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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 9, 2003
(Date of Earliest Event Reported: June 26, 2003)
EL PASO NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-2700 74-0608280
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
El Paso Building
1001 Louisiana Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 420-2600
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Item 5. Other Events
On June 26, 2003, El Paso Corporation, our parent company,
announced that it had executed definitive settlement agreements to
resolve the principal litigation and claims against it relating to
the sale or delivery of natural gas and/or electricity to or in
the Western United States. Parties to the settlement agreements
include private class action litigants in California; the governor
and lieutenant governor of California; the attorneys general of
California, Washington, Oregon and Nevada; the California Public
Utilities Commission; the California Electricity Oversight Board;
the California Department of Water Resources; Pacific Gas and
Electric Company, Southern California Edison Company, five
California municipalities and six non-class private plaintiffs. We
are a party to these definitive settlement agreements, and as
such, will bear a portion of the costs and obligations of the
settlements, as discussed more fully below.
These definitive settlements were in addition to a structural
settlement announced on June 5, 2003 where we agreed to provide
structural relief to the settling parties. In the structural
settlement, we agreed to do the following:
o Subject to the conditions in the settlement, provide 3.29
billion cubic feet per day of primary firm pipeline
capacity on our EPNG system to California delivery points
during a five year period from the date of settlement, and
not add any firm incremental load to our EPNG system that
would prevent it from satisfying its obligation to provide
this capacity;
o Construct a new $173 million, 320 million cubic feet per
day (MMcf/d), Line 2000 Power-up expansion project, and
forgo recovery of the cost of service of this expansion
until EPNG's next rate case before the Federal Energy
Regulatory Commission (FERC);
o Clarify the rights of Northern California shippers to
recall some of EPNG's system capacity (Block II capacity)
to serve markets in PG&E Corp's service area; and
o Bar any of our affiliated companies from obtaining
additional firm capacity on our EPNG pipeline system
during a five year period from the effective date of the
settlement.
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In connection with this structural settlement, a Stipulated
Judgment was filed with the United States District Court for the
Central District of California. This Stipulated Judgment provides
for the enforcement of some of the obligations contained in the
structural settlement.
In the definitive settlement agreements on June 26, 2003, we
agreed to the following terms:
o We admitted to no wrongdoing;
o We will make cash payments totaling $93.5 million for the
benefit of the parties to the definitive settlement
agreements subsequent to the signing of these agreements.
This amount represents the originally announced $100
million cash payment less credits for amounts that have
been paid to other settling parties;
o We agreed to pay amounts equal to the proceeds from the
issuance of approximately 26.4 million shares by El Paso
Corporation of El Paso Corporation common stock on behalf
of the settling parties. In this transaction, El Paso will
sell its common stock and provide the proceeds from the
issuance to us (through an equity contribution, an
inter-company loan repayment or a combination of both) to
satisfy this obligation. If this issuance is completed
prior to final approval of the settlement agreements, the
proceeds from any sale will be deposited into escrow for
the benefit of the settling parties until final approval
is received;
o We will eliminate the originally announced 20-year
obligation to pay $22 million per year in cash by
depositing $250 million for the benefit of the settling
parties within 180 days of the signing of the definitive
settlement agreements. This prepayment eliminates any
collateral that might have been required on the
$22-million per year payment over the next 20 years.
The definitive settlement agreements announced June 26, 2003
modify the initial agreement in principle reached in March of this
year in certain respects. As a result, we expect to update our
initial accrual for the incremental cost of the definitive
settlement agreements. Incremental charges will occur due to the
increase in El Paso's share price since the original accrual for
the obligation to issue approximately 26.4 million shares, and due
to the
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prepayment of the $22-million per year obligation. We currently
expect an additional pre-tax charge of approximately $146 million
during the second quarter of 2003.
El Paso Merchant Energy, an affiliate of El Paso Corporation was
also a party to the settlement agreements and, along with El Paso
Corporation, is obligated to provide a total of $1,027 million (on
an undiscounted basis) under these agreements. Of this amount, $2
million will be paid by El Paso upon final approval of the
definitive settlement agreements, $125 million represents a
contractual price discount that will be realized over the
remaining 30-month life of an existing power contract between
El Paso Merchant Energy and one of the settling parties, and $900
million will be paid by El Paso Merchant Energy in installments
over the next 20 years. The long- term payment obligation is a
direct obligation of El Paso Corporation and El Paso Merchant
Energy and will be supported by collateral posted by El Paso's
affiliates in amounts specified by the settlement agreements. We
have guaranteed the payment of these obligations in the event
El Paso and El Paso Merchant Energy fail to pay these amounts.
The definitive settlement agreements are subject to approval by
the California Superior Court for San Diego County and the
structural settlement is subject to the approval by the Federal
Energy Regulatory Commission ("FERC"). In June 2003, in
anticipation of the execution of the definitive settlement
agreements, El Paso, the Public Utilities Commission of the State
of California, Pacific Gas & Electric Company, Southern California
Edison Company, and the City of Los Angeles filed the structural
settlement described above with the FERC in resolution of certain
specific proceedings before that agency. We currently expect final
approval of these settlement agreements in late 2003 or early
2004.
Item 7. Financial Statements and Exhibits
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO NATURAL GAS COMPANY
By: /s/ Greg G. Gruber
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Greg G. Gruber
Senior Vice President, Chief Financial
Officer, Treasurer and Director
(Principal Financial Officer)
Date: July 9, 2003
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