Operating Officer shall have direct management responsibility
for the general business operations of the corporation, and he shall have such
powers and perform such duties as may be incident to the office of chief
operating officer of a corporation, those duties assigned to him by other
provisions of the By-laws, and such other duties as may from time to time be
assigned to him either directly or indirectly by the Board, the Chairman of the
Board, the President and Chief Executive Officer or the Vice Chairman of the
Board. Subject to delegations by the President and Chief Executive Officer
pursuant to Section 7 of this Article V, the Chief Operating Officer may sign
or execute, in the name of the corporation, all stock certificates, deeds,
mortgages, bonds, contracts or other documents and instruments, except in cases
where the signing or execution thereof shall be required by law or shall have
been expressly delegated by the Board or these By-laws to some other officer or
agent of the corporation.

SECTION 10. CHIEF FINANCIAL OFFICER

The Chief Financial Officer shall have responsibility for development and
administration of the corporation's financial plans and all financial
arrangements, its cash deposits and short term investments, its accounting
policies and its federal and state tax returns. The Chief Financial Officer
shall also be responsible for the corporation's internal control procedures and
for its relationship with the financial community. The Chief Financial Officer
shall perform all the duties incident to the office of chief financial officer
of a corporation, those duties assigned to him by other provisions of these
By-laws and such other duties as may be assigned to him either directly or
indirectly by the Board, the Chairman of the Board, the President and Chief
Executive Officer, the Vice Chairman of the Board or the Chief Operating
Officer, or as may be provided by law.

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SECTION 11. VICE PRESIDENTS

Each Executive Vice President, Senior Vice President and Vice President
shall have such powers and perform such duties as may from time to time be
assigned to him, directly or indirectly, either generally or in specific
instances, by the Board, the Chairman of the Board, the President and Chief
Executive Officer, the Vice Chairman of the Board or the Chief Operating
Officer.

Subject to delegations by the President and Chief Executive Officer
pursuant to Section 7 of this Article V, each Executive Vice President, Senior
Vice President and Vice President shall perform all duties incident to the
office of vice president of a corporation and shall have authority to sign or
execute, in the name of the corporation, all stock certificates, deeds,
mortgages, bonds, contracts or other documents or instruments, except in cases
where the signing or execution thereof shall have been expressly delegated by
the Board or these By-laws to some other officer or agent of the corporation.

SECTION 12. GENERAL COUNSEL

The General Counsel shall be the chief legal advisor of the corporation
and shall have responsibility for the management of the legal affairs and
litigation of the corporation and, in general, he shall perform the duties
incident to the office of general counsel of a corporation and such other
duties as may be assigned to him either directly or indirectly by the Board,
the Chairman of the Board, the President and Chief Executive Officer or the
Vice Chairman of the Board, or as may be provided by law.

SECTION 13. SECRETARY

The Secretary shall keep the minutes of meetings of the stockholders and
of the Board in books provided for the purpose; he shall see that all notices
are duly given in accordance with the provisions of these By-laws or as
required by law; he shall be custodian of the records and of the corporate seal
or seals of the corporation; he shall see that the corporate seal is affixed to
all documents requiring same, the execution of which, on behalf of the
corporation, under its seal, is duly authorized, and when said seal is so
affixed he may attest same; and, in general, he shall perform all duties
incident to the office of the secretary of a corporation, and such other duties
as from time to time may be assigned to him directly or indirectly by the
Board, the Chairman of the Board, the President and Chief Executive Officer,
the Vice Chairman of the Board or the General Counsel, or as may be provided by
law. Any Assistant Secretary may perform any of the duties or exercise any of
the powers of the Secretary at the request of, or in the absence or disability
of, the Secretary or otherwise as occasion may require in the administration of
the business and affairs of the corporation.

SECTION 14. TREASURER

The Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the corporation, and shall deposit,
or cause to be deposited, in the name of the

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corporation, all moneys or other valuable effects in such banks, trust
companies or other depositaries as shall, from time to time, be selected by or
under authority of the Board; if required by the Board, he shall give a bond
for the faithful discharge of his duties, with such surety or sureties as the
Board may determine; he shall keep or cause to be kept full and accurate
records of all receipts and disbursements in books of the corporation; and, in
general, he shall perform the duties incident to the office of treasurer of a
corporation and such other duties as may be assigned to him directly or
indirectly by the Board, the Chairman of the Board, the President and Chief
Executive Officer, the Vice Chairman of the Board, the Chief Operating Officer
or the Chief Financial Officer, or as may be provided by law. Any Assistant
Treasurer may perform any of the duties or exercise any of the powers of the
Treasurer at the request of, or in the absence or disability of, the Treasurer
or otherwise as occasion may require in the administration of the business and
affairs of the corporation.

SECTION 15. CONTROLLER

The Controller shall be the chief accounting officer of the corporation.
He shall keep full and accurate accounts of the assets, liabilities,
commitments, receipts, disbursements and other financial transactions of the
corporation; shall cause regular audits of the books and records of account of
the corporation and shall supervise the preparation of the corporation's
financial statements; and, in general, he shall perform the duties incident to
the office of controller of a corporation and such other duties as may be
assigned to him directly or indirectly by the Board, the Audit Committee, the
Chairman of the Board, the President and Chief Executive Officer, the Vice
Chairman of the Board, the Chief Operating Officer or the Chief Financial
Officer, or as may be provided by law.

SECTION 16. ABSENCE OR DISABILITY OF OFFICERS

In the absence or disability of the Chairman of the Board, the
President and Chief Executive Officer or the Vice Chairman of the Board, the
Board or a committee thereof may designate individuals to perform the duties of
those absent or disabled.

ARTICLE VI

STOCK CERTIFICATES AND TRANSFER THEREOF

SECTION 1. STOCK CERTIFICATES

Except as otherwise permitted by statute, the Restated Certificate of
Incorporation or resolution or resolutions of the Board, every holder of stock
in the corporation shall be entitled to have a certificate, signed by or in the
name of the corporation by the Chairman of the Board, the President and Chief
Executive Officer, the Vice Chairman of the Board, the Chief Operating Officer,
the Chief Financial Officer or any Vice President and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation, certifying the number of shares, and the class and series thereof,
owned by him in the corporation. Any and all of the

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<PAGE> 21
signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.

SECTION 2. TRANSFER OF STOCK

Transfer of shares of the capital stock of the corporation shall be made
only on the books of the corporation by the holder thereof, or by his attorney
duly authorized, and on surrender of the certificate or certificates for such
shares. A person in whose name shares of stock stand on the books of the
corporation shall be deemed the owner thereof as regards the corporation, and
the corporation shall not, except as expressly required by statute, be bound to
recognize any equitable or other claim to, or interest in, such shares on the
part of any other person whether or not it shall have express or other notice
thereof.

SECTION 3. TRANSFER AGENTS AND REGISTRARS

The Board may in its discretion appoint responsible banks or trust
companies from time to time to act as transfer agents and registrars of the
stock of the corporation, as may be required by and in accordance with
applicable laws, rules and regulations. Except as otherwise provided by
resolution of the Board in respect of temporary certificates, no certificates
for shares of capital stock of the corporation shall be valid unless
countersigned by a transfer agent and registered by one of such registrars.

SECTION 4. ADDITIONAL REGULATIONS

The Board may make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the capital stock of the corporation.

SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES

The Board may provide for the issuance of new certificates of stock to
replace certificates of stock lost, stolen or destroyed, or alleged to be lost,
stolen or destroyed, upon such terms and in accordance with such procedures as
the Board shall deem proper and prescribe.

ARTICLE VII

DIVIDENDS, SURPLUS, ETC.

Except as otherwise provided by statute or the Restated Certificate of
Incorporation, the Board may declare dividends upon the shares of its capital
stock either (1) out of its surplus, or (2) in case there shall be no surplus,
out of its net profits for the fiscal year, whenever, and in such

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amounts as, in its opinion, the condition of the affairs of the corporation
shall render it advisable. Dividends may be paid in cash, in property, or in
shares of the capital stock of the corporation.

ARTICLE VIII

SEAL

The corporation may have a corporate seal which shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." The corporate seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.

ARTICLE IX

FISCAL YEAR

The fiscal year of the corporation shall begin on the first day of January
of each year, or on such other day as may be fixed from time to time by the
Board.

ARTICLE X

INDEMNIFICATION

SECTION 1. RIGHT TO INDEMNIFICATION

Each person who was or is made a party or is threatened to be made a party
to or is involved (including, without limitation, as a witness) in any actual
or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he is or was a Director, officer or employee of the corporation or is
or was serving at the request of the corporation as a Director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, officer,
employee or agent or in any other capacity while serving as such a Director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the full extent authorized by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), or by other applicable law
as then in effect, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
to be paid in settlement) actually and reasonably incurred or suffered by such
indemnitee in connection therewith and such indemnification shall continue as
to an indemnitee who has ceased to be a

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Director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that
except as provided in Section 2 of this Article with respect to proceedings
seeking to enforce rights to indemnification, the corporation shall indemnify
any such indemnitee seeking indemnification in connection with a proceeding (or
part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of the corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); further provided, however, that, if the General
Corporation Law of the State of Delaware requires, an advancement of expenses
incurred by an indemnitee in his capacity as a Director, officer or employee
(and not in any other capacity in which service was or is rendered by such
indemnitee while a Director, officer or employee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined that such indemnitee is not entitled to be indemnified under this
Section 1, or otherwise.

SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT

If a claim under Section 1 of this Article is not paid in full by the
corporation within sixty days after a written claim has been received by the
corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, to the extent successful in whole or in part, the
indemnitee shall be entitled to be paid also the expense of prosecuting such
suit. The indemnitee shall be presumed to be entitled to indemnification under
this Article upon submission of a written claim (and, in an action brought to
enforce a claim for an advancement of expenses, where the required undertaking,
if any is required, has been tendered to the corporation), and thereafter the
corporation shall have the burden of proof to overcome the presumption that the
indemnitee is not so entitled. Neither the failure of the corporation
(including its Board, independent legal counsel, or its stockholders), to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances, nor an actual
determination by the corporation (including its Board, independent legal
counsel or its stockholders) that the indemnitee is not entitled to
indemnification, shall be a defense to the suit or create a presumption that
the indemnitee is not so entitled.

SECTION 3. NONEXCLUSIVITY OF RIGHTS

The rights to indemnification and to the advancement of expenses conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Restated
Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested Directors or otherwise.

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SECTION 4. INSURANCE, CONTRACTS AND FUNDING

The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware. The corporation may enter
into contracts with any indemnitee in furtherance of the provisions of this
Article and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in
this Article.

SECTION 5. WHOLLY OWNED SUBSIDIARIES

Any person who is or was serving as a Director of a wholly owned
subsidiary of the corporation shall be deemed, for purposes of this Article
only, to be a Director, officer or employee of the corporation entitled to
indemnification under this Article.

SECTION 6. INDEMNIFICATION OF AGENTS OF THE CORPORATION

The corporation may, by action of the Board from time to time, grant
rights to indemnification and advancement of expenses to agents of the
corporation with the same scope and effect as the provisions of this Article
with respect to the indemnification and advancement of expenses of Directors,
officers and employees of the corporation.

ARTICLE XI

CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

SECTION 1. CHECKS, DRAFTS, ETC.; LOANS

All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall, from time to time, be determined by resolution of the
Board. No loans shall be contracted on behalf of the corporation unless
authorized by the Board. Such authority may be general or confined to specific
circumstances.

SECTION 2. DEPOSITS

All funds of the corporation shall be deposited, from time to time, to the
credit of the corporation in such banks, trust companies or other depositories
as the Board may select, or as may be selected by any officer or officers,
agent or agents of the corporation to whom such power may, from time to time,
be delegated by the Board; and for the purpose of such deposit, the President
and Chief Executive Officer, the Vice Chairman of the Board, any Executive Vice

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President, any Senior Vice President, any Vice President, the Treasurer or any
Assistant Treasurer, or any other officer or agent to whom such power may be
delegated by the Board, may endorse, assign and deliver checks, drafts and
other order for the payment of money which are payable to the order of the
corporation.

ARTICLE XII

AMENDMENTS

These By-laws may be altered or repealed and new By-laws may be made by
the affirmative vote, at any meeting of the Board, of a majority of the entire
Board, subject to the rights of the stockholders of the corporation to amend or
repeal By-laws made or amended by the Board by the affirmative vote of the
holders of record of a majority in number of shares of the outstanding stock of
the corporation present or represented at any meeting of the stockholders and
entitled to vote thereon, provided that notice of the proposed action be
included in the notice of such meeting.

ARTICLE XIII

MISCELLANEOUS

All references and uses herein of the masculine pronouns "he" or "his"
shall have equal applicability to and shall also mean their feminine
counterpart pronouns, such as "she" or "her."

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TRANSPORTATION SERVICE AGREEMENT AS AMENDED AND RESTATED
(Conversion from Firm Sales Service)

THIS AGREEMENT was made and entered into as of the 10th day of
October, 1990, and is amended and restated as of this 1st day of November,
1993, by and between EL PASO NATURAL GAS COMPANY, a Delaware corporation,
hereinafter referred to as "El Paso," and PACIFIC GAS AND ELECTRIC COMPANY, a
California corporation, hereinafter referred to as "Shipper."

WHEREAS, El Paso owns and operates a natural gas transmission system;
and

WHEREAS, Shipper owns and operates a natural gas distribution system
situated within the State of California; and

WHEREAS, El Paso has a blanket certificate authorizing transportation
pursuant to Subpart G of Part 284 of the Regulations promulgated by the Federal
Energy Regulatory Commission ("Commission"); and

WHEREAS, El Paso and Shipper now desire to amend and restate this
Agreement so as to remove those provisions which provide for intermediate
third-party transportation; and

WHEREAS, this Agreement, as amended and restated, provides for the
transportation on a firm basis by El Paso of certain quantities of natural gas
for Shipper from points of receipt located in various states to an existing
delivery point located at the borderline between the States of Arizona and
California near Topock, Arizona, pursuant to Subpart G of Part 284 of the
Commission's Regulations;

NOW THEREFORE, in consideration of the representations, covenants and
conditions herein contained, El Paso and Shipper agree as of the date first
above written as follows:

ARTICLE I

Gas to be Transported

1.1 Subject to the terms and provisions of this Agreement and
of El Paso's Rate Schedule T-3, El Paso agrees to receive on each day at each
Receipt Point, such quantity of natural gas, if any, up to the Maximum Daily
Quantity specified for each Receipt Point on Exhibit A, not to exceed the
physical capacity of such point, as may be tendered to El Paso by Shipper (or
for Shipper's account), and to transport such quantity on a firm basis for
Shipper. The sum of the Maximum Daily Quantities reflected on Exhibit A shall
constitute Shipper's Transportation Contract Demand reflected on Exhibit B.

<PAGE> 2
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1.2 In addition to the quantity which Shipper may tender or cause
to be tendered to El Paso at each Receipt Point each day for firm
transportation in accordance with paragraph 1.1, Shipper shall tender or cause
to be tendered to El Paso at that point that quantity of natural gas as may be
required from time to time to compensate El Paso for fuel consumption,
shrinkage, and lost and unaccounted for volumes associated with such
transportation. Such additional quantity is additive to (and shall not be
considered as constituting a part of) Shipper's Maximum Daily Quantity at such
Receipt Point.

1.3 In accordance with Section 4.1 of the General Terms and
Conditions incorporated by reference in Rate Schedule T-3, El Paso shall
deliver and Shipper shall accept or cause to be accepted at the Delivery
Point(s) referenced in paragraph 2.2 of Article II, a quantity of natural gas
equivalent, on a dth basis, to the sum of the quantities of natural gas
received by El Paso at the Receipt Points for transportation hereunder in
accordance with paragraph 1.1; provided, however, that in no event shall El
Paso be obligated to deliver on any day a quantity in excess of Shipper's
Transportation Contract Demand set forth on Exhibit B.

1.4 Upon request of Shipper, El Paso, at its reasonable
discretion, may receive, transport, and deliver natural gas in excess of
Shipper's Transportation Contract Demand. If El Paso elects to transport said
excess gas, Shipper shall pay El Paso pursuant to the terms and conditions set
forth in El Paso's Rate Schedule T-3.

1.5 In addition to transportation through El Paso's mainline
system, the service contemplated herein includes:

(a) Field Transportation
(b) Dehydration
(c) Purification
(d) Products Extraction

1.6 If on any day El Paso should determine that the transportation
capacity of its facilities is insufficient to transport all volumes of natural
gas up to the Transportation Contract Demand tendered for transportation under
this Agreement and by other shippers under similar, firm transportation
agreements, El Paso shall allocate the available transportation capacity on the
basis set forth in the General Terms and Conditions incorporated by reference
in El Paso's Rate Schedule T-3.

-2-

<PAGE> 3
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ARTICLE II

Receipt Point(s), Delivery Point(s)
and Delivery Pressures

2.1 The Receipt Point(s) at which Shipper shall cause natural gas
to be tendered to El Paso for transportation hereunder are described in Exhibit
A to this Agreement. The delivery pressure and other pertinent factors are also
set forth in Exhibit A.

2.2 The Delivery Point(s) at which El Paso shall deliver hereunder,
are described in Exhibit B to this Agreement. The delivery pressure and other
pertinent factors applicable to the Delivery Point(s) are also set forth in
Exhibit B.

ARTICLE III

Rate, Rate Schedule(s) and General Terms and Conditions

3.1 Shipper shall pay El Paso for services rendered hereunder in
accordance with El Paso's Rate Schedule T-3, or superseding rate schedule(s),
on file with and subject to the jurisdiction of the Commission and lawfully in
effect from time to time.

3.2 The parties hereto agree that El Paso shall have the right
from time to time to propose and file with the Commission, in accordance with
Section 4 of the Natural Gas Act, changes, amendments, revisions and
modifications in:

(a) the rate(s) and Rate Schedule incorporated by reference as a
part of this Agreement pursuant to this Article III; and

(b) the General Terms and Conditions incorporated by reference in
said Rate Schedule, which are applicable hereto;

provided, however, that Shipper shall have the right to protest any such
changes before the Commission (or successor governmental agency) or other
authorities and to exercise any other rights that Shipper may have with respect
thereto.

3.3 This Agreement in all respects is subject to the provisions
of El Paso's Rate Schedule T-3, or superseding rate schedules, and applicable
provisions of the General Terms and Conditions included by reference in said
transportation rate schedule filed by El Paso with the Commission, all of which
are by reference made a part hereof.

3.4 Certain of the General Terms and Conditions may be adjusted
for the purpose of this Agreement and any such adjustments shall be set forth
in Exhibit C to this Agreement.

-3-

<PAGE> 4
97VU
ARTICLE IV

Regulatory Requirements and Conditions Precedent

4.1 The transportation arrangements provided for in this
Agreement are subject to the provisions of Subpart G of Part 284 of the
Commission's Regulations, as amended from time to time, except as expressly
waived in paragraph 5.3 hereof.

4.2 Transportation of natural gas provided for under the terms
and provisions of this Agreement shall not commence until the following
conditions have been met:

(NOT APPLICABLE)

ARTICLE V

Term

5.1 This Agreement shall become effective, as amended and
restated, on November 1, 1993.

5.2 After this Agreement becomes effective, it shall continue in
full force and effect for a primary term ending December 31, 1997, and
thereafter from year to year until terminated by written notice so stating
given no less than twelve (12) months in advance by either party to the other.

5.3 El Paso agrees to waive its rights to effect pre-granted
abandonment of transportation service upon the expiration of transportation
service agreements. As of the date of this Agreement, such right is codified in
Section 284.221(d) of the Commission's Regulations.

5.4 Without limitation of paragraph 5.3, prior to terminating
service under this Agreement, El Paso agrees to file for such authorization, if
any, as may be required for the abandonment of the transportation service
contemplated hereunder pursuant to Section 7(b) of the Natural Gas Act or any
successor statute, and not to terminate such service unless and until it shall
have received such abandonment authorization. Shipper shall have the right to
oppose such abandonment. El Paso will not apply for or otherwise seek
Commission approval for abandonment of Shipper's Transportation Contract Demand
as set forth in Exhibit B, or any portion thereof, prior to the date El Paso
notifies Shipper of its intent to terminate this Agreement as provided herein.

-4-

<PAGE> 5
97VU

5.5 Termination of this Agreement shall not relieve El Paso or
Shipper of the obligation to correct any volume imbalances hereunder, or
Shipper of the obligation, if any, to pay monies due hereunder to El Paso.

ARTICLE VI

Cancellation of Prior Contracts

6.1 When this Agreement becomes effective, it supersedes and
cancels as of the effective date hereof the following contracts between the
parties hereto:

(NOT APPLICABLE)

ARTICLE VII

Notices

7.1 Any formal notice, request or demand that either party gives
to the other respecting this Agreement shall be in writing and shall be mailed
by registered or certified mail or delivered in hand to the following address
of the other party:

El Paso: El Paso Natural Gas Company
Post Office Box 1492
El Paso, Texas 79978
Attention: Director, Marketing Services Department

Shipper: Pacific: Gas and Electric Company
444 Market Street, Suite 6203
Post Office Box 770000
San Francisco, California 94177
Attention: Vice President, Gas Services and Operations

or to such other address as a party shall designate by formal written notice.
Routine communications may be mailed by ordinary mail. Operating communications
by telephone, facsimile or other mutually agreeable means shall be considered
as duly delivered without subsequent written confirmation. Payments to El Paso
for services rendered hereunder shall be made in accordance with Section 6 of
the General Terms and Conditions incorporated by reference in Rate Schedule
T-3.

ARTICLE VIII

Other Operating Provisions

8.1 The natural gas liquids expressly reserved by Shipper are
all, and only, those liquid hydrocarbons recovered and allocated by El Paso to
Shipper as the result of Products Extraction, whether in El Paso's plants or in
another plant performing Products Extraction on behalf of El Paso.

-5-

<PAGE> 6
97VU

8.2 In the event both parties agree in writing that
additional facilities are necessary primarily for Shipper in order to implement
the transportation service provided hereunder, Shipper hereby agrees to
reimburse El Paso for all expenditures associated with the construction and
installation of such facilities, which shall be owned, operated and maintained
by El Paso, unless otherwise agreed to in writing.

8.3 Except as provided in paragraphs 5.3 and 5.4 hereof, the
parties hereto acknowledge that this Agreement or any operation conducted
pursuant thereto does not constitute an implied waiver or intentional
forfeiture of any rights of either party otherwise available under the
Commission's Order Nos. 436, et seq.; 451, et seq.; 500, et seq.; or 636,
et seq.

8.4 El Paso shall only be obligated to deliver the quantities of
natural gas hereunder at pressures that exist in El Paso's systems from time
to time, using all appropriate facilities available, unless a minimum pressure
is stated on Exhibit B to this Agreement. El Paso reserves the right to deliver
the quantities at higher pressures, up to any maximum pressure indicated on
Exhibit B to this Agreement.

8.5 The gas delivered by El Paso to Shipper at the Topock Delivery
Point shall have a heating value of not less than 995 Btu per cubic foot.

ARTICLE IX

Miscellaneous

9.1 El Paso and Shipper expressly agree that the laws of the State
of Texas shall govern the validity, construction, interpretation and effect of
this Agreement and of the General Terms and Conditions incorporated by
reference in El Paso's Rate Schedule T-3.

9.2 All substances, whether or not of commercial value, including
all liquid hydrocarbons of whatever nature, except substances expressly
reserved for Shipper, that El Paso recovers in the course of transporting the
quantities of natural gas tendered hereunder to Shipper shall be El Paso's
sole property and El Paso shall not be obligated to account to Shipper for any
value, whether or not realized by El Paso, that may attach or be said to attach
to such substances.

9.3 Exhibits A, B and C, attached to this Agreement, are hereby
incorporated by reference as part of this Agreement. The parties may amend
Exhibits A, B or C by mutual agreement, which amendments shall be reflected
in a revised Exhibit A, B or C and shall be incorporated by reference as part
of this Agreement.

-6-

<PAGE> 7
97VU
IN WITNESS HEREOF, the parties have caused this Agreement to be
executed in two (2) original counterparts, by their duly authorized officers,
the day and year first set forth herein.

ATTEST: EL PASO NATURAL GAS COMPANY

By /s/ HAROLD H. YOUNG, JR. By /s/ ALVIN W. CLARK
Assistant Secretary Vice President

ATTEST: PACIFIC GAS AND ELECTRIC
COMPANY

By /s/ BRIAN MCGRATH By /s/ WILLIAM R. MAZOTTI
Assistant Secretary Vice President
Gas Services and Operations

-7-

<PAGE> 8
97VU
EXHIBIT A

To The
Transportation Service Agreement
Dated October 10, 1990
As Amended and Restated
Between El Paso Natural Gas Company
and Pacific Gas and Electric Company

<TABLE>
<CAPTION>
Maximum Type of Field
Delivery Daily Field Shrinkage
Pressure(s) Quantity Service(s) Factor(s)
Receipt Point(s) (psig) (Mcf) 3/ 4/
- ---------------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C>
El Paso System
(EPNG Code STANDARD)
Any point of inter-
connection existing
from time to time
on El Paso's
facilities, except
those requiring
transportation by
others to provide
service under As As
this Agreement 1/ 2/ Required Published
</TABLE>

1/ Necessary pressure to enter the El Paso System and, except as
otherwise noted, not in excess of the MAOP of that facility.

2/ El Paso shall be obligated to receive hereunder, in accordance with
paragraph 1.1 of the Agreement and Section 4.2 of the General Terms
and Conditions contained in El Paso's Volume No. 1-A Tariff, or
superseding tariff, up to 1,140,000 Mcf per day of natural gas in the
aggregate from all Receipt Points plus applicable fuel, shrinkage and
lost and unaccounted for volumes as provided in paragraph 1.2 of the
Agreement.

3/ Purification, Products Extraction and Dehydration may include
performance of these services by others on behalf of El Paso.

4/ Field Shrinkage Factor(s) includes all field fuel and other field
shrinkage.

-1-

<PAGE> 9
97VU
EXHIBIT A
(Continued)

A. Effective Date of this Exhibit A: November 1, 1993.

B. Supersedes Exhibit A Effective: September 1, 1991.

PACIFIC GAS AND ELECTIRC EL PASO NATURAL GAS COMPANY
COMPANY

By /s/ WILLIAM R. MAZOTTI By /s/ ALVIN W. CLARK
Vice President Vice President

Date 10/17/93 Date October 25, 1993

-2-

<PAGE> 10
97VU
EXHIBIT B

To The
Transportation Service Agreement
Dated October 10, 1990
As Amended and Restated
Between El Paso Natural Gas Company
and Pacific Gas and Electric Company

<TABLE>
<CAPTION>
Maximum
Daily
Quantity
Delivery Point(s) (Mcf)
- ----------------- --------
<S> <C> <C>
Topock
(EPNG Code 32001 82)
Interconnection between
the facilities of El Paso
and Pacific Gas and
Electric Company located
at the borderline between
the States of Arizona and Delivery Pressure
California near Topock, not less than
Arizona 600 psig *

Topock
(EPNG Code 32003 22)
Interconnection between
the facilities of El Paso
and Southern California Gas
Company located at the
borderline between
the States of Arizona and
California near Topock,
Arizona *

Mgjave Pipeline Company
(EPNG Code IMOJAVE)
Interconnection between
the facilities of El Paso
and Mojave Pipeline Company
located at the borderline
between the States of Arizona
and California near Topock,
Arizona *

Shipper's Transportation
Contract Demand 1,140,000 Mcf
</TABLE>

-1-

<PAGE> 11
97VU
EXHIBIT B
(Continued)

Unless otherwise specified on this exhibit, the Delivery Pressure(s) for the
point(s) listed above shall be the pressure existing from time to time at the
metering facility; however, El Paso reserves the right to deliver quantities at
pressures up to the MAOP of that facility.

* El Paso shall be obligated to deliver hereunder, in accordance with
paragraph 1.3 of the Agreement and Section 4.2 of the General Terms
and Conditions contained in El Paso's Volume No. 1-A Tariff, or
superseding tariff, up to the mainline MDQ of 1,140,000 Mcf per day of
natural gas in the aggregate at all Delivery Points, provided however,
that El Paso shall be obligated to deliver hereunder only Shipper's
quantities of natural gas received pursuant to this Agreement in the
aggregate at all Delivery Point(s).

A. Effective Date of this Exhibit B: November 1, 1993.

B. Supersedes Exhibit B Effective: September 1, 1991.

PACIFIC GAS AND ELECTRIC EL PASO NATURAL GAS COMPANY
COMPANY

By /s/ WILLIAM R. MAZOTTI By /s/ ALVIN W. CLARK
Vice President Vice President

Date 10/17/93 Date October 25, 1993

-2-

<PAGE> 12
97VU

EXHIBIT C

To The
Transportation Service Agreement
Dated October 10, 1990
As Amended and Restated
Between El Paso Natural Gas Company
and Pacific Gas and Electric Company

The following shall apply in substitution for the identified
provisions of the General Terms and Conditions of El Paso's Tariff:

Section of
General Terms
and Conditions Substitute Provision
- -------------- --------------------
Substitution for Section 15 Any company which shall succeed by
purchase, merger or consolidation to
the properties, substantially as an
entirety, of El Paso or of Shipper, as
the case may be, shall be entitled to
the rights and shall be subject to the
obligations of its predecessor in title
thereunder. Either Shipper or El Paso
may, without relieving itself of its
obligations hereunder, assign any of
its rights thereunder to a company with
which it is affiliated, but otherwise
no assignment of the executed
Transportation Service Agreement or any
of the rights or obligations thereunder
shall be made unless there first shall
have been obtained the consent thereto
of El Paso, in the event of any
assignment by Shipper, or consent
thereto of Shipper, in the event of an
assignment by El Paso. Such consent
shall not be unreasonably withheld.

Either party may assign its right,
title and interest in and to and under
the executed Transportation Service
Agreement to a trustee or trustees,
individual or corporate, as security
for bonds or other obligations or
securities without the necessity of
obtaining such consent and without such
trustee or trustees assuming or
becoming in any respect obligated to
perform the obligations of the assignor
and, if any such trustee be a
corporation, without its being required
to qualify to do business in any state
in which any performance of the
executed Transportation Service
Agreement may occur.

-1-

<PAGE> 13
97VU
EXHIBIT C
(Continued)

A. Effective Date of this Exhibit C: November 1, 1993.

B. Supersedes Exhibit C Effective: September 1, 1991.

PACIFIC GAS AND ELECTRIC EL PASO NATURAL GAS COMPANY
COMPANY

By /s/ WILLIAM R. MAZOTTI By /s/ ALVIN W. CLARK
Vice President Vice President

Date 10/17/93 Date October 25, 1993

-2-

<PAGE> 1
97VT

TRANSPORTATION SERVICE AGREEMENT, AS AMENDED AND RESTATED
(Conversion from Firm Sales Service)

THIS AGREEMENT was made and entered as of the 16th day of October,
1990, and is amended and restated as of this 16th day of July, 1993, by and
between EL PASO NATURAL GAS COMPANY, a Delaware corporation, hereinafter
referred to as "El Paso," and SOUTHERN CALIFORNIA GAS COMPANY, a California
corporation, hereinafter referred to as "Shipper."

WHEREAS, El Paso owns and operates a natural gas transmission system;
and

WHEREAS, Shipper owns and operates a natural gas distribution system
situated within the State of California; and

WHEREAS, El Paso has a blanket certificate authorizing
transportation pursuant to Subpart G of Part 284 of the Regulations promulgated
by the Federal Energy Regulatory Commission ("Commission"); and

WHEREAS, El Paso and Shipper now desire to amend and restate this
Agreement so as to remove those provisions which provide for intermediate
third-party transportation; and

WHEREAS, this Agreement, as amended and restated, provides for the
transportation on a firm basis by El Paso from points of receipt located in
various states to delivery points located at the borderline between the States
of Arizona and California near Topock, Arizona, and Blythe, California, pursuant
to Subpart G of Part 284 of the Commission's Regulations;

NOW THEREFORE, in consideration of the representations, covenants and
conditions herein contained, El Paso and Shipper agree as of the date first
above written as follows:

ARTICLE I

Gas to be Transported

1.1 Subject to the terms and provisions of this Agreement and of
El Paso's Rate Schedule T-3, El Paso agrees to receive on each day at each
Receipt Point, such quantity of natural gas, if any, up to the Maximum Daily
Quantity specified for each Receipt Point on Exhibit A, not to exceed the
physical capacity of such point, as may be tendered to El Paso by Shipper (or
for Shipper's account), and to transport such quantity on a firm basis for
Shipper. The sum of the Maximum Daily Quantities reflected on Exhibit A shall
constitute Shipper's Transportation Contract Demand reflected on Exhibit B.

<PAGE> 2
97VT
of natural gas as may be required from time to time to compensate El Paso for
fuel consumption, shrinkage, and lost and unaccounted for volumes associated
with such transportation. Such additional quantity is additive to (and
shall not be considered as constituting a part of) Shipper's Maximum Daily
Quantity at such Receipt Point.

1.5 In addition to transportation through El Paso's mainline
system, the service contemplated herein includes:

(a) Transportation through El Paso's San Juan Triangle Facilities
(b) Field Transportation
(c) Dehydration
(d) Purification
(e) Products Extraction

ARTICLE II

Receipt Point(s), Delivery Point(s)
and Delivery Pressures

2.1 The Receipt Point(s) at which Shipper shall cause natural gas
to be tendered to El Paso for transportation hereunder are described in
Exhibit A to this Agreement. The delivery pressure and other pertinent factors
are also set forth in Exhibit A.

2.2 The Delivery Point(s) at which El Paso shall deliver
hereunder, are described in Exhibit B to this Agreement. The delivery

<PAGE> 3
97VT

pressure and other pertinent factors applicable to the Delivery Point(s) are
also set forth in Exhibit B.

ARTICLE III

Rate, Rate Schedule(s) and General Terms and Conditions

(a) the rate(s) and Rate Schedule incorporated by
reference as a part of this Agreement pursuant to
this Article III; and

(b) the General Terms and Conditions incorporated by
reference in said Rate Schedule, which are applicable
hereto;

3.3 This Agreement in all respects is subject to the provisions of
El Paso's Rate Schedule T-3, or superseding rate schedule(s), and applicable
provisions of the General Terms and Conditions included by reference in said
transportation rate schedule filed by El Paso with the Commission, all of which
are by reference made a part hereof.

3.4 Certain of the General Terms and Conditions may be adjusted
for the purpose of this Agreement and any such adjustments shall be set forth
in Exhibit C to this Agreement.

ARTICLE IV

Regulatory Requirements and Conditions Precedent

4.1 The transportation arrangements provided for in this Agreement
are subject to the provisions of Subpart G of Part 284 of the Commission's
Regulations, as amended from time to time, except as expressly waived in
paragraph 5.3 hereof.

4.2 Transportation of natural gas provided for under the terms and
provisions of this Agreement shall not commence until the following conditions
have been met:

(NOT APPLICABLE)

-3-

<PAGE> 4
97VT
ARTICLE V

Term

5.1 This Agreement shall become effective, as amended and
restated, on July 16, 1993.

5.2 After this Agreement becomes effective, it shall continue in
full force and effect for the remaining primary term of fifteen (15) years from
September 1, 1991, and thereafter from year to year until terminated by written
notice so stating given no less than eighteen (18) months in advance of the end
of the primary term or at any time thereafter by either party to the other.

ARTICLE VI

Cancellation of Prior Contracts

6.1 When this Agreement becomes effective, it supersedes and
cancels as of the effective date hereof the following contracts between the
parties hereto:

(NOT APPLICABLE)

-4-

<PAGE> 5
97VT

ARTICLE VII

Notices

El Paso: El Paso Natural Gas Company
Post Office Box 1492
El Paso, Texas 79978
Attention: Director, Marketing Services Department
Telefax Number: (915) 541-5335

Shipper: Southern California Gas Company
Post Office Box 3249, Terminal Annex
[720 West 8th Street] 555 W. Fifth Street
_____________________
Los Angeles, California
[90017] (P.O. Box) 90051-1249
_______
[90051] (Street) 90013-1011
_______
Attention: Vice President, Gas Supply
Telefax Number: (213) [689-2433] 244-8282
__________

ARTICLE VIII

Other Operating Provisions

8.1 The natural gas liquids expressly reserved by Shipper are all,
and only, those liquid hydrocarbons recovered and allocated by El Paso to
Shipper as the result of Products Extraction, whether in El Paso's plants or in
another plant performing Products Extraction on behalf of El Paso.

8.2 In the event both parties agree in writing that additional
facilities are necessary primarily for Shipper in order to implement the
transportation service provided hereunder, Shipper hereby agrees to reimburse
El Paso for all expenditures associated with the construction and installation
of such facilities, which shall be owned, operated and maintained by El Paso,
unless otherwise agreed in writing.

-5-

<PAGE> 6
97VT
8.3 Except as provided in paragraphs 5.3 and 5.4 hereof, the
parties hereto acknowledge that this Agreement or any operation conducted
pursuant thereto does not constitute an implied waiver or intentional
forfeiture of any rights of either party otherwise available under the
Commission's Order Nos. 436, et seq.; 451, et seq.; or 500, et seq.; or other
similar Commission orders.

8.4 El Paso shall only be obligated to deliver the quantities of
natural gas hereunder at pressures that exist in El Paso's systems from time to
time, using all appropriate facilities available, unless a minimum pressure is
stated on Exhibit B to this Agreement. El Paso reserves the right to deliver
the quantities at higher pressures, up to any maximum pressure indicated on
Exhibit B to this Agreement.

ARTICLE IX

Miscellaneous

9.2 All substances, whether or not of commercial value, including
all liquid hydrocarbons of whatever nature, except substances expressly
reserved for Shipper, that El Paso recovers in the course of transporting the
quantities of natural gas tendered hereunder to Shipper shall be El Paso's sole
property and El Paso shall not be obligated to account to Shipper for any
value, whether or not realized by El Paso, that may attach or be said to attach
to such substances.

9.3 Exhibits A, B and C, attached to this Agreement, are hereby
incorporated by reference as part of this Agreement. The parties may amend
Exhibits A, B or C by mutual agreement, which amendments shall be reflected in
a revised Exhibit A, B or C and shall be incorporated by reference as part of
this Agreement.

9.4 Shipper and El Paso shall have the option to reduce the
Transportation Contract Demand as follows:

(a) By written notice to El Paso on or before March 1,
1991, Shipper may unilaterally reduce its
Transportation Contract Demand by 300,000 Mcf per day
effective on the first day of such month during the
first quarter of 1992, as Shipper in said notice
shall designate.

(b) In the event Shipper exercises the option provided in
(a) above, Shipper shall have the additional option,
exercisable by written notice to El Paso on or before
June 30, 1994, to further reduce Shipper's
Transportation Contract Demand by up to an additional

-6-

<PAGE> 7
97VT
300,000 Mcf per day effective on the first day of
such month during the first quarter of 1996, as
Shipper in said notice shall designate.

The unilateral reduction options under paragraphs 9.4(a) and (b) shall be
limited to a maximum total of 600,000 Mcf per day (leaving in any event not
less than a minimum daily balance of 1,150,000 Mcf per day as Shipper's
Transportation Contract Demand for firm transportation by El Paso for Shipper).

(c) In the event Shipper, for any reason, fails to
exercise the option under paragraph 9.4(b), El Paso
shall have the right to initiate, on or after July 1,
1994, an abandonment of up to 300,000 Mcf per day of
the gas to be transported for Shipper on a firm
basis.

(d) Notwithstanding the provisions of paragraphs 9.4(a),
(b) and/or (c), this Agreement shall not be construed
to limit reductions of Shipper's firm transportation
capacity by mutual written consent between Shipper
and El Paso; provided, however, in no event shall any
reduction under (a), (b), (c) or (d) be deemed as a
limitation on Shipper's ability to request deliveries
at particular Delivery Points as provided on Exhibit
B.

Shipper's Billing Determinant shall be equivalent on a dekatherm basis to
Shipper's Transportation Contract Demand, and shall be adjusted, as necessary,
to reflect any adjustment in Shipper's Transportation Contract Demand.

9.5 This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter hereof, supersedes all prior
discussions, agreements and understandings, whether oral or written, which the
parties may have in connection herewith and may not be amended or modified
except as contemplated in Article III or by written agreement of the parties,
and shall not be modified by course of performance, course of conduct or usage
of trade.

9.6 Each party shall do all necessary acts and make, execute, and
deliver such written instruments as shall from time to time be reasonably
necessary to carry out the terms of this Agreement.

9.7 This Agreement was prepared by both parties hereto with advice
of counsel, and not by any party to the exclusion of the other, and,
accordingly, should not be construed against either party by reason of its
preparation.

9.8 El Paso and Shipper agree that paragraph 5.4 is in no way
intended to override paragraph 5.3.

9.9 El Paso and Shipper agree that paragraph 9.2 is subject to El
Paso's obligation to deliver to Shipper equivalent quantities of gas, on a dth
basis, under paragraph 1.3.

-7-

<PAGE> 8
97VT
IN WITNESS HEREOF, the parties have caused this Agreement to be
executed in two (2) original counterparts, by their duly authorized officers,
the day and year first set forth herein.

ATTEST: EL PASO NATURAL GAS COMPANY

By /s/ HAROLD H. YOUNG, JR. By /s/ ALVIN W. CLARK
Assistant Secretary Vice President

ATTEST: SOUTHERN CALIFORNIA GAS
COMPANY

By /s/ VIRGINIA A. ROBINSON By /s/ MARK POCINO
Secretary Vice President

-8-

<PAGE> 9
97VT
EXHIBIT A

To The
Transportation Service Agreement
Dated October 16, 1990
As Amended and Restated
Between El Paso Natural Gas Company
and Southern California Gas Company

<TABLE>
<CAPTION>
Maximum Type of Field
Delivery Daily Field Shrinkage
Pressure(s) Quantity Service(s) Factor(s)
Receipt Point(s) (psig) 1/ (Mcf) 3/ 4/
- ---------------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C>
El Paso System
(EPNG Code STANDARD)
Any point of inter-
connection existing
from time to time
on El Paso's
facilities, except
those requiring
transportation by
others to provide
service under 1/ 2/ As As
this Agreement Required Published
</TABLE>

1/ Necessary pressure to enter the El Paso System and, except as
otherwise noted, not in excess of the MAOP of the facility.

2/ El Paso shall be obligated to receive hereunder, in accordance with
paragraph 1.1 of the Agreement and Section 4.2 of the General Terms
and Conditions contained in El Paso's Volume No. 1-A Tariff, or
superseding tariff, up to 1,450,000 Mcf per day of natural gas in the
aggregate from all Receipt Points, plus applicable fuel, shrinkage,
and lost and unaccounted for volumes as provided in paragraph 1.2 of
the Agreement.

3/ Purification, Products Extraction and Dehydration may include
performance of these services by others on behalf of El Paso.

4/ Field Shrinkage Factor(s) includes all field fuel and other field
shrinkage.

-1-

<PAGE> 10
97VT

EXHIBIT A
(Continued)

A. Effective Date of this Exhibit A: July 16, 1993.

B. Supersedes Exhibit A Effective: March 1, 1992.

SOUTHERN CALIFORNIA GAS EL PASO NATURAL GAS COMPANY
COMPANY

By /s/ MARK POCINO By /s/ ALVIN W. CLARK
Vice President Vice President

Date 8/23/93 Date 9/09/93

-2-

<PAGE> 11
97VT
EXHIBIT B

To The
Transportation Service Agreement
Dated October 16, 1990
As Amended and Restated
Between El Paso Natural Gas Company
and Southern California Gas Company

<TABLE>
<CAPTION>
Maximum
Daily
Delivery Quantity
Delivery Point(s) Pressure(s) (mcf)
- ----------------- ----------- --------
<S> <C> <C>
Blythe Delivery pressure 910,000
------ not less than
(EPNG Code 32002 22) 600 psig
Interconnection between
the facilities of El Paso and Southern
California Gas Company located at the
borderline between the States of Arizona and
California near Blythe, California

Topock Delivery pressure * 1/
------ not less than
(EPNG Code 32003 22) 600 psig
Interconnection between the facilities of El
Paso and Southern California Gas Company
located at the borderline between the States of
Arizona and California near Topock, Arizona

Topock Delivery pressure * 1/
------ not less than
EPNG Code 32001 82) 600 psig
Interconnection between the facilities of El
Paso and Pacific Gas and Electric Company
located at the borderline between the States of
Arizona and California near Topock, Arizona

Mojave Pipeline Company ** * 1/
-----------------------
(EPNG Code IMOJAVE)
Interconnection between the facilities of El
Paso and Mojave Pipeline Company located at the
borderline between the States of Arizona and
California near Topock, Arizona

Shipper's Transportation
Contract Demand 1,450,000 Mcf
</TABLE>

-1-

<PAGE> 12
97VT

EXHIBIT B
(Continued)

* El Paso shall be obligated to deliver hereunder, in accordance with
paragraph 1.3 of the Agreement and Section 4.2 of the General Terms
and Conditions contained in El Paso's Volume No. 1-A Tariff, or
superseding tariff, up to the MDQ of 1,450,000 Mcf per day of natural
gas in the aggregate at all Delivery Points, not to exceed any stated
MDQ at a Delivery Point; provided, that El Paso shall be obligated to
deliver hereunder only Shipper's quantities of natural gas received
pursuant to this Agreement in the aggregate at all Delivery Point(s).

** Unless otherwise specified on this exhibit, the Delivery Pressure(s)
for the point(s) listed above shall be the pressure existing from time
to time at the metering facility; however, El Paso reserves the right
to deliver quantities at pressures up to the MAOP of that facility.

1/ The MDQ for deliveries at the Topock and Mojave Delivery Points shall
not exceed 540,000 Mcf per day in the aggregate.

A. Effective Date of this Exhibit B: July 16, 1993.

B. Supersedes Exhibit B Effective: March 1, 1992.

SOUTHERN CALIFORNIA GAS EL PASO NATURAL GAS COMPANY
COMPANY

By /s/ MARK POCINO By /s/ ALVIN W. CLARK
Vice President Vice President

Date 8/23/93 Date 9/09/93

-2-
<PAGE> 13

EXHIBIT C

To The
Transportation Service Agreement
Dated October 16, 1990
As Amended and Restated
Between El Paso Natural Gas Company
and Southern California Gas Company

The following shall apply in substitution for the identified
provisions of the General Terms and Conditions of El Paso's Tariff:

Section of
General Terms
and Conditions Substitute Provision
- -------------- ---------------------------------------------------------------

5.10(a) Liquids - The gas shall be free of water and hydrocarbons in
liquid form at the temperature and pressure at which the gas
is delivered. The gas shall in no event contain water vapor in
excess of seven (7) pounds per million standard cubic feet.

5.10(b) Hydrocarbon Dew Point - The hydrocarbon dew point of the gas
delivered shall not exceed twenty degrees Fahrenheit
(20 degrees F) at a pressure of 600 psig.

5.10(c) Total Sulfur - The gas shall not contain more than
three-quarters (0.75) grain of total sulfur per one hundred
(100) standard cubic feet, which includes hydrogen sulfide,
carbonyl sulfide, carbon disulfide, mercaptans, and mono-, di-
and poly-sulfides. The gas shall also meet the following
individual specifications for hydrogen sulfide, mercaptan
sulfur or organic sulfur:

(i) Hydrogen Sulfide - The gas shall not contain more
than one-quarter (0.25) grain of hydrogen sulfide per
one hundred (100) standard cubic feet.

(ii) Mercaptan Sulfur - The mercaptan sulfur content shall
not exceed more than three-tenths (0.3) grain per one
hundred (100) standard cubic feet.

(iii) Organic Sulfur - The organic sulfur content shall not
exceed five-tenths (0.5) grain per one hundred (100)
standard cubic feet, which includes mercaptans,
mono-, di- and ply-sulfides, but it does not include
hydrogen sulfide, carbonyl sulfide or carbon
disulfide.

-1-

<PAGE> 14
EXHIBIT C
(Continued)

Section of
General Terms
and Conditions Substitute Provision
- -------------- ---------------------------------------------------------------
5.10(d) Oxygen - The oxygen content shall not exceed two-tenths of one
percent (0.2%) by volume and every reasonable effort shall be
made to keep the gas delivered free of oxygen.

5.10(e) Carbon Dioxide - The gas shall not have a carbon dioxide
content in excess of three percent (3%) by volume.

5.10(f) Diluents - The gas shall not at any time contain in excess of
four percent (4%) total diluents (the total combined carbon
dioxide, nitrogen, helium, oxygen, and any other diluent
compound) by volume.

5.10(g) Dust, Gums and Solid Matter - The gas shall be commercially
free from solid matter, dust, gums, and gum forming
constituents, or any other substance which interferes with the
intended purpose or merchantability of the gas, or causes
interference with the proper and safe operation of the lines,
meters, regulators, or other appliances through which it may
flow.

5.10(h) Heating Value - The gas shall have a heating value of not less
than 967 Btu per cubic foot. For natural gas delivered at the
border between the States of Arizona and California, the gas
shall have a heating value of not less than 995 Btu per cubic
foot.

5.10(i) Temperature - The gas shall be delivered at temperatures not
in excess of one hundred five degrees Fahrenheit (105 degrees
F) nor less than fifty degrees Fahrenheit (50 degrees F).

5.10(j) Deleterious Substances - The gas shall not contain any toxic
or hazardous substance, in concentrations, which, in the
normal use of the gas, may be hazardous to health, injurious
to pipeline facilities or be a limit to merchantability.

-2-
<PAGE> 15
EXHIBIT C
(Continued)

Section of
General Terms
and Conditions Substitute Provision
- -------------- ---------------------------------------------------------------

Substitution Any company which shall succeed by purchase, merger or
for Section 15 consolidation to the properties, substantially as an entirety,
of El Paso or of Shipper, as the case may be, shall be
entitled to the rights and shall be subject to the obligations
of its predecessor in title thereunder. Either Shipper or El
Paso may, without relieving itself of its obligations
hereunder, assign any of its rights thereunder to a company
with which it is affiliated, but otherwise no assignment of
the executed Transportation Service Agreement or any of the
rights or obligations thereunder shall be made unless there
first shall have been obtained the consent thereto of El Paso,
in the event of any assignment by Shipper, or consent thereto
of Shipper, in the event of an assignment by El Paso. Such
consent shall not be unreasonably withheld.

Either party may assign its right, title and interest in and
to and under the executed Transportation Service Agreement to
a trustee or trustees, individual or corporate, as security
for bonds or other obligations or securities without the
necessity of obtaining such consent and without such
trustee or trustees assuming or becoming in any respect
obligated to perform the obligations of the assignor and, if
any such trustee be a corporation, without its being required
to qualify to do business in any state in which any
performance of the executed Transportation Service Agreement
may occur.

The parties intend this Exhibit C to be contractually binding.

-3-
<PAGE> 16
EXHIBIT C
(Continued)

A. Effective Date of this Exhibit C: July 16, 1993.

B. Supersedes Exhibit C Effective: September 1, 1991.

SOUTHERN CALIFORNIA GAS EL PASO NATURAL GAS COMPANY
COMPANY

By /s/ MARK POCINO By /s/ ALVIN W. CLARK
Vice President Vice President

Date 8/23/93 Date 9/09/93

-4-

<PAGE> 1
97ZK

EXHIBIT B

To The
Transportation Service Agreement
Dated August 9, 1991
Between El Paso Natural Gas Company
and Southwest Gas Corporation

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----

<S> <C> <C>
Bullhead City, Arizona
Bullhead City - SE/4, Section 20,
T20N, R22W, Mohave County, Arizona
(EPNG Meter No. 31-658) 250 *

Casa Grande and Maricopa, Arizona
Casa Grande No. 1 - NE/4, Section
3, T7S, R6E, Pinal County, Arizona
(EPNG Meter No. 30-312) 175 *

Casa Grande No. 2 - SE/4, Section
7, T7S, R6E, Pinal County, Arizona
(EPNG Meter No. 30-064) 150 *

Casa Grande No. 3 - SW/4, Section
22, T5S, R6E, Pinal County, Arizona
(EPNG Meter No. 20-358) 150 *

C-1 - SE/4, Section 34, T6S, R4E,
Pinal County, Arizona
(EPNG Meter Nos. 20-567 and 30-812) 100 *

C-2 - SW/4, Section 8, T7S, R5E,
Pinal County, Arizona
(EPNG Meter No. 20-118) 100 *

C-3 - SW/4, Section 10, T6S, R3E,
Pinal County, Arizona
(EPNG Meter No. 20-119) 80 *

C-4 - NW/4, Section 19, T6S, R4E,
Pinal County, Arizona
(EPNG Meter No. 20-526) 200 *

C-6 - SW/4, Section 6, T7S, R5E,
Pinal County, Arizona
(EPNG Meter No. 30-066) 225 *

C-7 - SW/4, Section 29, T7S, R6E,
Pinal County, Arizona
(EPNG Meter No. 20-121) 50 *

</TABLE>

-1-

<PAGE> 2
97ZK
EXHIBIT B
(Continued)

Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>
Casa Grande and Maricopa, Arizona
(Continued)
C-8 - SE/4, Section 28, T6S, R4E,
Pinal County, Arizona
(EPNG Meter No. 20-579) 225 *

C-9 - SW/4, Section 5, T6S, R3E,
Pinal County, Arizona
(EPNG Meter No. 20-122) 225 *

C-10 - SE/4, Section 8, T9S, R7E,
Pinal County, Arizona
(EPNG Meter No. 20-123) 100 *

C-11 - SE/4, Section 22, T9S, R7E,
Pinal County, Arizona
(EPNG Meter No. 20-124) 150 *

C-15 - NE/4, Section 10, T8S, R6E,
Pinal County, Arizona
(EPNG Meter No. 20-127) 150 *

C-17 - NE/4, Section 27, T9S, R7E,
Pinal County, Arizona
(EPNG Meter No. 20-129) 80 *

C-19 - NW/4, Section 14, T6S, R3E,
Pinal County, Arizona
(EPNG Meter No. 30-409) 250 *

C-20 - NE/4, Section 15, T8S, R6E,
Pinal County, Arizona
(EPNG Meter No. 20-131) 90 *

C-21 - Lot 5, Section 1, T7S, R4E,
Pinal County, Arizona
(EPNG Meter No. 20-132) 100 *

C-22 - Lot 4, Section 6, T6S, R3E,
Pinal County, Arizona
(EPNG Meter No. 30-231) 225 *
</TABLE>

-2-

<PAGE> 3
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>
Casa Grande and Maricopa, Arizona
(Continued)
C-30 - NE/4, Section 35, T5S, R2E,
Pinal County, Arizona
(EPNG Meter No. 20-136) 100 *

C-31 - SW/4, Section 22, T5S, R2E,
Pinal County, Arizona
(EPNG Meter No. 20-137) 225 *

C-32 - NW/4, Section 15, T7S, R5E,
Pinal County, Arizona
(EPNG Meter No. 20-138) 100 *

Hexcel (R-2) - SW/4, Section 24,
T6S, R5E, Pinal County, Arizona
(EPNG Meter No. 34-176) 200 *

P-3 - SE/4, Section 11, T6S, R6E,
Pinal County, Arizona
(EPNG Meter No. 20-140) 100 *

T-6 - SW/4, Section 19, T7S, R8E,
Pinal County, Arizona
(EFNG Meter No. 20-143) 100 *

T-13 - SW/4, Section 29, T7S, R8E,
Pinal County, Arizona
(EPNG Meter No. 20-147) 125 *

T-15 - SW/4, Section 11, T8S, R8E,
Pinal County, Arizona
(EPNG Meter No. 30-136) 175 *

T-16 - SW/4, Section 33, T6S, R7E,
Pinal County, Arizona
(EPNG Meter No. 20-149) 150 *

S-11 - Lot 7, Section 36, T5S, R7E,
Pinal County, Arizona
(EPNG Meter No. 20-141) 50 *
</TABLE>

-3-

<PAGE> 4
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>
Casa Grande and Maricopa, Arizona
(Continued)
S-25 (Coolidge No. 2) - SW/4,
Section 10, T6S, R7E, Pinal County,
Arizona
(EPNG Meter No. 20-142) 140 *

John Singh No. 1 (T-11) - SW/4,
Section 13, T8S, R8E, Pinal County,
Arizona
(EPNG Meter No. 20-145) 125 *

Transarizona - SW/4, Section 36,
T8S, R3E, Pinal County, Arizona
(EPNG Meter Nos. 2O-321 and
31-503--Temporary Disconnect) 200 *

R-1 - NW/4, Section 25, T6S, R5E,
Pinal County, Arizona
(EPNG Meter 20-110) 175 *

Albert Forbach (R-5) - SW/4,
Section 13, T6S, R5E, Pinal County,
Arizona
(EPNG Meter Nos. 2O-578 and 31-966) 200 *

Clifton and Morenci, Arizona
Clifton "A" - SW/4, Section 31,
T4S, R30E, Greenlee County, Arizona
(EPNG Meter No. 20-100) 100 *

Morenci "B" - SW/4, Section 23,
T4S, R29E, Greenlee County, Arizona
(EPNG Meter No. 20-101) 100 *

Morenci "C" - NE/4, Section 26,
T4S, R29E, Greenlee County, Arizona
(EPNG Meter Nos. 20-102 and 31-655) 100 *

</TABLE>

-4-

<PAGE> 5
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ----------- --------
<S> <C> <C>

Clifton And Morenci, Arizona
(Continued)
Morenci "D" - SW/4, Section 25,
T4S, R30E, Greenlee County, Arizona
(EPNG Meter No. 20-103) 100 *

Coolidge and Florence, Arizona
Coolidge No. 1 - SE/4, Section 16,
T5S, R8E, Pinal County, Arizona
(EPNG Meter No. 30-065) 150 *

Florence City Gate No. 2 - NW/4,
Section 6, T5S, R9E,
Pinal County, Arizona
(EPNG Meter No. 20-105) 200 *

Coolidge No. 3 - SW/4, Section 21,
T5S, R8E, Pinal County, Arizona
(EPNG Meter No. 20-106) 100 *

Federal Prison (S-1) - NE/4,
Section 23, T4S, R9E, Pinal County,
Arizona
(EPNG Meter No. 20-115) 50 *

Florence City Gate No. 1 - SW/4,
Section 15, T4S, R9E, Pinal County,
Arizona
(EPNG Meter No. 30-430) 350 *

Arcota Steel (5-27) - SW/4,
Section 10, T5S, R8E, Pinal County,
Arizona
(EPNG Meter Nos. 20-549 and 30-760) 100 *

Eloy and Redrock, Arizona
Eloy No. 1 - SW/4, Section 33, T7S,
R8E, Pinal County, Arizona
(EPNG Meter No. 20-107) 175 *

Eloy No. 2 - SE/4, Section 24, T7S,
R7E, Pinal County, Arizona
(EPNG Meter No. 20-108) 150 *

</TABLE>

-5-

<PAGE> 6
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

Eloy and Redrock, Arizona
(Continued)
Red Rock City Gate - NE/4, Section
8, T10S, R10E, Pinal County,
Arizona
(EPNG Meter No. 20-345) 150 *

Hayden, Arizona
Hayden City Gate - SE/4, Section
11, T5S, R15E, Gila County,
Arizona
(EPNG Meter No. 20-112) 100 *

Oracle, Arizona
Oracle City Gate - SE/4, Section
35, T8S, R15E, Pinal County,
Arizona
(EPNG Meter 20-319) 175 *

Sacaton, Arizona
Sacaton City Gate - NE/4, Section
22, T4S, R5E, Pinal County,
Arizona
(EPNG Meter 20-472) 100 *

Sam Joy Ranch, Arizona
Sam Joy - NE/4, Section 36, T19N,
R22W, Mohave County, Arizona
(EPNG Meter No. 20-594) 110 *

Sun Space Ranch, Arizona
Sun Space - SW/4, Section 3, T9S,
R14E, Pinal County, Arizona
(EPNG Meter No. 34-719) 350 *

Superior, Arizona
Superior City Gate No. 1 - NW/4,
Section 3, T2S, R12E, Pinal
County, Arizona
(EPNG Meter No. 20-113) 125 *

Superior City Gate No. 2 - NE/4,
Section 4, T2S, R12E, Pinal
County, Arizona
(EPNG Meter No. 20-519) 125 *

</TABLE>

-6-

<PAGE> 7
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>
Tierra Verde, Arizona
Tierra Verde - NE/4, Section 23,
T19N, R22W, Mohave County, Arizona
(EPNG Meter Nos. 20-595 and 34-457) 110 *

Tucson, Arizona, and environs
Anos de Oro - SW/4, Section 3,
T15S, R12E, Pima County, Arizona
(EPNG Meter No. 31-686) 200 *

Arizona Portland Cement - SE/4,
Section 12, T12S, R11E, Pima
County, Arizona
(EPNG Meter No. 30-091) 250 *

Avra Valley - NW/4, Section 10,
T13S, R10E, Pima County, Arizona
(EPNG Meter No. 31-092) 250 *

Caballo Road - NW/4, Section 18,
T15S, R13E, Pima County, Arizona
(EPNG Meter No. 20-529) 250 *

Chaffee, Harry L. - SE/4, Section
33, T11S, R10E, Pima County,
Arizona
(EPNG Meter No. 20-528) 150 *

City Gate East - NW/4, Section 17, Existing
T15S, R15E, Pima County, Arizona pressure, but not
(EPNG Meter No. 30-148) less than 350 *

City Gate West - NW/4, Section 4,
T14S, R13E, Pima County, Arizona
(EPNG Meter No. 30-149) 350 *

Corona de Tucson - NW/4, Section
13, T16S, R15E, Pima County,
Arizona
(EPNG Meter Nos. 20-537 and 350 *
31-661--Temporary Disconnect)

Cortaro City Gate - SW/4, Section
34, T12S, R12E, Pima County,
Arizona
(EPNG Meter No. 30-663) 350 *

</TABLE>

-7-

<PAGE> 8
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>
Tucson, Arizona, and environs
(Continued)
Drexel Heights - SW/4, Section 4,
T15S, R13E, Pima County, Arizona
(EPNG Meter Nos. 31-558 and 300 *
20-198--Temporary Disconnect)

Dunn, W. L. - NW/4, Section 32,
T13S, R11E, Pima County, Arizona
(EPNG Meter Nos. 20-496 and 150 *
31-687--Temporary Disconnect)

Duval - NE/4, Section 25, T15S,
R13E, Pima County, Arizona
(EPNG Meter No. 30-657) 500 *

Esperanza - SE/4, Section 10, T18S,
R12E, Pima County, Arizona
(EPNG Meter No. 31-523) 300 *

Fletcher Ranch Area - NW/4,
Section 19, T15S, R15E, Pima County,
Arizona
(EPNG Meter No. 20-467) 300 *

Handy, C. E. - NW/4, Section 13,
T13S, R12E, Pima County, Arizona
(EPNG Meter No. 20-576) 150 *

Heller, J. R. - SE/4, Section 32,
T13S, R13E, Pima County, Arizona
(EPNG Meter No. 20-574) 150 *

Houghton Road - NW/4, Section 36,
T15S, R15E, Pima County, Arizona
(EPNG Meter No. 30-931) 400 *

Hughes Aircraft - NW/4, Section 29,
T15S, R14E, Pima County, Arizona
(EPNG Meter No. 20-210) 350 *

Hurst - SW/4, Section 27, T11S,
R10E, Pima County, Arizona
(EPNG Meter No. 20-533) 150 *

</TABLE>

-8-

<PAGE> 9
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

Tucson, Arizona, and environs
(Continued)
Lateral No. 8 - SW/4, Section 22,
T11S, R11E, Pima County, Arizona
(EPNG Meter No. 31-344) 300 *

Manville Road - SE/4, Section 14,
T13S, R10E, Pima County, Arizona
(EPNG Meter No. 20-304) 350 *

Marana Air Base - NW/4, Section 26,
T10S, R10E, Pima County, Arizona
(EPNG Meter No. 20-203) 150 *

North Loop Substation - SE/4,
Section 12, T12S, R11E, Pima
County, Arizona
(EPNG Meter No. 31-682) 350 *

Olivas City - SW/4, Section 14,
T15S, R13E, Pima County, Arizona
(EPNG Meter No. 30-297) 200 *

Paradise Estates - NE/4, Section
28, T14S, R13E, Pima County, Arizona
(EPNG Meter Nos. 20-518 and 31-556) 150 *

Phillips, Charles - NW/4, Section
24, T14S, R11E, Pima County,
Arizona
(EPNG Meter Nos. 20-497 and 150 *
31-688--Temporary Disconnect)

Pima Pork - SW/4, Section 27, T15S, Existing
R14E, Pima County, Arizona pressure, but not
(EPNG Meter No. 31-518) less than 350 *

Ruby Star - NW/4, Section 2, T17S,
R12E, Pima County, Arizona
(EPNG Meter No. 20-502) 300 *

Silverbell Mine - SW/4, Section 24,
T12S, R9E, Pima County, Arizona
(EPNG Meter No. 20-498 -- Temporary
Disconnect) 150 *

</TABLE>

-9-

<PAGE> 10
97ZK
EXHIBIT B
(Continued)
<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

Tucson, Arizona, and environs
(Continued)
Trico Electric - NE/4, Section 27,
T11S, R10E, Pima County, Arizona
(EPNG Meter No. 20-532) 150 *

Twin Buttes - SE/4, Section 34,
T17S, R12E, Pima County, Arizona
(EPNG Meter No. 31-524) 300 *

Aguila, Arizona
Aguila - NE/4, Section 28, T6N,
R12W, La Paz County, Arizona
(EPNG Meter No. 30-522) 400 *

Ajo Heights, Arizona
Ajo Heights - NE/4, Section 23,
T12S, R6W, Pima County, Arizona
(EPNG Meter No. 20-003) 100 *

Bisbee, Arizona
Warren-Bisbee City Gate - NW/4,
Section 26, T23S, R24E, Cochise
County, Arizona
(EPNG Meter No. 31-270) 250 *

Bowie, Arizona
Bowie - SE/4, Section 36, T14S, Existing
R28E, Cochise County, pressure, but not
Arizona less than 500 *
(EPNG Meter No. 31-689)

Buckeye, Arizona
Rainbow Valley - NW/4, Section 10, Existing
T3S, R2W, Maricopa County, Arizona pressure, but not
(EPNG Meter No. 30-965) less than 400 *

Chandler, Arizona
Chandler No. 1 - NW/4, Section 33,
T1S, R5E, Maricopa County, Arizona
(EPNG Meter No. 30-029) 300 *

Chandler No. 2 - NW/4, Section 34, Existing
T1N, R5E, Maricopa County, Arizona pressure, but not
(EPNG Meter No. 30-030) less than 230 *

</TABLE>

-10-

<PAGE> 11
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

Chandler, Arizona (Continued)
Chandler No. 3 - SE/4, Section 26,
T2S, R4E, Maricopa County, Arizona
(EPNG Meter Nos. 20-434 and 31-368) 300 *

Dobson Road - NE/4, Section 31,
T1S, R5E, Maricopa County, Arizona
(EPNG Meter No. 20-469) 200 *

Lone Butte - NW/4, Section 6, T2S,
R4E, Maricopa County, Arizona
(EPNG Meter No. 20-409) 220 *

Price, A. E. - NE/4, Section 36,
T1S, R4E, Maricopa County, Arizona
(EPNG Meter Nos. 20-573 and 200 *
31-954--Temporary Disconnect)

West Chandler - SW/4, Section 33,
T1S, R4E, Maricopa County, Arizona
(EPNG Meter No. 34-636) 100 *

Douglas, Arizona
Douglas No. 1 - SW/4, Section 13,
T24S, R27E, Cochise County, Arizona
(EPNG Meter No. 30-023) 100 *

Douglas No. 2 - NE/4, Section 10,
T24S, R27E, Cochise County, Arizona
(EPNG Meter No. 20-005) 90 *

Douglas No. 3 - SW/4, Section 2,
T24S, R27E, Cochise County, Arizona
(EPNG Meter No. 20-006) 90 *

Douglas No. 4 - SE/4, Section 34,
T22S, R27E, Cochise County, Arizona
(EPNG Meter No. 2O-OO7 and 175 *
31-691--Temporary Disconnect)

Cochise County Junior College
NE/4, Section 15, T24S, R26E,
Cochise County, Arizona
(EPNG Meter No. 20-398) 200 *

</TABLE>

-11-

<PAGE> 12
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

Ehrenberg, Arizona
Ehrenberg - SE/4, Section 16, T3N,
R22W, La Paz County, Arizona
(EPNG Meter No. 20-446) 100 *

Elfrida-McNeal, Arizona
Cochise No. 1 - NE/4, Section 36,
T15S, R25E, Cochise County, Arizona
(EPNG Meter No. 20-010) 300 *

Cochise No. 2 - NW/4, Section 36,
T15S, R25E, Cochise County, Arizona
(EPNG Meter Nos. 20-011 and 31-215) 400 *

Cochise No. 3 - NW/4, Section 27,
T15S, R26E, Cochise County, Arizona
(EPNG Meter No. 30-630) 600 *

Elfrida - SE/4, Section 9, T22S, Existing
R26E, Cochise County, Arizona pressure, but not
(EPNG Meter No. 30-916) less than 400 *

McNeal - NW/4, Section 6, T22S,
R26E, Cochise County, Arizona
(EPNG Meter No. 20-383) 350 *

Pearce - SW/4, Section 9, T16S,
R24E, Cochise County, Arizona
(EPNG Meter Nos. 20-333 and 30-640) 400 *

Fort Grant, Arizona
Stewart Farm Area - NE/4, Section
36, T12S, R25E, Cochise County,
Arizona
(EPNG Meter Nos. 30-739-01 and
30-739-02) 500 *

Gila Bend, Arizona
Gila Bend - NE/4, Section 28, T2S,
R4W, Maricopa County, Arizona
(EPNG Meter No. 31-269) 500 *

</TABLE>

-12-

<PAGE> 13
97ZK
EXHIBIT B
(Continued)

<TABLE>

Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

Gila Bend, Arizona (Continued)
Harquahala Valley - NE/4, Section
25, T1N, R9W, Maricopa County,
Arizona
(EPNG Meter No. 30-507) 400 *

Matori-Hilvert - SW/4, Section 23, Existing
T1N, R9W, Maricopa County, Arizona pressure, but not
(EPNG Meter No. 30-667) less than 450 *

Midgett - SE/4, Section 2, T1N,
R10W, Maricopa County, Arizona
(EPNG Meter No. 20-315 -- Temporary
Disconnect) 200 *

Palomas Plains - SW/4, Section 7, Existing
T1N, R9W, Maricopa County, Arizona pressure, but not
(EPNG Meter No. 31-266) less than 500 *

Globe, Arizona
Globe No. 1 - SE/4, Section 26,
T1N, R15E, Gila County, Arizona
(EPNG Meter No. 30-134) 150 *

Globe No. 2 - Lot 5, Section 1,
T1S, R15E, Gila County, Arizona
(EPNG Meter No. 20-019) 100 *

Golden Shores, Arizona
Golden Shores - SE/4, Section 10,
T16N, R21W, Mohave County, Arizona
(EPNG Meter No. 34-789) 50 *

Huachuca City, Arlzona
Huachuca Vista - Lot 4, Section 5,
T21S, R2OE, Cochise County, Arizona
(EPNG Meter No. 2O-240) 100 *

Kearney, Arizona
Kearney - SE/4, Section 11, T5S,
R15E, Gila County, Arizona
(EPNG Meter No. 20-299) 100 *

</TABLE>

-13-

<PAGE> 14
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----

Kearny, Arizona (Continued)
Kennecott Leaching Plant - SW/4,
Section 17, T4S, R14E, Pinal Existing
County, Arizona pressure, but not
(EPNG Meter No. 31-566) less than 275 *

Mammoth, Arizona
Mammoth - SW/4, Section 19, T8S,
R17E, Pinal County, Arizona
(EPNG Meter No. 20-023) 75 *

Miami, Arizona
Hoopes Lime - SE/4, Section 21, Existing
T1N,R15E, Gila County, Arizona pressure, but not
(EPNG Meter Nos. 20-300 and less than 200
30-190--Temporary Disconnect) *

Miami No. 1 - NE/4, Section 30,
T1N, R15E, Gila County, Arizona
(EPNG Meter No. 30-026) 100 *

Miami No. 2 - NW/4, Section 27,
T1N, R15E, Gila County, Arizona
(EPNG Meter No. 31-708) 100 *

Miami No. 4 - SE/4, Section 20,
T1N, R15E, Gila County, Arizona
(EPNG Meter No. 20-021) 100 *

Mobile, Arizona
Mobile Meter Station - NW/4,
Section 28, T4S, R1E, Maricopa
County, Arizona
(EPNG Meter No. 27-422) 400 *

Naco, Arizona
Naco - SW/4, Section 11, T24S,
R24E, Cochise County, Arizona
(EPNG Meter No. 20-016) 100 *

New River, Arizona
New River - SE/4, Section 28, T7N,
R2E, Maricopa County, Arizona
(EPNG Meter No. 20-427) 175 *

</TABLE>

-14-

<PAGE> 15
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

Parker, Arizona
Parker - SW/4, Section 12, T1ON, Existing
R15W, La Paz County, Arizona pressure, but not
(EPNG Meter Nos. 30-863 and less than 500
20-546--Temporary Disconnect) *

Phoenix, Arizona
Glendale City Gate - SW/4, Existing
Section 36, T3N, R1E, pressure, but not
Maricopa County, Arizona less than 400 *
(EPNG Meter No. 30-433)

Guadalupe - NW/4, Section 5, T1S,
R4E, Maricopa County, Arizona
(EPNG Meter No. 30-031) 275 *

Lateral 16 - SW/4, Section 10, T1N,
R2E, Maricopa County, Arizona
(EPNG Meter No. 30-032) 275 *

Lateral 25 - SW/4, Section 7, T1N,
R1E, Maricopa County, Arizona
(EPNG Meter No. 30-249) 275 *

Scottsdale - SE/4, Section 14, T1N, Existing
R4E, Maricopa County, Arizona pressure, but not
(EPNG Meter No. 30-855) less than 300 *

Southern Avenue - NW/4, Section 33,
T1N, R2E, Maricopa County, Arizona
(EPNG Meter No. 31-376) 275 *

The Lakes - SE/4, Section 5, T1S,
R4E, Maricopa County, Arizona
(EPNG Meter Nos. 20-538 and 31-663) 300 *

Arrowhead Ranches - SW/4, Section
16, T4N, R1E, Maricopa County,
Arizona
(EPNG Meter No. 20-475) 425 *

Bell Road - NW/4, Section 6, T3N,
R1E, Maricopa County, Arizona
(EPNG Meter No. 31-656) 400 *

</TABLE>

-15-

<PAGE> 16
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----

<S> <C> <C>
Phoenix, Arizona (Continued)
Capitol Foundry - NW/4, Section 3,
T1S, R4E, Maricopa County, Arizona
(EPNG Meter No. 20-040) 200 *

Laveen - NW/4, Section 9, T1S,
R2E, Maricopa County, Arizona
(EPNG Meter No. 20-024) 100 *

Olive Avenue - NE/4, Section 31,
T3N, R1E, Maricopa County, Arizona
(EPNG Meter No. 31-079) 375 *

South Tempe - NE/4, Section 20,
T1S, R4E, Maricopa County, Arizona
(EPNG Meter Nos. 30-467 and
20-380--Temporary Disconnect) 250 *

Anzoria - SE/4, Section 12, T1S,
R4E, Maricopa County, Arizona
(EPNG Meter No. 20-588) 200 *

North Phoenix (Pinnacle Peak) -
NW/4, Section 9, T4N, R1E,
Maricopa County, Arizona
(EPNG Meter No. 34-227) 500 *

Ventana Lakes - SE/4, Section 19,
T4N, R1E, Maricopa County, Arizona
(EPNG Meter 20-590) 60 *

Foothills Club West - SW/4, Section
6, T2S, R3E, Maricopa County,
Arizona
(EPNG Meter No. 34-790) 175 *

Ray, Arizona
Ray and Sonora - NE/4, Section 4,
T2S, R1E, Pinal County, Arizona
(EPNG Meter No. 20-044) 100 *

St. David, Arizona
St. David - SE/4, Section 33, T18S,
R21E, Cochise County, Arizona
(EPNG Meter No. 20-175) 175 *

</TABLE>

-16-

<PAGE> 17
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>

San Carlos, Arizona
San Carlos - Mile Post 165.5 on
Seller's Globe-Miami 8" Pipeline
on Unsurveyed Lands, San Carlos
Indian Reservation, Gila County,
Arizona
(EPNG Meter No. 20-353) 150 *

San Manuel, Arizona
San Manuel - SW/4, Section 29,
T9S, R17E, Pinal County, Arizona
(EPNG Meter No. 30-038) 100 *

San Simon, Arizona
San Simon - NE/4, Section 21, T14S,
R31E, Cochise County, Arizona
(EPNG Meter No. 20-332) 400 *

Sierra Vista, Arizona
Ft. Huachuca - SW/4, Section 32, Existing
T2OS, R20E, Cochise County, pressure, but not
Arizona less than 420 *
(EPNG Meter No. 31-692)

Somerton, Arizona
Somerton - NW/4, Section 36, T16S,
R21E, Yuma County, Arizona
(EPNG Meter No. 20-382) 200 *

Sunbelt Refinery Company, Arizona
Sunbelt Meter Station - NW/4,
Section 10, T6S, R8E, Pinal
County, Arizona
(EPNG Meter No. 44-227) 250 *

Tombstone, Arizona
Tombstone - SE/4, Section 36, T19S,
R22E, Cochise County, Arizona
(EPNG Meter No. 20-195) 175 *

Wellton, Tacna and Valencia, Arizona
Wellton-Mohawk - SW/4, Section 35, Existing
T7S, R21W, Yuma County, Arizona pressure, but not
(EPNG Meter No. 31-584) less than 375 *

</TABLE>

-17-

<PAGE> 18
97ZK
EXHIBIT B
(Continued)

<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----

<S> <C> <C>
Wenden-Salome, Arizona
Wenden-Salome - NE/4, Section 33, Existing
T6N, R12W, La Paz County, Arizona pressure, but not
(EPNG Meter No. 31-685) less than 500 *

Winkelman, Arizona
Winkelman - NE/4, Section 24,
T5S, R15E, Gila County, Arizona
(EPNG Meter No. 20-046) 90 *

Yuma, Arizona
Arizona Western College - NE/4,
Section 2, T9S, R22W, Yuma
County, Arizona
(EPNG Meter No. 20-385) 100 *

W. J. Small Mill - NE/4, Section
29, T8S, R21W, Yuma County, Arizona
(EPNG Meter No. 20-534) 100 *

Yuma No. 1 - NW/4, Section 34,
T8S, R23W, Yuma County, Arizona
(EPNG Meter No. 30-039) 175 *

Yuma Cogeneration - SE/4, Section Existing
28, T16S, R22E, Yuma County, pressure, but not
Arizona less than 350 *
(EPNG Meter No. 34-793)

Yuma-Mesa - NE/4, Section 1, T9S,
R23W, Yuma County, Arizona
(EPNG Meter No. 31-642) 250 *

Yuma West - SW/4, Section 28, T16S,
R22E, Yuma County, Arizona
(EPNG Meter Nos. 31-922 and 20-570) 250 *

Yuma Foothills Fortuna Heights -
NE/4, Section 31, T8S, R21W, Yuma
County, Arizona
(EPNG Meter No. 20-601) 275 *

</TABLE>

-18-

<PAGE> 19
97ZK
EXHIBIT B
(Continued)
<TABLE>
<CAPTION>
Maximum
Delivery Daily
Pressure(s) Quantity
Delivery Point(s) (psig) (Mcf)
- ----------------- ------ -----
<S> <C> <C>
Taps on El Paso's Transmission Various
Systems Pressures *

Shipper's Transportation
Contract Demand: Not Applicable
</TABLE>

Unless otherwise specified on this exhibit, the Delivery Pressure(s)
for the point(s) listed above shall be the pressure existing from time
to time at the metering facility; however, El Paso reserves the right
to deliver quantities at pressures up to the MAOP of that facility.

* El Paso shall be obligated to deliver hereunder, in accordance with
paragraph 1.3 of the Agreement and Section 4.2 of the General Terms
and Conditions contained in El Paso's Volume No. 1-A Tariff, or
superseding tariff, up to Shipper's full requirements, except for
those Delivery Point(s) which have a specific Maximum Daily Quantity
set forth; provided, however, that El Paso shall be obligated to
deliver hereunder only Shipper's quantities of natural gas received
pursuant to this Agreement in the aggregate at all Delivery Point(s).
El Paso's obligation to deliver up to Shipper's full requirements is
limited by operational and capacity limitations existing from time to
time for the facilities at each Delivery Point; El Paso shall not be
required to construct additional facilities required to make
deliveries of natural gas in quantities exceeding such operational and
capacity limitations, except as otherwise undertaken in El Paso's
Stipulation and Agreement filed at Docket No. RP88-44-000.

A. Effective Date of this Exhibit B: March 1, 1994.

B. Supersedes Exhibit B Effective: September 10, 1993.

SOUTHWEST GAS CORPORATION EL PASO NATURAL GAS COMPANY

By /s/ THOMAS J. ARMSTRONG By /s/ ALVIN W. CLARK
Vice President Vice President

Date 3-24-94 Date 3-1-94

-19-

<PAGE> 1

EL PASO NATURAL GAS COMPANY
SUPPLEMENTAL BENEFITS PLAN
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 13, 1995

SECTION 1 PURPOSES

The purposes of the El Paso Natural Gas Company Supplemental Benefits
Plan (the "Plan") are to attract and retain exceptional executives by providing
retirement or termination benefits to selected officers and key management
employees of outstanding competence. This Plan is effective January 15, 1992.

SECTION 2 DEFINITIONS

For purposes of this Plan, the following terms shall have the meanings
indicated:

2.1 BENEFICIARY

"Beneficiary" means the individual(s) designated by a Participant to
receive benefits from this Plan in the event of his or her death. If no
designated Beneficiary survives the Participant, the Beneficiary shall be the
person or persons in the first of the following classes who survive the
Participant:

(a) spouse at date of death,

(b) descendants, per stirpes,

(d) brothers and sisters,

(e) estate.

2.2 BOARD

"Board" means the Board of Directors of the Company.

2.3 CHANGE IN CONTROL

A "Change in Control" shall be deemed to occur:

(a) if any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") is or becomes the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act),

1
<PAGE> 2
directly or indirectly, of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities;

(b) upon the first purchase of the Company's Common Stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by the Company);

(c) upon the approval by the Company's stockholders of a
merger or consolidation, a sale or disposition of all or substantially
all of the Company's assets or a plan of liquidation or dissolution of
the Company; or

(d) if, during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of the Company cease for any reason to constitute at
least a majority thereof, unless the election or nomination for the
election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period.

Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur if the Company either merges or consolidates with or into another
company or sells or disposes of all or substantially all of its assets to
another company, if such merger, consolidation, sale or disposition is in
connection with a corporate restructuring wherein the stockholders of the
Company immediately before such merger, consolidation, sale or disposition own,
directly or indirectly, immediately following such merger, consolidation, sale
or disposition at least eighty percent (80%) of the combined voting power of
all outstanding classes of securities of the company resulting from such merger
or consolidation, or to which the Company sells or disposes of its assets, in
substantially the same proportion as their ownership in the Company immediately
before such merger, consolidation, sale or disposition.

2.4 CODE

"Code" means the Internal Revenue Code of 1986, as amended.

2.5 COMPANY

"Company" means El Paso Natural Gas Company, a Delaware corporation.

2.6 DEFERRED COMPENSATION PLANS

"Deferred Compensation Plans" means the El Paso Natural Gas Company
Deferred Compensation Plan, 1995 Incentive Compensation Plan, 1995 Omnibus
Compensation Plan and other similar plans maintained by an Employer and such
additional deferred compensation plans as may be designated by the Company from
time to time.

2
<PAGE> 3
2.7 EMPLOYER

"Employer" means El Paso Natural Gas Company, and its subsidiaries.

2.8 MANAGEMENT COMMITTEE

"Management Committee" means the committee appointed pursuant to
Section 3.1 to administer the Plan.

2.9 PARTICIPANT

"Participant" means each individual who participates in the Plan in
accordance with Section 4.

2.10 PENSION PLAN

"Pension Plan" means the El Paso Natural Gas Company Pension Plan and
any pension plans maintained by an Employer.

2.11 RSP

"RSP" means the El Paso Natural Gas Company Retirement Savings Plan.

2.12 SURVIVING SPOUSE

"Surviving Spouse" means the person to whom surviving spouse death
benefits are to be paid pursuant to the terms of the Pension Plan.

SECTION 3 ADMINISTRATION

3.1 MANAGEMENT COMMITTEE

This Plan shall be administered by the Management Committee consisting
of the Chief Executive Officer of the Company and such other senior officers of
the Company as he or she shall designate. Subject to approval by the Board,
the Management Committee shall interpret the Plan, prescribe, amend and rescind
rules relating to it, select eligible Participants, and take all other action
necessary for its administration, which actions shall be final and binding upon
all Participants.

3
<PAGE> 4
SECTION 4 PARTICIPANTS

4.1 PARTICIPANTS

The Management Committee shall determine and designate the officers
and key management employees of an Employer who are eligible to become
Participants and receive benefits under the Plan. Each Participant must be a
selected management or highly compensated employee, or entitled to qualified
plan benefits in excess of the Code Section 415 limitations on benefits. A
Participant who is not a selected management or highly compensated employee
shall be eligible only for the benefits described in Sections 5.1(a) and
5.2(a).

SECTION 5 BENEFITS

5.1 SUPPLEMENTAL PENSION BENEFITS

Upon termination of employment of a Participant, the Company shall pay
or cause to be paid to such Participant (or his or her Surviving Spouse in the
case of his or her death) supplemental pension benefits under this Plan which,
when combined with the amounts he or she is entitled to receive under the
Pension Plan shall be the actuarial equivalent of the retirement, or Surviving
Spouse death benefits, which would have been payable to the Participant or his
or her Surviving Spouse had the Pension Plan's benefit formula been applied:

(a) without regard to the limitations of Section 415 of the
Code (including, without limitation, the maximum benefit payable under
Section 415(b)(1), the actuarial reduction for early retirement of
Section 415(b)(2)(C), the reduction for limited service or
participation of Section 415(b)(5) and the combined limits of Section
415(e)),

(b) by including in the Participant's compensation during the
period for which the Pension Plan benefits are computed, to the extent
not already done so under the Pension Plan, any amount that has not
been taken into account due to the limitations of Section 401(a)(17)
of the Code or due to a reduction of compensation that has occurred
pursuant to an election of the Participant under Section 125 or
Section 401(k) of the Code or under the Deferred Compensation Plans,
and

(c) by taking into account any service granted to the
Participant and any benefit formula adjustments required by an
employment contract.

Supplemental pension benefits under this Section 5 shall be vested and
nonforfeitable to the same extent that the related benefits under the Pension
Plan are vested and nonforfeitable. Notwithstanding the preceding sentence, in
the event of a

4
<PAGE> 5
Change in Control, the supplemental pension benefits computed under this
Section 5.1 shall be fully vested and nonforfeitable immediately.

5.2 SUPPLEMENTAL RSP BENEFITS

Upon termination of employment of a Participant, the Company shall pay
or cause to be paid to such Participant (or his or her Beneficiary in the case
of his or her death) supplemental RSP benefits calculated as described below.
The Company shall periodically determine the amount of any additional Employer
matching contributions that would have been credited to a Participant's account
under the RSP if his or her current election of Participant contributions had
been given effect and no adjustment of such contributions had occurred due to:

(a) The maximum dollar limit under Code Section 415(c)(1)(A)
on RSP annual additions,

(b) the maximum limit under Code Section 401(a)(17) on the
compensation taken into account under the RSP,

(c) any further reductions in the compensation taken into
account under the RSP as a result of any deferrals of compensation
elected by the Participant pursuant to Section 125 or Section 401(k)
of the Code or under the Deferred Compensation Plans.

From time to time, as determined by the Management Committee, the
Company shall allocate amounts equal to such additional Employer matching
contributions to a ledger account (the "Memorandum Account") for the
Participant as of the time or times that such amounts would have been
contributed to the RSP if permitted thereunder. Interest will be credited to
the balance in each Participant's Memorandum Account on a semi-monthly basis or
at such other intervals as may be determined by the Management Committee. From
time to time the Management Committee shall determine the rate to be used in
crediting such interest and in so doing may take into account the earnings,
losses, appreciation or depreciation attributable to any discretionary
investment made pursuant to Section 6.2, and any other factors it deems
appropriate.

Supplemental RSP benefits under this Section 5.2 shall be vested and
nonforfeitable to the same extent that the related benefits under the RSP are
vested and nonforfeitable.

5.3 OTHER SUPPLEMENTAL BENEFITS

Upon the termination of employment of a Participant, the Company shall
pay or cause to be paid to such Participant (or his or her Beneficiary in the
case of his or her death) other supplemental benefits as determined by the
Board and contained in the Participant's employment contract or other agreement
with the Company. Other

5
<PAGE> 6
supplemental benefits under this Section 5.3 shall be vested and nonforfeitable
to the extent provided in the applicable employment contract or agreement.

5.4 TIME AND MANNER OF PAYMENT

The payment of any benefits shall be made as provided below. Such
payment or payments shall constitute a complete discharge of all obligations to
the Participant and his or her Surviving Spouse or Beneficiary under the Plan.

(a) Supplemental Pension Benefit Payments. The amount of the
payments under this subparagraph 5.4(a) shall be determined pursuant
to Section 5.5.

(i) The payment of any supplemental benefits
pursuant to Section 5.1 owed to a Participant (or his or her
Surviving Spouse) shall be made in a lump sum if such
Participant (A) terminates employment with the Employer prior
to attaining age 55, or (B) dies while employed with the
Employer. The payment shall be made as soon as practicable
after the Participant's termination of employment with the
Employer or death.

(ii) In the absence of a valid, irrevocable
election made by a Participant pursuant to the provisions
described in (iii) below, the payment of any supplemental
pension benefits pursuant to Section 5.1 owed to a Participant
who terminates employment with the Employer after attaining
age 55 shall be made in a lump sum as soon as practicable
after the Participant terminates employment with the Employer.
The amount of such payments shall be determined under Section
5.5 below.

(iii) In the case of a benefit payable under
Section 5.1, the Participant may irrevocably elect one of the
forms of payment described in (iv) below. Such election must
be made by the Participant before the later of (A) the date
the Participant attains age 53, or (B) 30 days after becoming
a Participant. For such election to become effective, the
Participant must remain in continuous active employment with
the Employer for at least two years or, in the case of an
election made pursuant to clause (B), such Participant must
remain in continuous active employment for a minimum of six
months following such election. In no event will an election
become effective if the Participant terminates employment with
the Employer prior to attaining age 55, or dies in service.

(iv) A Participant may elect only one of the
following forms of payment:

(A) A lump sum;

6
<PAGE> 7
(B) Monthly payments made over a five-year
period, notwithstanding the earlier death of the
Participant;

(D) Monthly payments made over the remaining life
of the Participant.

In the case of option (A), payment will be made as soon as
practicable after the Participant's termination of employment with the
Employer. In the case of (B), (C) and (D), monthly payments will
commence as soon as practicable after the Participant's termination of
employment with the Employer.

(b) Supplemental RSP Benefit Payments. The payment of any
supplemental RSP benefits pursuant to Section 5.2 owed to a
Participant (or his or her Beneficiary) shall be made in a lump sum as
soon as practicable after the Participant's termination of employment
with the Employer and shall be in an amount equal to the Participant's
Memorandum Account balance at the time of such payment.

(c) Other Supplemental Benefit Payments. The payment of any
other supplemental benefits pursuant to an employment contract or
other agreement with the Company under Section 5.3 shall be made as
provided in such employment contract or other agreement.

5.5 DETERMINATION OF SUPPLEMENTAL PENSION BENEFIT PAYMENTS

The amount of a payment of supplemental pension benefits pursuant to
Section 5.1 to a Participant (or his or her Surviving Spouse in the event of
the Participant's termination of employment on account of death) shall be
determined by calculating the benefit according to the terms of the Pension
Plan as a single life annuity. If another form of payment is payable, the
amount under such form shall be actuarially equivalent to such single life
benefit using the 1984 Unisex Pension Mortality Table set forward one year and
the immediate PBGC interest rate in effect on January 1 of the year in which
the payment becomes distributable (or such other date during such year as the
Management Committee, in its sole discretion, may designate).

7
<PAGE> 8
SECTION 6 GENERAL PROVISIONS

6.1 UNFUNDED OBLIGATION

The supplemental benefits to be paid to Participants and/or their
Surviving Spouses and Beneficiaries pursuant to this Plan are unfunded
obligations of the Company, and shall, until actual payment, continue to be
part of the general funds of the Company. The Company is not required to
segregate any monies from its general funds, or to create any trusts, or to
make any special deposits with respect to these obligations. Beneficial
ownership of any investments, including trust investments, which the Company
may make to fulfill these obligations shall at all times remain in the Company.
Any investments and the creation or maintenance of any trust or memorandum
accounts shall not create or constitute a trust or a fiduciary relationship
between the Management Committee or the Employer and a Participant, or
otherwise create any vested or beneficial interest in any Participant or his or
her Surviving Spouse or Beneficiary or his or her creditors in any assets of
the Employer whatsoever. The Participants and their Surviving Spouses and
Beneficiaries shall have no claim against the Employer for any changes in the
value of any assets which may be invested or reinvested by the Company with
respect to this Plan.

6.2 DISCRETIONARY INVESTMENT BY COMPANY

The Management Committee, after consulting with the actuary employed
by the Company in conjunction with the Pension Plan, may from time to time
direct the investment by the Company of an amount sufficient to meet all or
such portion of the supplemental benefits to be paid under this Plan as the
Management Committee, in its sole discretion, shall determine. The Management
Committee may in its sole discretion determine that all or some portion of the
amount to be invested shall be paid into one or more grantor trusts to be
established by the Employer of which it shall be the Beneficiary, and to the
assets of which it shall become entitled as and to the extent that Participants
(or their Surviving Spouses or Beneficiaries in the case of their deaths)
receive benefits under this Plan. The Management Committee may designate an
investment advisor to direct investments and reinvestments of the funds,
including investments of any grantor trusts hereunder.

6.3 INCAPACITY OF PARTICIPANT, SURVIVING SPOUSE OR BENEFICIARY

If the Management Committee finds that any Participant, Surviving
Spouse or Beneficiary to whom a payment is payable under the Plan is unable to
care for his or her affairs because of illness or accident or is under a legal
disability, any payments due (unless a prior claim therefor shall have been
made by a duly appointed legal representative) at the discretion of the
Management Committee may be paid to the spouse, child, parent or brother or
sister of such Participant, Surviving Spouse or Beneficiary, or to any person
whom the Management Committee has determined has incurred expense for such

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Participant, Surviving Spouse or Beneficiary. Any such payment shall be a
complete discharge of the obligations of the Company under the provisions of
the Plan.

6.4 NONASSIGNMENT

The right of a Participant or his or her Surviving Spouse or
Beneficiary to the payment of any amounts under the Plan may not be assigned,
transferred, pledged or encumbered nor shall such right or other interests be
subject to attachment, garnishment, execution or other legal process.

6.5 NO RIGHT TO CONTINUED EMPLOYMENT

Nothing in the Plan shall be construed to confer upon any Participant
any right to continued employment with the Company or a subsidiary nor
interfere in any way with the right of the Company or a subsidiary to terminate
the employment of such Participant at any time without assigning any reason
therefor.

6.6 WITHHOLDING TAXES

Provision shall be made for the withholding of taxes under the Federal
Insurance Contributions Act at the time of vesting of benefits under the Plan
and appropriate income taxes shall be withheld from payments made to
Participants pursuant to this Plan.

6.7 TERMINATION AND AMENDMENT

The Board may from time to time amend, suspend, or terminate the Plan,
in whole or in part, and if the Plan is suspended or terminated, the Board may
reinstate any or all of its provisions. The Management Committee may amend the
Plan provided that it may not suspend or terminate the Plan, substantially
increase the administrative cost of the Plan or increase the obligations of the
Company, or expand the classification of employees who are eligible to
participate in the Plan. No amendment, suspension or termination may, however,
impair the right of a Participant or his or her Surviving Spouse or Beneficiary
to receive the supplemental benefits accrued prior to the effective date of
such amendment, suspension or termination.

If the Plan is terminated, Participants, Surviving Spouses and
Beneficiaries who have accrued benefits under the Plan as of the date of
termination will receive payment of such benefits at the times specified in the
Plan. Notwithstanding this or any other provision of the Plan to the contrary,
this Plan may not be terminated so long as the Pension Plan and/or RSP remain
in effect.

6.8 ERISA EXEMPTION

The portion of this Plan providing benefits in excess of the
limitations of Section 415 of the Code is intended to qualify for exemption
from the Employee Retirement

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Income Security Act of 1974 ("ERISA") as an unfunded excess benefit plan under
Sections 3(36) and 4(b)(5) of ERISA. The portion of this Plan providing
benefits in excess of the limitation of Section 401(a)(17) of the Code and
other supplemental benefits is intended to qualify for exemption from Parts II,
III and IV of ERISA as a plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.

6.9 APPLICABLE LAW

The Plan shall be construed and governed in accordance with the laws
of the State Texas.

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IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of January 13, 1995.

EL PASO NATURAL GAS COMPANY

By JOEL RICHARDS
----------------------------
Title: Senior Vice President

ATTEST:

By STACY J. JAMES
- ----------------------------
Title: Corporate Secretary

<PAGE> 1

EL PASO NATURAL GAS COMPANY
DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 13, 1995

SECTION 1 PURPOSE

1.1 PURPOSE

The purpose of the El Paso Natural Gas Company Deferred Compensation
Plan (the "Plan") is to permit the executives and certain key management
employees of El Paso Natural Gas Company (the "Company") and its subsidiaries
to defer all or some part of their Eligible Compensation (as defined below) in
order for the Company to attract and retain exceptional personnel.

SECTION 2 ADMINISTRATION

2.1 MANAGEMENT COMMITTEE

The Plan shall be administered by a management committee (the
"Management Committee") consisting of the Chief Executive Officer and such
other senior officers as he or she shall designate. Subject to the
Compensation Committee (the "Compensation Committee") of the Company's Board of
Directors (the "Board"), the Management Committee shall interpret the Plan,
prescribe, amend and rescind rules relating to it, select eligible
Participants, and take all other actions necessary for its administration,
which actions shall be final and binding upon all Participants. No member of
the Management Committee shall vote on any matter that pertains solely to
himself or herself.

SECTION 3 PARTICIPANTS

3.1 PARTICIPANTS

The Management Committee shall determine and designate the executives
and key management employees of the Company and its subsidiaries who are
eligible to defer Eligible Compensation under the Plan (the "Participants").
Members of the Board who are full-time executives of the Company shall be
eligible to participate in the Plan.

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<PAGE> 2

SECTION 4 DEFERRALS

4.1 ELIGIBLE COMPENSATION

For purposes of this Plan the term "Eligible Compensation" means the
following:

a. "Base Salary" is the Participant's base salary being paid for
the year or partial year, exclusive of bonuses or other forms
of cash incentive compensation for the year;

b. "Cash Incentive Award" is an annual incentive award made under
the Company's Incentive Compensation Plan or an annual cash
incentive award under a similar annual incentive plan
maintained by the Company or a subsidiary of the Company, as
applicable;

c. Payment for "Performance Units" which are granted pursuant to
the Company's Omnibus Compensation Plan or other similar
performance unit plan maintained by the Company or a
subsidiary of the Company, as applicable; and

d. Compensation otherwise payable pursuant to the terms of other
plans which the Company or its subsidiaries may from time to
time maintain.

4.2 DEFERRED PAYMENT OF BASE SALARY

Prior to January 1 of any year (or, with respect to individuals who
first become Participants during a year, on or before the date on which they
become Participants) each Participant may elect to have the payment of all or a
portion of his or her Base Salary for the year beginning January 1 (or, if
later, so much of the year as commences on the day following the date on which
the individual becomes a Participant) deferred until his or her retirement,
death, Permanent Disability (as defined below), resignation or termination of
employment with the Company and its subsidiaries, or until any other specified
time that is determined by the Management Committee. The minimum amount that
may be so deferred is $1,000. The election shall be irrevocable and shall be
made on a form prescribed by the Management Committee. The election shall apply
only to that calendar year or partial year. If a Participant has not made an
election, the Base Salary paid to him or her for that year shall be paid in
accordance with the Company's normal payroll practices.

4.3 DEFERRED PAYMENT OF CASH INCENTIVE AWARDS

Each Participant may, at such time as the Management Committee may
determine, in its sole discretion, elect to have the payment of all or a
portion of his or her Cash Incentive Award, if any, for the year deferred until
the Participant's retirement, death, Permanent Disability, resignation or
termination of employment with the Company and its subsidiaries, or until any
other specified time that is determined by the Management Committee. The
minimum amount that may be so deferred is $1,000. The election shall be
irrevocable and shall be made on a form prescribed by the Management Committee.
The election shall apply only to that year. If a

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<PAGE> 3
Participant has not made an election, any Cash Incentive Award granted to the
Participant for that year shall be paid pursuant to the terms of the applicable
annual incentive compensation plan under which the award was made.

4.4 DEFERRED PAYMENT FOR PERFORMANCE UNITS

Each Participant may, prior to the vesting of Performance Units and in
a manner prescribed by the Management Committee, elect to have all or a portion
of the lump-sum cash payment payable pursuant to the terms of the applicable
omnibus compensation plan or other performance unit plan with respect to vested
Performance Units deferred until the Participant's retirement, death, Permanent
Disability, resignation or termination of employment with the Company and its
subsidiaries or until any other specified time that is determined by the
Management Committee. The minimum amount that may be so deferred is $1,000.
The election shall be irrevocable and shall be made on a form prescribed by the
Management Committee. The election shall apply only to the Performance Units
that may become vested with respect to that year. If a Participant has not
made an election, any cash payment for Performance Units shall be paid pursuant
to the applicable provisions of the plan under which the Performance Units were
granted.

4.5 DEFERRED PAYMENT FOR AMOUNTS AWARDED UNDER OTHER PLANS

Participants may be allowed to irrevocably elect to defer, in the sole
discretion of the Management Committee, amounts that would otherwise be
currently payable under any other plan maintained or which may be maintained by
the Company or its subsidiaries. Any such deferrals must be made pursuant to
the terms of such other plans.

4.6 MEMORANDUM ACCOUNT

The Company shall establish a ledger account (the "Memorandum
Account"), for each Participant who has elected to defer the payment of any
part of his or her Eligible Compensation, for the purpose of reflecting the
Company's obligation to pay the deferred amount as provided in Section 4.8.
Interest shall accrue on the deferred amount to the date of distribution, and
shall be credited to the Memorandum Account at the end of each calendar quarter
or such other periods as may be determined by the Management Committee. The
Management Committee shall determine the rate of interest periodically and in
so doing may take into account the earnings, losses, appreciation or
depreciation attributable to any discretionary investments made pursuant to
Section 5.2.

4.7 PRIOR DEFERRALS

Compensation which was deferred by a Participant under the Company's
Incentive Compensation Plan or Omnibus Compensation Plan or a similar plan
maintained by the Company's former parent company shall be paid by the Company
pursuant to the terms of this Plan.

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<PAGE> 4
4.8 PAYMENT OF DEFERRED ELIGIBLE COMPENSATION

Upon the retirement, death, Permanent Disability, resignation,
designated payment date, or termination of employment of a Participant who has
elected to defer any portion of his or her Eligible Compensation for any year,
the Company shall pay to such Participant (or his or her Beneficiary in the
case of his or her death) an amount equal to the balance of his or her
Memorandum Account, plus interest (at a rate determined by the Management
Committee pursuant to Section 4.6) on the outstanding account balance to the
date of distribution and subject to approval of the Management Committee, as
follows:

(a) a lump sum cash payment; or

(b) in periodic installments over a period of years to be
determined by the Management Committee in its sole discretion.

Payment of deferred amounts shall commence or be made in the month
following the Participant's retirement, death, Permanent Disability,
resignation, termination of employment or designated payment date.

4.9 ACCELERATION OF PAYMENT OF DEFERRED ELIGIBLE COMPENSATION

The Management Committee, in its sole discretion, may accelerate the
payment of the unpaid balance of a Participant's Memorandum Account in the
event of the Participant's retirement, death, Permanent Disability, resignation
or termination of employment, or upon its determination that the Participant
(or his or her Beneficiary in the case of his or her death) has incurred a
severe financial hardship. The Management Committee in making its
determination may consider such factors and require such information as it
deems appropriate.

SECTION 5 GENERAL PROVISIONS

5.1 UNFUNDED OBLIGATION

The deferred amounts to be paid to Participants pursuant to this Plan
are unfunded obligations of the Company. The Company is not required to
segregate any monies from its general funds, to create any trusts, or to make
any special deposits with respect to this obligation. Beneficial ownership of
any investments, including trust investments, which the Company may make to
fulfill this obligation shall at all times remain in the Company. Any
investments and the creation or maintenance of any trust or memorandum accounts
shall not create or constitute a trust or a fiduciary relationship between the
Management Committee or the Company and a Participant, or otherwise create any
vested or beneficial interest in any Participant or his or her Beneficiary or
his or her creditors in any assets of the Company whatsoever. The Participants
shall have no claim against the Company for any changes in the value of any
assets which may be invested or reinvested by the Company with respect to this
Plan.

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<PAGE> 5
5.2 DISCRETIONARY INVESTMENT BY COMPANY

The Management Committee may direct that an amount equal to the
deferred amounts shall be invested by the Company as the Management Committee,
in its sole discretion, shall determine. The Management Committee may, in its
sole discretion, determine that all or some portion of an amount equal to the
deferred amounts shall be paid into one or more grantor trusts to be
established by the Company of which it shall be the beneficiary, and to the
assets of which it shall become entitled as and to the extent that Participants
receive benefits under this Plan. The Management Committee may designate an
investment advisor to direct investments and reinvestments of the funds,
including investments of any grantor trusts hereunder.

5.3 BENEFICIARY

The term "Beneficiary" shall mean the person or persons to whom
payments are to be made pursuant to the terms of the Plan in the event of the
Participant's death. The designation shall be on a form provided by the
Management Committee, executed by the Participant, and delivered to the
Committee. A Participant may change his Beneficiary designation at any time.
A designation by a Participant under the Burlington Resources Inc. Deferred
Compensation Plan shall remain in effect under this Plan unless it is revoked
or changed under this Plan. If no Beneficiary is designated, the designation
is ineffective, or in the event the Beneficiary dies before the balance of the
Memorandum Account is paid, the balance shall be paid to the Participant's
spouse or lineal descendants, to the Participant's estate (unless the
Management Committee for a given year has designated investment in an annuity,
in which case the payment options selected by the Participant with respect
thereto shall govern).

5.4 PERMANENT DISABILITY

A Participant shall be deemed to have become disabled for purposes of
this Plan if the Management Committee finds, upon the basis of medical evidence
satisfactory to it, that the Participant is totally disabled, whether due to
physical or mental condition, so as to be prevented from engaging in further
employment by the Company or any of its subsidiaries and that such disability
will be permanent and continuous during the remainder of his or her life.

5.5 INCAPACITY OF PARTICIPANT OR BENEFICIARY

If the Management Committee finds that any Participant or Beneficiary
to whom a payment is payable under the Plan is unable to care for his or her
affairs because of illness or accident or is under a legal disability, any
payment due (unless a prior claim therefore shall have been made by a duly
appointed legal representative) at the discretion of the Committee, may be paid
to the spouse, child, parent or brother or sister of such Participant or
Beneficiary or to any person whom the Committee has determined has incurred
expense for such Participant or Beneficiary. Any such payment shall be a
complete discharge of the obligations of the Company under the provisions of
the Plan.

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<PAGE> 6
5.6 NONASSIGNMENT

The right of a Participant or Beneficiary to the payment of any
amounts under the Plan may not be assigned, transferred, pledged or encumbered
nor shall such right or other interests be subject to attachment, garnishment,
execution or other legal process.

5.7 NO RIGHT TO CONTINUED EMPLOYMENT

Nothing in the Plan shall be construed to confer upon any Participant
any right to continued employment with the Company or a subsidiary, nor
interfere in any way with the right of the Company or a subsidiary to terminate
the employment of such Participant at any time without assigning any reason
therefor.

5.8 WITHHOLDING TAXES

5.9 TERMINATION AND AMENDMENT

The Board or the Compensation Committee may from time to time amend,
suspend or terminate the Plan, in whole or in part, and if the Plan is
suspended or terminated, the Board or the Compensation Committee may reinstate
any or all of its provisions. The Management Committee may amend the Plan
provided that it may not suspend or terminate the Plan, substantially increase
the administrative cost of the Plan or the obligations of the Company, or
expand the classification of employees who are eligible to participate in the
Plan. No amendment, suspension or termination may impair the right of a
participant or his designated beneficiary to receive the deferred compensation
benefit accrued prior to the effective date of such amendment, suspension or
termination.

5.10 APPLICABLE LAW

The Plan shall be construed and governed in accordance with the laws
of the State of Texas.

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<PAGE> 7
IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of January 13, 1995.

EL PASO NATURAL GAS COMPANY

By JOEL RICHARDS
----------------------------
Title: Senior Vice President

ATTEST:

By STACY J. JAMES
- ----------------------------
Title: Corporate Secretary

<PAGE> 1

EL PASO NATURAL GAS COMPANY
RETIREMENT INCOME PLAN FOR NON-EMPLOYEE DIRECTORS
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 13, 1995

SECTION 1 PURPOSE

1.1 The purpose of the El Paso Natural Gas Company Retirement
Income Plan for Non-Employee Directors (the "Plan") is to attract and retain
highly qualified individuals who are not officers of El Paso Natural Gas
Company (the "Company") or its subsidiaries to serve as members of the
Company's Board of Directors (the "Board").

SECTION 2 ADMINISTRATION

2.1 The Plan shall be administered by a management committee (the
"Management Committee") consisting of the Chief Executive Officer of the
Company and such other senior officers of the Company as he or she shall
designate. Subject to approval by the Board, the Management Committee shall
interpret the Plan, prescribe, amend and rescind rules relating to it from time
to time as it deems proper and in the best interests of the Company, and to
take any other action necessary for the administration of the Plan. Any
decision or interpretation adopted by the Management Committee shall be final
and conclusive and shall be binding upon all Participants.

SECTION 3 PARTICIPATION

3.1 All Directors who are not active or retired officers or
employees of the Company or its subsidiaries shall be Participants in this
Plan.

SECTION 4 RETIREMENT COMPENSATION

4.1 Each Participant who serves on the Board shall receive an
annual payment in the amount equal to the annual retainer then being paid
active members of the Board for the number of years of Service (as defined
below) on the Board. Such annual retainer is the retainer for Board membership
only and does not include any other retainers or fees for additional services,
such as the retainer received by a committee chairman or meeting fees.
Payments shall commence in January of the year following the year in which the
Participant ceases to be a Director.

4.2 If a Director dies prior to retirement, his or her beneficiary
shall receive, in a lump sum as soon as practicable, fifty percent of the
payments that would have been paid if he or she had retired at the date of his
or her death. If a Participant dies after retiring, his or her beneficiary
shall receive, in a lump sum as soon as practicable, fifty percent of the
balance of the remaining payments.

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4.3 "Service" shall include the number of years, including
fractions thereof, a Participant serves on the Board of Directors.

4.4 In the event of a Change in Control, amounts payable under
this Plan shall be paid in a lump sum to a Participant or a Participant's
Beneficiary within 30 days after the date of the Change in Control. For
purposes of this Plan a "Change in Control" shall be deemed to occur: (a) if
any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities; (b) upon the first purchase of the
Common Stock pursuant to a tender or exchange offer (other than a tender or
exchange offer made by the Company); (c) upon the approval by the Company's
stockholders of a merger or consolidation, a sale, or disposition of all or
substantially all the Company's assets or a plan of liquidation or dissolution
of the Company; or (d) if, during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof, unless the election or
nomination for the election by the Company's stockholders of each new director
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who were directors at the beginning of the period.

SECTION 5 GENERAL PROVISIONS

5.1 The compensation to be paid to the Participants pursuant to
this Plan is an unfunded obligation of the Company. Nothing herein contained
shall require the Company to segregate any monies from its general funds, or to
create any trusts, or to make any special deposits with respect to this
obligation. Beneficial ownership of any funds invested or reinvested, including
the income or profits therefrom, which the Company may make to fulfill its
obligations under this Plan shall at all times remain in the Company. A
Participant's right to receive payment under this Plan may not be assigned,
transferred, pledged or encumbered. The Management Committee may direct that an
amount equal to all or a portion of the compensation accrued under this Plan
shall be invested by the Company as the Management Committee, in its sole
discretion, shall determine. The Management Committee may, in its sole
discretion, determine that all or a portion of an amount equal to the
compensation accrued under this Plan shall be paid into one or

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<PAGE> 3
more grantor trusts to be established by the Company of which it shall be the
beneficiary, and to the assets of which it shall become entitled as and to the
extent that Participants receive benefits under the Plan. The Management
Committee may designate an investment advisor to direct investments and
reinvestments of the funds.

5.2 The Board may from time to time amend, suspend or terminate
this Plan, in whole or in part, and if the Plan is suspended or terminated, the
Board may reinstate any or all of its provisions. The Management Committee may
amend the Plan provided that it may not suspend or terminate the Plan or
substantially increase the administrative cost of the Plan or the obligations
of the Company. No amendment, suspension or termination may impair the right
of a Participant or his designated beneficiary to receive the benefit accrued
prior to the effective date of such amendment, suspension or termination.

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IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of January 13, 1995.

EL PASO NATURAL GAS COMPANY

By JOEL RICHARDS
----------------------------
Title: Senior Vice President

ATTEST:

By STACY J. JAMES
- ----------------------------
Title: Corporate Secretary

<PAGE> 1

EL PASO NATURAL GAS COMPANY
KEY EXECUTIVE SEVERANCE PROTECTION PLAN
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 13, 1995

WHEREAS, the Board of Directors of El Paso Natural Gas Company
recognizes that the threat of an unsolicited takeover of the Company may occur
which can result in significant distractions of its key executive personnel
because of the uncertainties inherent in such a situation; and

WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of its key
executive personnel in the event of a threat of a Change in Control of the
Company and to ensure their continued dedication and efforts in such event
without undue concern for their personal financial and employment security.

NOW, THEREFORE, in order to fulfill the above purposes, the following
plan has been developed and is hereby adopted.

SECTION 1 ESTABLISHMENT OF PLAN

As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the El Paso Natural Gas Company Key Executive
Severance Protection Plan (the "Plan") as set forth in this document.

SECTION 2 DEFINITIONS

As used herein the following words and phrases shall have the
following respective meanings unless the context clearly indicates otherwise.

2.1 BASE SALARY

The amount a Participant is entitled to receive as wages or salary on
an annualized basis, calculated immediately prior to a Change in Control.

2.2 BENEFITS PROTECTION TRUST

The El Paso Natural Gas Company Benefits Protection Trust.

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<PAGE> 2
2.3 BOARD

The Board of Directors of El Paso Natural Gas Company.

2.4 BONUS AMOUNT

The term "Bonus Amount" shall mean an amount equal to the Executive
Employee's maximum bonus which becomes payable to the Executive Employee in the
event of a "change in control" under the Company's 1995 Incentive Compensation
Plan (or any other bonus plan or program then in effect) but excluding any
single or one time "spot" award, for the fiscal year in which a Change in
Control occurs had he or she continued in employment until the end of such
fiscal year, assuming all performance targets and goals (if applicable) had
been fully met by the Company and by the Executive Employee, as applicable, for
such year.

2.5 CAUSE

The Company may terminate the Executive Employee's employment for
"Cause." A termination for Cause is a termination evidenced by a resolution
adopted in good faith by two-thirds (2/3) of the Board that the Executive
Employee (i) willfully and continually failed to substantially perform his or
her duties with the Company (other than a failure resulting from the Executive
Employee's incapacity due to physical or mental illness) which failure
continued for a period of at least thirty (30) days after a written notice of
demand for substantial performance has been delivered to the Executive Employee
specifying the manner in which the Executive Employee has failed to
substantially perform, or (ii) willfully engaged in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of the Executive Employee's employment
shall be for Cause as set forth in clause (ii) above until (A) there shall have
been delivered to the Executive Employee a copy of a written notice setting
forth that the Executive Employee was guilty of the conduct set forth in clause
(ii) and specifying the particulars thereof in detail, and (B) the Executive
Employee shall have been provided an opportunity to be heard by the Board (with
the assistance of the Executive Employee's counsel if the Executive Employee so
desires). No act, nor failure to act, on the Executive Employee's part shall
be considered "willful" unless he or she has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his or her action or
failure to act was in the best interest of the Company. Notwithstanding
anything contained in this Plan to the contrary, no failure to perform by the
Executive Employee after Notice of Termination is given by the Executive
Employee shall constitute Cause.

2.6 CHANGE IN CONTROL

A "Change in Control" shall be deemed to occur:

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<PAGE> 3
(a) if any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of El Paso Natural Gas Company representing twenty percent
(20%) or more of the combined voting power of El Paso Natural Gas
Company's then outstanding securities;

(b) upon the first purchase of El Paso Natural Gas Company's
Common Stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by El Paso Natural Gas Company);

(c) upon the approval by El Paso Natural Gas Company
stockholders of a merger or consolidation, a sale or disposition of
all or substantially all of El Paso Natural Gas Company's assets or a
plan of liquidation or dissolution of El Paso Natural Gas Company; or

(d) if, during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of El Paso Natural Gas Company cease for any reason to
constitute at least a majority thereof, unless the election or
nomination for the election by El Paso Natural Gas Company's
stockholders of each new director was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period.

Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur if El Paso Natural Gas Company either merges or consolidates
with or into another company or sells or disposes of all or
substantially all of its assets to another company, if such merger,
consolidation, sale or disposition is in connection with a corporate
restructuring wherein the stockholders of El Paso Natural Gas Company
immediately before such merger, consolidation, sale or disposition
own, directly or indirectly, immediately following such merger,
consolidation, sale or disposition at least eighty percent (80%) of
the combined voting power of all outstanding classes of securities of
El Paso Natural Gas Company resulting from such merger or
consolidation, or to which El Paso Natural Gas Company sells or
disposes of its assets, in substantially the same proportion as their
ownership in El Paso Natural Gas Company immediately before such
merger, consolidation, sale or disposition.

2.7 COMPANY

El Paso Natural Gas Company and the Operating Companies.

2.8 EFFECTIVE DATE

The date the Plan is approved by the Board, or such other date as the
Board shall designate in its resolution approving the Plan, or any amendment or
restatement thereof.

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2.9 EXECUTIVE EMPLOYEE

All employees of the Company employed in an Executive Salary Grade
Position.

2.10 GOOD REASON

"Good Reason" shall mean the occurrence of any of the following events
or conditions:

(a) a change in the Executive Employee's status, title,
position or responsibilities (including reporting responsibilities)
which, in the Executive Employee's reasonable judgment, represents a
substantial reduction of the status, title, position or
responsibilities as in effect immediately prior thereto; the
assignment to the Executive Employee of any duties or responsibilities
which, in the Executive Employee's reasonable judgment, are
inconsistent with such status, title, position or responsibilities; or
any removal of the Executive Employee from or failure to reappoint or
reelect him or her to any of such positions, except in connection with
the termination of his or her employment for Cause, Permanent
Disability, as a result of his or her death, or by the Executive
Employee other than for Good Reason;

(b) a reduction in the Executive Employee's annual base salary;

(c) the requirement by the Company that the Executive Employee
(without the consent of the Executive Employee) to be based at any
place outside a thirty-five (35) mile radius of his or her place of
employment prior to a Change in Control, except for reasonably
required travel on the Company's business which is not materially
greater than such travel requirements prior to the Change in Control;

(d) the failure by the Company to (i) continue in effect any
material compensation or benefit plan, program or practice in which
the Executive Employee was participating at the time of the Change in
Control, including, but not limited to, the Company's 1995 Omnibus
Compensation Plan, the Pension Plan, the Supplemental Benefits Plan,
the 1995 Incentive Compensation Plan, the Deferred Compensation Plan,
and the Retirement Savings Plan, with any amendments and restatements
of such plans made prior to such Change in Control, or (ii) provide
the Executive Employee with compensation and benefits at least equal
(in terms of benefit levels and/or reward opportunities) to those
provided for under each employee benefit plan, program and practice as
in effect immediately prior to the Change in Control (or as in effect
following the Change in Control, if greater);

(e) any material breach by the Company of any provision of
this Plan; or

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(f) any purported termination of the Executive Employee's
employment for Cause by the Company which does not otherwise comply
with the terms of this Plan as in effect at the time of a Change in
Control.

2.11 NOTICE OF TERMINATION

"Notice of Termination" shall mean a notice which indicates the
specific provisions in this Plan relied upon as the basis for any termination
of employment and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive
Employee's employment under the provision so indicated. No purported
termination of employment shall be effective without such Notice of
Termination.

2.12 OPERATING COMPANIES

Subsidiary companies of the Company designated by the Company.

2.13 PARTICIPANT

An Executive Employee who meets the eligibility requirements of
Section 3.

2.14 PERMANENT DISABILITY

A Participant shall be deemed to have become permanently disabled for
purposes of this Plan if the Chief Executive Officer of the Company (or, in the
case of a determination with respect to the Chief Executive Officer, the Board)
finds, upon the basis of medical evidence satisfactory to him or her, that the
Participant is totally disabled, whether due to physical or mental condition,
so as to be prevented from engaging in further employment by the Company and
that such disability will be permanent and continuous during the remainder of
his or her life.

2.15 SEVERANCE BENEFIT

The benefit payable in accordance with Section 4 of the Plan.

SECTION 3 ELIGIBILITY

3.1 PARTICIPATION

Each Executive Employee shall automatically be entitled to be a
Participant in the Plan as of the Effective Date, or his or her date of hire by
the Company, whichever occurs later.

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3.2 DURATION OF PARTICIPATION

A Participant shall cease to be a Participant in the Plan if he or she
ceases to be an Executive Employee at any time prior to a Change in Control or,
if his or her employment is terminated following a Change in Control under
circumstances where he or she is not entitled to a Severance Benefit under the
terms of this Plan. A Participant entitled to payment of a Severance Benefit
shall remain a Participant in the Plan until the full amount of the Severance
Benefit has been paid to him or her.

SECTION 4 SEVERANCE BENEFITS

4.1 RIGHT TO SEVERANCE BENEFIT

(a) A Participant shall be entitled to receive from the
Company a Severance Benefit in the amount provided in Section 4.2 if
(i) a Change in Control has occurred and (ii) within two years
thereafter, the Participant's employment with the Company terminates
for any reason, except that notwithstanding the provisions of this
paragraph (a), no benefits under this Plan will be payable should the
Participant's termination of employment be (A) for Cause, (B) by
reason of Permanent Disability, (C) voluntarily initiated by the
Participant for other than Good Reason, or (D) by reason of the
Participant's death.

(b) Notwithstanding any other provision of the Plan, the sale,
divestiture or other disposition of an Operating Company (or part
thereof), shall not be deemed to be a termination of employment of
employees employed by such Operating Company, and such employees shall
not be entitled to benefits from the Company under this Plan as a
result of such sale, divestiture, or other disposition, or as a result
of any subsequent termination of employment, provided the provisions
of Section 7.1(b) have been satisfied.

4.2 AMOUNT OF SEVERANCE BENEFIT

If a Participant's employment is terminated in circumstances entitling
him or her to a Severance Benefit as provided in Section 4.1, such Participant
shall be entitled to the following benefits:

(a) the Company shall pay to the Participant, as severance pay
and in lieu of any further salary for periods subsequent to the
Termination Date (as specified in Section 5.2), in a single payment
(without any discount for accelerated payment), an amount in cash
equal to three (3) times the sum of (A) the Participant's Base Salary
and (B) the Bonus Amount;

(b) for a period of eighteen (18) months subsequent to the
Participant's termination of employment, the Company shall at its
expense continue on behalf of

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the Participant and his or her dependents and beneficiaries, the basic
life insurance, flexible spending account, medical and dental benefits
which were being provided to the Participant at the time of
termination of employment. The benefits provided in this Subsection
4.2(b) shall be no less favorable to the Participant, in terms of
amounts and deductibles and costs to him or her, than the coverage
provided the Participant under the plans providing such benefits at
the time Notice of Termination is given. The Company's obligation
hereunder to provide the foregoing benefits shall terminate if the
Participant obtains health benefits coverage under a subsequent
employer's benefit plans. The Company also shall pay a lump sum equal
to the amount of any additional income tax payable by the Participant
and attributable to the benefits provided under this subparagraph (b)
at the time such tax is imposed upon the Participant;

(c) the Company shall pay a lump sum pension supplement
payable under the terms of the El Paso Natural Gas Company
Supplemental Benefit Plan ("Supplemental Plan") equal to a pension
calculated by adding three years of additional credited pension
service to the Participant's existing credited pension service as of
the termination of the Participant's employment, and then by
calculating the Participant's pension in accordance with the formula
provided in the pension plan. A Participant who is entitled to a
pension supplement under any other agreement between such Participant
and the Company may elect, in writing, to receive the pension
supplement provided under this subparagraph (c) in lieu of, but not in
addition to, such other pension supplement as may be provided by such
other agreement. In the event that no election is made, the
Participant shall forego his or her right to receive the pension
supplement provided under this subparagraph;

(d) the Company shall transfer to the Participant, all right,
title or other ownership interest it may have in any automobile, if
any, then being provided by the Company for use by the Participant;

(e) the Company shall transfer to the Participant, any right,
title or ownership in any club memberships provided by the Company;

The amounts provided for in Section 4.2(a), (c), (d) and (e) shall be
paid or transferred within thirty (30) days after the Executive Employee's
termination of employment. The Participant shall not be required to mitigate
the amount of any payment provided for in this Plan by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Executive Employee in any
subsequent employment.

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<PAGE> 8

SECTION 5 TERMINATION OF EMPLOYMENT

5.1 WRITTEN NOTICE REQUIRED

Any purported termination of employment, either by the Company or by
the Participant, shall be communicated by written Notice of Termination to the
other.

5.2 TERMINATION DATE

In the case of the Participant's death, the Participant's Termination
Date shall be his her date of death. In all other cases, the Participant's
Termination Date shall be the date specified in the Notice of Termination
subject to the following:

(a) If the Participant's employment is terminated by the
Company for Cause or due to Permanent Disability, the date specified
in the Notice of Termination shall be at least thirty (30) days from
the date the Notice of Termination is given to the Participant,
provided that in the case of Permanent Disability the Participant
shall not have returned to the full-time performance of his or her
duties during such period of at least thirty (30) days; and

(b) If the Participant terminates his or her employment for
Good Reason, the date specified in the Notice of Termination shall not
be more than sixty (60) days from the date the Notice of Termination
is given to the Company.

SECTION 6 ADDITIONAL PAYMENTS BY THE COMPANY

6.1 GROSS-UP PAYMENT

In the event it shall be determined that any payment or distribution
of any type by the Company to or for the benefit of the Participant, whether
paid or payable or distributed or distributable pursuant to the terms of this
Plan or otherwise (the "Total Payments"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then the Participant shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Participant of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax,
imposed upon the Gross-Up Payment, the Participant retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.
Payment of the Gross-Up Payment shall be made in accordance with Section 6.3.

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6.2 DETERMINATION BY ACCOUNTANT

All determinations required to be made under this Section 6, including
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
shall be made by the independent accounting firm retained by the Company on the
date of Change in Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Participant within 15
business days of the date of termination, if applicable, or such earlier time
as is requested by the Company. If the Accounting Firm determines that no
Excise Tax is payable by the Participant, it shall furnish the Participant with
an opinion that he or she has substantial authority not to report any Excise
Tax on his or her federal income tax return. Any determination by the
Accounting Firm shall be binding upon the Company and the Participant. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 6.3 and the Participant thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Participant.

6.3 NOTIFICATION REQUIRED

The Participant shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Participant
knows of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The Participant
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Participant in writing prior
to the expiration of such period that it desires to contest such claim, the
Participant shall:

(a) give the Company any information reasonably requested by
the Company relating to such claim,

(b) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,

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<PAGE> 10
(d) permit the Company to participate in any proceedings
relating to such claim, provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and shall
indemnify and hold the Participant harmless, on an after-tax basis,
for any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 6.3, the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Participant to pay the tax claimed and sue for a refund, or contest
the claim in any permissible manner, and the Participant agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Participant to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to
the Participant, on an interest-free basis and shall indemnify and
hold the Participant harmless, on an after-tax basis, from any Excise
Tax or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Participant with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Participant shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.

6.4 REPAYMENT

If, after the receipt by the Participant of an amount advanced by the
Company pursuant to Section 6.3, the Participant becomes entitled to receive
any refund with respect to such claim, the Participant shall (subject to the
Company's complying with the requirements of Section 6.3) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Participant of an amount advanced by the Company pursuant to Section 6.3, a
determination is made that the Participant shall not be entitled to any refund
with respect to such claim and the Company does not notify the Participant in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof the amount of Gross-Up Payment required to
be paid.

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SECTION 7 SUCCESSORS TO COMPANY

7.1 SUCCESSORS AND SALE OF OPERATING COMPANIES

(a) Successors

This Plan shall bind any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company, in the same manner
and to the same extent that the Company would be obligated under this
Plan if no succession had taken place. In the case of any transaction
in which a successor would not by the foregoing provision or by
operation of law be bound by this Plan, the Company shall require such
successor expressly and unconditionally to assume and agree to perform
the Company's obligations under this Plan, in the same manner and to
the same extent that the Company would be required to perform if no
such succession had taken place.

(b) Sale of Operating Companies

In the event that one or more Operating Companies (or part thereof)
are sold, divested, or otherwise disposed of by the Company subsequent
to a Change in Control, the Company shall require such purchaser or
acquirer, as a condition precedent to such purchase or acquisition, to
assume, and agree to perform the Company's obligations under the Plan,
in the same manner, and to the same extent that the Company would be
required to perform if no such acquisition or purchase had taken
place. In such circumstances, the purchaser or acquirer shall be
solely responsible for providing any benefits payable under this Plan
to such employees.

SECTION 8 AMENDMENT AND PLAN TERMINATION

8.1 AMENDMENT AND TERMINATION

This Plan may be terminated or amended in any respect by resolution
adopted by two-thirds (2/3) of the Board, provided, however, that no such
amendment or termination of the Plan may be made if such amendment or
termination would adversely affect any right of an Executive Employee who
became a Participant prior to the later of (a) the date of adoption of any such
amendment or termination, or (b) the effective date of any such amendment or
termination, and provided further, that the Plan no longer shall be subject to
amendment, change, substitution, deletion, revocation or termination in any
respect whatsoever following a Change in Control.

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8.2 FORM OF AMENDMENT

The form of any amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the
Company, certifying that the amendment or termination has been approved by the
Board.

SECTION 9 MISCELLANEOUS

9.1 INDEMNIFICATION

If, after a Change in Control, a Participant institutes any legal
action in seeking to obtain or enforce, or is required to defend in any legal
action the validity or enforceability of, any right or benefit provided by this
Plan, the Company will pay for all actual legal fees and expenses as they are
incurred by such Participant.

9.2 EMPLOYMENT STATUS

This Plan does not constitute a contract of employment or impose on
the Company any obligation to retain the Participant as an Employee, to change
the status of the Participant's employment as an Executive Employee, or to
change any employment policies of the Company.

9.3 VALIDITY AND SEVERABILITY

The invalidity or unenforceability of any provision of the Plan shall
not affect the validity or enforceability of any other provision of the Plan,
which shall remain in full force and effect, and any prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

9.4 GOVERNING LAW; CHOICE OF FORUM

The validity, interpretation, construction and performance of the Plan
shall in all respects be governed by the laws of the State of Texas. A
Participant shall be entitled to enforce the provisions of this Plan in any
state or federal court located in the State of Texas, in addition to any other
appropriate forum.

9.5 PAYMENT TO BENEFITS PROTECTION TRUST

Notwithstanding any other provision of the Plan, the Company shall not
be required to make any payment to a Participant under the terms of this Plan
if such payment is otherwise made to the Participant by the Benefits Protection
Trust in accordance with the provisions of said Benefits Protection Trust.

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IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of January 13, 1995.

EL PASO NATURAL GAS COMPANY

By JOEL RICHARDS
----------------------------
Title: Senior Vice President

ATTEST:

By STACY J. JAMES
- ----------------------------
Title: Corporate Secretary

<PAGE> 1

EL PASO NATURAL GAS COMPANY
DIRECTOR CHARITABLE AWARD PLAN
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 13, 1995

SECTION 1 ESTABLISHMENT, PURPOSE, AND DURATION

1.1 ESTABLISHMENT OF THE PLAN

El Paso Natural Gas Company, a Delaware corporation (hereinafter
referred to as the "Company"), hereby establishes a charitable award program
for Directors (as defined below), to be known as the "El Paso Natural Gas
Company Director Charitable Award Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan provides for the contribution
by the Company of one million dollars ($1,000,000) on behalf of each Director,
to Charitable Organizations (as defined below)of each Director's choice subject
to the terms and provisions of this Plan.

Upon approval by the Board of Directors of the Company, the Plan shall
be amended and restated as of January 13, 1995. The term "Effective Date"
shall mean January 15, 1992.

1.2 PURPOSE OF THE PLAN

The purpose of the Plan is to promote the mutual interest of the
Directors and the Company to support worthy Charitable Organizations, and to
enhance the positive image of the Company.

The Plan is further intended to acknowledge the service of the
Company's Directors, and to aid the Company in its ability to attract,
motivate, and retain the services of highly qualified Directors, upon whose
judgment, interest, and special effort the continued successful operation of
the Company largely is dependent.

1.3 DURATION OF THE PLAN

The Plan commenced on the Effective Date and shall remain in effect
until terminated by the Board of Directors.

SECTION 2 DEFINITIONS AND CONSTRUCTION

Whenever used in this Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized.

(a) "Board" or "Board of Directors" means the Board of Directors
of the Company.

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(b) "Change in Control" of the Company shall be deemed to have
occurred if the conditions set forth in any one or more of the following
paragraphs shall have been satisfied:

(i) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) being or becoming the "beneficial owner"
(as defined in Rule 13d-3 of the Exchange Act) directly or indirectly,
of securities of the Company representing twenty percent (20%) or more
of the combined voting power of the then outstanding securities of the
Company,

(ii) the first purchase of the Company's Common Stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by the Company),

(iii) the approval by the Company's stockholders of a
merger or consolidation, a sale or disposition of all or substantially
all of the Company's assets or a plan of liquidation or dissolution of
the Company, or

(iv) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of the Company ceasing for any reason to constitute at
least a majority thereof, unless the election or nomination for the
election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period.

Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur if the Company either merges or consolidates with or into
another company or sells or disposes of all or substantially all of
its assets to another company, if such merger, consolidation, sale or
disposition is in connection with a corporate restructuring wherein
the stockholders of the Company immediately before such merger,
consolidation, sale or disposition own, directly or indirectly,
immediately following such merger, consolidation, sale or disposition
at least eighty percent (80%) of the combined voting power of all
outstanding classes of securities of the company resulting from such
merger or consolidation, or to which the Company sells or disposes of
its assets, in substantially the same proportion as their ownership in
the Company immediately before such merger, consolidation, sale or
disposition.

(c) "Charitable Award" means, individually or collectively, a
donation to be made to a Charitable Organization chosen by a Participant
pursuant to the terms of Section 5 herein.

(d) "Charitable Organization" means any public or private
charitable organization in the United States or its possessions which is a
corporation, trust,

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community chest, fund, foundation, or association, provided contributions to
such entity are deductible under Section 170(c) of the Code.

(e) "Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute, and the Treasury Regulations promulgated thereunder.

(f) "Committee" means the management committee as specified in
Section 3 herein.

(g) "Company" means El Paso Natural Gas Company, a Delaware
corporation, or any successor thereto as provided in Section 8.1 herein.

(h) "Director" means any individual who is a member of the Board
of Directors of the Company.

(i) "Effective Date" means the date on which the Plan became
effective, as designated by the Board of Directors pursuant to Section 1.1
herein.

(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor Act thereto.

(k) "Participant" means a Director of the Company who has been
notified of his or her eligibility to participate in this Plan, pursuant to
Section 4.2 herein.

(l) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act, and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).

(m) "Qualified Donee" means any Charitable Organization which has
not been denied status as a Qualified Donee by the Board of Directors, pursuant
to Section 5.2 herein.

SECTION 3 ADMINISTRATION

3.1 MANAGEMENT COMMITTEE

The Plan shall be administered by the Board of Directors and a
management committee (the "Committee") consisting of the Chief Executive
Officer and such other senior officers as he or she shall designate. The
Committee shall interpret the Plan, prescribe, amend, and rescind rules
relating to it, select eligible Participants, and take all other actions
necessary for its administration. No member of the Committee shall vote on any
matter that pertains solely to himself or herself.

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3.2 DECISIONS BINDING

All determinations and decisions made by the Board of Directors and/or
the Committee pursuant to the administration of this Plan shall be final,
conclusive, and binding on all parties, including the Company, its
stockholders, employees, Participants, and their estates and beneficiaries.

SECTION 4 ELIGIBILITY AND PARTICIPATION

4.1 ELIGIBILITY

Persons who are elected to serve on the Board of Directors on or after
the Effective Date shall be eligible to participate in this Plan on the second
anniversary of the date of their election to the Board; provided, however, that
such Directors must have continuously served on the Board throughout such
two-year period.

4.2 ACTUAL PARTICIPATION

Subject to the terms and conditions of this Plan, the Committee shall
notify each eligible Director of his or her eligibility to participate in this
Plan as soon as practicable following the date that each such Director first
becomes eligible for participation.

SECTION 5 CHARITABLE AWARDS

5.1 SIZE OF CHARITABLE AWARDS

Each Participant shall have the right to designate Qualified Donees to
which an aggregate of up to one million dollars ($1,000,000) shall be donated
by the Company on behalf of the Participant. Participants may designate up to
four Qualified Donees; provided, however, that the total funds which shall be
donated by the Company on behalf of any one Participant shall not exceed one
million dollars ($1,000,000).

5.2 DESIGNATION OF DONEES

Each Participant shall nominate Charitable Organizations to receive
Charitable Awards by providing formal notice of such nominations to the
Committee. Following the receipt of the nominations of organizations, the
Committee will approve the nomination or recommend to the Board that the
nomination be denied. The Board of Directors, by majority vote, shall have the
authority to deny status as a Qualified Donee to any organization nominated by
a Participant. In the event one or more organizations nominated by a
Participant for status as a Qualified Donee are denied such status by the Board
of Directors, the Participant may nominate additional organizations to receive
a Charitable Award, subject to the approval of the Board of Directors (or the
Committee, as

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applicable). If a Participant fails to designate a Qualified Donee, the
Charitable Award to be made on behalf of such Participant shall lapse.

All nominations of organizations to receive Charitable Awards shall be
made on a Charitable Award Nomination Form, which shall specify the following:
(i) the name of the nominated organization; (ii) the amount desired by the
Participant to be donated to the organization; (iii) the name under which the
donation is to be made; and (iv) any other terms and provisions deemed
necessary by the Board of Directors or the Committee. Each completed
Charitable Award Nomination Form shall be submitted to the Senior Vice
President, Human Resources and Administration.

5.3 CHANGES IN DESIGNATIONS OF DONEES

Participants may, at any time, nominate an alternative Charitable
Organization to receive a Charitable Award (subject to Committee approval, as
described in Section 5.2 herein). In addition, Participants may, at any time,
request a change in the amount of money to be donated to each such Qualified
Donee, or a change in the name under which the donation is to be made, subject
to approval (as described in Section 5.2 herein).

Changes in the designation of Qualified Donees or in any other terms
applicable to the Charitable Awards, shall be made on a Charitable Award
Nomination Form, which shall specify the new or additional organizations
nominated to receive a Charitable Award, the amount of money to be donated in
the name of the Participant to each Qualified Donee, and any other terms or
provisions deemed necessary by the Board of Directors or the Committee.

5.4 SECURITY FOR DONATIONS

The Company's obligations under this Plan may be unfunded and
unsecured promises to donate money in the future. No Qualified Donee shall
have the right to a donation solely by virtue of the designation of such
Qualified Donee by a Participant. Following the death of a Participant, the
rights of each Qualified Donee designated by the Participant shall be those of
a general unsecured creditor of the Company.

5.5 CHANGE IN CONTROL

Notwithstanding any other provision of this Plan, upon a Change in
Control of the Company, the commitment of the Company to donate the Charitable
Awards to the Qualified Donees shall become an irrevocable obligation.
Following a Change in Control, the Board of Directors may not amend, modify, or
terminate the Charitable Awards of the Participants in a way which would
decrease the value of the donations. In addition, following a Change in
Control, the Participants shall retain the right to change the designations of
their Qualified Donees, pursuant to Section 5.3 herein, without Board or
Committee review.

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5.6 PAYMENT OF CHARITABLE AWARDS

As soon as practicable following the death of a Participant, the
Company shall donate the Charitable Awards to the Qualified Donees, in the
amounts requested by the Participant and approved by the Board of Directors or
Committee. Such payment shall be made in one lump sum. No contribution will
be made under this Plan to an otherwise Qualified Donee if the payment thereof
will result in the receipt of property or other direct economic benefits to the
Company or its subsidiaries or to the Participants or to the family members of
any Participant.

SECTION 6 AMENDMENT, MODIFICATION, AND TERMINATION

Except as set forth in Section 5.5, the Board may from time to time
amend, suspend, or terminate the Plan, in whole or in part, and if the Plan is
suspended or terminated, the Board may reinstate any or all of its provisions.
The Committee may amend the Plan provided that it may not suspend or terminate
the Plan or substantially increase the administrative cost of the Plan or the
obligations of the Company.

SECTION 7 INDEMNIFICATION

Each individual who is or shall have been a member of the Committee,
or of the Board, shall be indemnified and held harmless by the Company against
and from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to act
under this Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf.

The foregoing right in indemnification shall not be exclusive of any
other rights of indemnification to which such individuals may be entitled under
the Company's Restated Certificate of Incorporation or By-laws, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.

SECTION 8 MISCELLANEOUS

8.1 SUCCESSORS

All obligations of the Company under this Plan shall be binding on any
successor to the Company, whether the existence of such successor is the result
of a direct or

6
<PAGE> 7
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.

8.2 NONTRANSFERABILITY

The right to nominate organizations to receive Charitable Awards under
this Plan shall be personal to Participants, and may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated.

8.3 GENDER AND NUMBER

Except where otherwise indicated by the context, any masculine term
used herein also shall include the feminine; the plural shall include the
singular, and the singular shall include the plural.

8.4 SEVERABILITY

In the event any provision of this Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of this Plan, and this Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

8.5 GOVERNING LAW

To the extent not preempted by Federal law, this Plan, and all
agreements hereunder, shall be construed in accordance with and governed by the
laws of the State of Texas.

7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of January 13, 1995.

EL PASO NATURAL GAS COMPANY

By JOEL RICHARDS
----------------------------
Title: Senior Vice President

ATTEST:

By STACY J. JAMES
- ----------------------------
Title: Corporate Secretary

<PAGE> 1
[EL PASO NATURAL GAS LETTERHEAD]

January 13, 1995

Mr. William A. Wise
Chairman, President and CEO
El Paso Natural Gas Company
100 North Stanton Street
El Paso, Texas 79901

Dear Bill:

This letter relates to shares of restricted stock held by you now or
in the future under either the El Paso Natural Gas Company Omnibus Compensation
Plan dated as of January 1, 1992, or the El Paso Natural Gas Company 1995
Omnibus Compensation Plan (the "Omnibus Plans"), and as to which restrictions
have not lapsed on any applicable date (the "Omnibus Restricted Shares"). This
letter also relates to stock options issued under either of the Omnibus Plans
and which have not become exercisable on any applicable date (the
"Unexercisable Options").

Finally, this letter also relates to additional shares of Restricted
Stock to be received by you under the El Paso Natural Gas Company 1995
Incentive Compensation Plan (the "1995 Incentive Plan"). (Capitalized terms
not separately defined have the meaning given in the 1995 Incentive Plan.) You
may receive such Restricted Stock as an award under Section 7.1(a)(ii) of the
1995 Incentive Plan. You will also have the right under Section 7.2 of the
Incentive Plan to elect to have an additional portion of your annual bonus paid
in shares of Restricted Stock. In both cases, the number of shares of
Restricted Stock set aside for your account will include additional shares of
Restricted Stock as described in Section 7.1(c) of the 1995 Incentive Plan.
Hereafter, all such shares of Restricted Stock acquired by you under the 1995
Incentive Plan shall be referred to as your "Incentive Plan Restricted Shares."
Section 8.5 of the 1995 Incentive Plan provides certain terms relating to the
lapse of restrictions on Restricted Stock in the event a participant's
employment terminates. However, Section 8.5 also provides that the Plan
Administrator may accelerate or defer the lapse of restrictions under that
Section.

In order to reduce uncertainty to you in connection with the Omnibus
Plans or the 1995 Incentive Plan, as well as to encourage you to elect payment
of annual bonus in the form of shares of Restricted Stock under Section 7.2 of
the 1995 Incentive Plan,
<PAGE> 2
Mr. William A. Wise
January 13, 1995
Page 2

the Company hereby agrees that upon termination of your employment due to (i)
death, (ii) retirement, (iii) Permanent Disability, (iv) any other involuntary
termination without Cause, or (v) any voluntary termination for "Good Reason"
as that term is defined in the El Paso Natural Gas Company Key Executive
Severance Protection Plan, as Amended and Restated Effective as of January 13,
1995, except that "Good Reason" shall also include loss of your position as
Chairman of the Board of Directors otherwise than as a result of a termination
of your employment for Cause, or voluntary termination without Good Reason,

(a) the "Restriction Period" as defined in each of the Omnibus Plans
shall lapse, and all restrictions on any Omnibus Restricted Shares
shall end,

(b) any Unexercisable Option shall become fully exercisable for a
period of thirty-six months from the applicable date, unless such
Option by its terms expires sooner, and no restrictions shall be
placed under either of the Omnibus Plans on the shares acquired
therewith, other than such restrictions as may be reasonably
determined by the Company to be necessary to comply with applicable
laws, and

The special provisions set forth above have been specifically approved
by the Company's Compensation Committee of the Board of Directors, acting as
the Plan Administrator under the Omnibus Plans and the 1995 Incentive Plan.

Please indicate your understanding of and agreement to the terms set
forth above.

EL PASO NATURAL GAS COMPANY

By: /s/ BEN F. LOVE
Ben F. Love, Chairman,
Compensation Committee
Understood and Agreed:

/s/ WILLIAM A. WISE By: /s/ JOEL RICHARDS III
William A. Wise Joel Richards III
Senior Vice President

<PAGE> 1

EL PASO NATURAL GAS COMPANY

EARNINGS PER COMMON SHARE
FORM 10-K, EXHIBIT 11

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Income available for common stock dividends......... $89,613,000 $91,673,000 $76,326,000
Fully diluted average common shares outstanding..... 37,022,444 37,662,381 36,419,044
Fully diluted earnings per common share............. $ 2.4205 $ 2.4341 $ 2.0958
</TABLE>

Outstanding stock options of EPG are common stock equivalents but are
excluded from primary earnings per common share due to immateriality.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Total primary earnings per common share............. $ 2.4463 $ 2.4635 $ 2.1173
Fully diluted earnings per common share............. $ 2.4205 $ 2.4341 $ 2.0958
Percent dilution.................................... 1.0547% 1.1934% 1.0154%
</TABLE>

<PAGE> 1

EL PASO NATURAL GAS COMPANY

RATIO OF EARNINGS TO FIXED CHARGES
Form 10-K, Exhibit 12
(Dollars in millions)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing
operations $90 $92 $76 $89 $83
Income taxes (benefit) 58 59 47 52 45
---- ---- ---- ---- ----
Income (loss) from continuing
operations before income taxes 148 151 123 141 128
Interest and debt expense 76 71 68 74 89
Interest component of rent 3 3 3 2 2
---- ---- ---- ---- ----
Total Earnings Available for
Fixed Charges $227 $225 $194 $217 $219
==== ==== ==== ==== ====

Fixed Charges (a)
Interest and debt expense 76 71 68 74 89
Interest component of rent 3 3 3 2 2
---- ---- ---- ---- ----
Total Fixed Charges $79 $74 $71 $76 $91
==== ==== ==== ==== ====
Ratio of Earnings to Fixed
Charges (b) 2.87x 3.04x 2.73x 2.86x 2.41x
</TABLE>

________________

(a) Fixed charges consist of interest, exclusive of interest on rate
refunds, plus interest capitalized and a portion of operating lease
rent expense deemed to be representative of interest.

(b) The ratio of earnings to combined fixed charges and preferred and
preference stock dividend requirements for the periods presented would
be the same as the ratio of earnings to fixed charges since EPG has no
outstanding preferred stock or preference stock and therefore, no
dividend requirements.

<PAGE> 1

EXHIBIT 21

PARENT AND SUBSIDIARIES

The following is a list of El Paso Natural Gas Company and its
subsidiaries as of December 31, 1994:

<TABLE>
<CAPTION>
State or
Place of
Company (1) Incorporation
----------- -------------
<S> <C>
El Paso Natural Gas Company
El Paso Acquisition Company Delaware
The El Paso Company Delaware
El Paso Development Company Delaware
Ex-Mission Ranches, Inc. Delaware
El Paso Energy Development Company (2) Delaware
EPED Holding Company Delaware
EPED Ecuador Company Delaware
EPED Samalayuca A Company Delaware
El Paso Field Services Company Delaware
El Paso Gas Marketing Company (3) Delaware
El Paso Mojave Pipeline Co. (4) Delaware
El Paso Natural Gas Foundation Texas
El Paso Natural Gas Service Company Delaware
EPNG Mojave, Inc. (4) Texas
Mt. Franklin Insurance Ltd. Bermuda

</TABLE>

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

(1) The names under which such companies do business are as listed unless
otherwise footnoted.

(2) Also qualified to do business in New York under the name "El Paso Energy
Development Company Inc."

(3) Also qualified to do business in New York under the name "El Paso Gas
Marketing Company, Inc." In addition, the Company conducts business in
Texas under the name listed above and under the name "El Paso Pecos
Company."

(4) Mojave Pipeline Operating Company is a wholly owned subsidiary of Mojave
Pipeline Company, a Texas general partnership, in which each of El
Paso Mojave Pipeline Co. and EPNG Mojave, Inc. own a 50% interest.

<PAGE> 1

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement
of El Paso Natural Gas Company on Form S-3 and the four registration statements
of El Paso Natural Gas Company on Form S-8 (File No. 1-2700) of our report dated
January 20, 1995, on our audits of the consolidated financial statements and
financial statement schedules of El Paso Natural Gas Company as of December 31,
1994 and 1993, and for the years ended December 31, 1994, 1993 and 1992, which
report is included in the Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

El Paso, Texas
January 23, 1995

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 27,636
<SECURITIES> 0
<RECEIVABLES> 131,650
<ALLOWANCES> 0<F1>
<INVENTORY> 34,666
<CURRENT-ASSETS> 299,159
<PP&E> 1,865,897
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 2,331,771
<CURRENT-LIABILITIES> 452,055
<BONDS> 779,097
<COMMON> 112,053
0
0
<OTHER-SE> 597,583
<TOTAL-LIABILITY-AND-EQUITY> 2,331,771
<SALES> 0
<TOTAL-REVENUES> 869,872
<CGS> 0
<TOTAL-COSTS> 647,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,850
<INCOME-PRETAX> 148,076
<INCOME-TAX> 58,463
<INCOME-CONTINUING> 89,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,613
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 0
<FN>
<F1>Not separately identified in the Consolidated Financial Statements or Notes
thereto.
</FN>

</TABLE>