ANR PIPELINE CO - 10-Q Quarterly Report

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

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FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-7320

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

DELAWARE 38-1281775
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

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

Telephone Number: (713) 420-2600

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

Common Stock, par value $1 per share. Shares outstanding on November 13,
2002: 1,000

ANR PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED
DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.
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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ANR PIPELINE COMPANY

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

See accompanying notes.

1

ANR PIPELINE COMPANY

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

See accompanying notes.

2

ANR PIPELINE COMPANY

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

See accompanying notes.

3

ANR PIPELINE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

We prepared the Quarterly Report on Form 10-Q under the rules and
regulations of the United States Securities and Exchange Commission. Because
this is an interim period filing presented using a condensed format, it does not
include all of the disclosures required by generally accepted accounting
principles. You should read it along with our 2001 Annual Report on Form 10-K
which includes a summary of our significant accounting policies and other
disclosures. The financial statements as of September 30, 2002, and for the
quarters and nine months ended September 30, 2002 and 2001, are unaudited. We
derived the balance sheet as of December 31, 2001, from the audited balance
sheet filed in our Form 10-K. In our opinion, we have made all adjustments, all
of which are of a normal, recurring nature (except for the items discussed in
Notes 3 and 4 below), to fairly present our interim period results. Due to the
seasonal nature of our business, information for interim periods may not
indicate the results of operations for the entire year. In addition, prior
period information presented in these financial statements includes
reclassifications which were made to conform to the current period presentation.
These reclassifications have no effect on our previously reported net income or
stockholder's equity.

Our accounting policies are consistent with those discussed in our Form
10-K, except as discussed below:

Asset Impairments

On January 1, 2002, we adopted Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 changed the accounting requirements related to when an asset
qualifies as held for sale or as a discontinued operation and the way in which
we evaluate assets for impairment. It also changes accounting for discontinued
operations such that we can no longer accrue future operating losses in these
operations. We applied SFAS No. 144 in accounting for our sale of the Typhoon
offshore natural gas gathering pipeline, which met all of the requirements to be
treated as an asset held for sale in the third quarter of 2002. See Note 2 for
further information.

2. DIVESTITURES

In July 2002, El Paso Corporation (El Paso) entered into a letter of intent
with El Paso Energy Partners, L.P., an affiliate, to sell our Typhoon offshore
natural gas gathering pipeline. The Typhoon pipeline consists of a 35-mile,
20-inch natural gas pipeline that originates on the Chevron/BHP "Typhoon"
platform in the Green Canyon area of the Gulf of Mexico and extends to our
Patterson system in Eugene Island Block 371. We stopped depreciating the Typhoon
asset beginning in July 2002 since this asset qualifies as held for sale. We
also reclassified the asset being sold, which has a book value of approximately
$50 million, to current assets as of September 30, 2002, since we anticipate
that it will be sold by the end of 2002. We do not expect to incur a material
gain or loss upon completion of the sale.

3. MERGER-RELATED COSTS

During the quarter and nine months ended September 30, 2001, we incurred
merger-related costs of $6 million and $180 million associated with El Paso's
merger with The Coastal Corporation (now known as El Paso CGP Company, and our
parent company) as follows:

Employee costs of $62 million consisted of severance, retention and
transition costs, including pension and postretirement benefits settled and
curtailed under existing benefit plans for severed employees and early

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retirees that occurred as a result of El Paso's merger-related workforce
reduction and consolidation. Following the merger, approximately 900 full-time
positions were eliminated through a combination of early retirements and
terminations. Pension and post-retirement benefits were accrued on the merger
date and will be paid over the applicable benefit periods of the terminated and
retired employees. All other employee-related costs were expensed as incurred
and were paid in the first and second quarters of 2001. Our business integration
costs of $95 million are primarily associated with relocating our headquarters
from Detroit, Michigan, to Houston, Texas, and include lease related costs,
write-offs of leasehold improvements, asset impairments and other charges
related to combining our operations with El Paso. Merger-related asset
impairments relate to several pipeline projects that were discontinued following
the merger with El Paso. Other costs include other miscellaneous merger-related
charges. These items were expensed as incurred.

4. EXTRAORDINARY ITEMS

As a result of El Paso's 2001 merger with Coastal, Deepwater Holdings Inc.,
our unconsolidated affiliate, was required, under a Federal Trade Commission
order, to dispose of its interests in the Stingray pipeline and U-T Offshore
pipeline systems, and we were required to dispose of our 16 percent interest in
the Iroquois pipeline system. Net proceeds from these sales were approximately
$65 million, and we recognized an extraordinary loss of approximately $2
million, net of income taxes, including a third quarter 2001 charge of $1
million to record additional estimated income taxes on these sales.

5. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Grynberg. In 1997, we and a number of our affiliates were named defendants
in actions brought by Jack Grynberg on behalf of the U.S. Government under the
False Claims Act. Generally, these complaints allege an industry-wide conspiracy
to underreport the heating value as well as the volumes of the natural gas
produced from federal and Native American lands, which deprived the U.S.
Government of royalties. The plaintiff in this case seeks royalties that he
contends the government should have received had the volume and heating value of
natural gas produced from royalty properties been differently measured,
analyzed, calculated and reported, together with interest, treble damages, civil
penalties, expenses and future injunctive relief to require the defendants to
adopt allegedly appropriate gas measurement practices. No monetary relief has
been specified in this case. These matters have been consolidated for pretrial
purposes (In re: Natural Gas Royalties Qui Tam Litigation, U.S. District Court
for the District of Wyoming, filed June 1997). In May 2001, the court denied the
defendants' motions to dismiss.

Will Price (formerly Quinque). We and a number of our affiliates were
named defendants in Quinque Operating Company, et al v. Gas Pipelines and Their
Predecessors, et al, filed in 1999 in the District Court of Stevens County,
Kansas. Quinque has been dropped as a plaintiff and Will Price has been added.
This class action complaint alleges that the defendants mismeasured natural gas
volumes and heating content of natural gas on non-federal and non-Native
American lands. The plaintiff in this case seeks certification of a nationwide
class of gas working interest owners and gas royalty owners to recover royalties
that the plaintiff contends these owners should have received had the volume and
heating value of natural gas produced from their properties been differently
measured, analyzed, calculated and reported, together with prejudgment and
postjudgment interest, punitive damages, treble damages, attorney's fees, costs
and expenses, and future injunctive relief to require the defendants to adopt
allegedly appropriate gas measurement practices. No monetary relief has been
specified in this case. Plaintiffs' motion for class certification has been
filed and we have filed our response.

In addition to the above matters, we are also a named defendant in numerous
lawsuits and governmental proceedings that arise in the ordinary course of our
business.

For each of our outstanding legal matters, we evaluate the merits of the
case, our exposure to the matter, possible legal or settlement strategies and
the likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we establish the necessary accruals.
As of September 30, 2002, we had approximately $2 million accrued for all
outstanding legal matters.

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Environmental Matters

We are subject to extensive federal, state and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the environment of the
disposal or release of specified substances at current and former operating
sites. As of September 30, 2002, we had accrued approximately $26 million for
expected remediation costs and associated onsite, offsite and groundwater
technical studies and for related environmental legal costs, which we anticipate
incurring through 2027. Below is a reconciliation of our environmental
remediation liability as of December 31, 2001 to our liability as of September
30, 2002 (in millions):

Balance as of December 31, 2001............................. $16
Additions/adjustments for remediation activities(1)......... 13
Payments for remediation activities......................... (1)
Other changes, net.......................................... (2)
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Balance as of September 30, 2002............................ $26
===

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(1) Additions for remediation activities primarily relate to additional reserve
for Michigan Section 201, EPA Superfund costs, polychlorinated biphenyls
(PCBs), Hydrocarbon, and other environmental-related costs.

In addition, we expect to make capital expenditures for environmental
matters of approximately $39 million in the aggregate for the years 2002 through
2007. These expenditures primarily relate to compliance with clean air
regulations. For the fourth quarter of 2002, we estimate that our total
expenditures will be approximately $1 million which primarily will be expended
under government directed clean-up plans.

CERCLA Matters. We have been designated and have received notice that we
could be designated, or have been asked for information to determine whether we
could be designated, as a Potentially Responsible Party (PRP) with respect to
four active sites under the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA) or state equivalents. We have sought to resolve our
liability as a PRP at these sites through indemnification by third parties and
settlements which provide for payment of our allocable share of remediation
costs. As of September 30, 2002, we have estimated our share of the remediation
costs at these sites to be approximately $1 million and have accrued for these
amounts. Since the clean-up costs are estimates and are subject to revision as
more information becomes available about the extent of remediation required, and
because in some cases we have asserted a defense to any liability, our estimates
could change. Moreover, liability under the federal CERCLA statute is joint and
several, meaning that we could be required to pay more than our pro rata share
of remediation costs. Our understanding of the financial strength of other PRPs
has been considered, where appropriate, in estimating our liabilities.

Rates and Regulatory Matters

Marketing Affiliate NOPR. In September 2001, the Federal Energy Regulatory
Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR). The NOPR
proposes to apply the standards of conduct governing the relationship between
interstate pipelines and marketing affiliates to all energy affiliates. The
proposed regulations, if adopted by the FERC, would dictate how we conduct
business and interact with our energy affiliates. In December 2001, we filed
comments with the FERC addressing our concerns with the proposed rules. A public
hearing was held on May 21, 2002, providing an opportunity to comment further on
the NOPR. Following the conference, additional comments were filed by El Paso's
pipelines and others. At this time, we cannot predict the outcome of the NOPR,
but adoption of the regulations in their proposed form would, at a minimum,
place additional administrative and operational burdens on us.

Negotiated Rate NOI. In July 2002, the FERC issued a Notice of Inquiry
(NOI) that seeks comments regarding its 1996 policy of permitting pipelines to
enter into negotiated rate transactions. We have entered into these transactions
over the years, and the FERC is now reviewing whether negotiated rates should be
capped, whether or not the "recourse rate" (a cost-of-service based rate)
continues to safeguard against a pipeline exercising market power, as well as
other issues related to negotiated rate programs. On September 25, 2002, El
Paso's pipelines and others filed comments. Reply comments were filed on October
25, 2002. At this time, we cannot predict the outcome of this NOI.
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Cash Management NOPR. On August 1, 2002, the FERC issued a NOPR requiring
that all cash management or money pool arrangements between a FERC regulated
subsidiary (like us) and a non-FERC regulated parent must be in writing, and set
forth: the duties and responsibilities of cash management participants and
administrators; the methods of calculating interest and for allocating interest
income and expenses; and the restrictions on deposits or borrowings by money
pool members. The NOPR also requires specified documentation for all deposits
into, borrowings from, interest income from, and interest expenses related to,
these arrangements. Finally, the NOPR proposes that as a condition of
participating in a cash management or money pool arrangement, the FERC regulated
entity maintain a minimum proprietary capital balance of 30 percent, and the
FERC regulated entity and its parent maintain investment grade credit ratings.
On August 28, 2002, comments were filed. The FERC held a public conference on
September 25, 2002 to discuss the issues raised in the comments. Representatives
of companies from the gas and electric industries participated on a panel and
uniformly agreed that the proposed regulations should be revised substantially
and that the proposed capital balance and investment grade credit rating
requirements would be excessive. At this time, we cannot predict the outcome of
this NOPR.

Also on August 1, 2002, the FERC's Chief Accountant issued an Accounting
Release, to be effective immediately, providing guidance on how companies should
account for money pool arrangements and the types of documentation that should
be maintained for these arrangements. However, the Accounting Release did not
address the proposed requirements that the FERC regulated entity maintain a
minimum proprietary capital balance of 30 percent and that the entity and its
parent have investment grade credit ratings. Requests for rehearing were filed
on August 30, 2002. The FERC has not yet acted on the rehearing requests.

While the outcome of our outstanding legal matters, environmental matters
and rates and regulatory matters cannot be predicted with certainty, based on
the information we know now and our existing accruals, we do not expect the
ultimate resolution of these matters to have a material adverse effect on our
financial position, operating results or cash flows. It is possible that new
information or future developments could require us to reassess our potential
exposure related to these matters. Further, for environmental matters, it is
also possible that other developments, such as increasingly strict environmental
laws and regulations and claims for damages to property, employees, other
persons and the environment resulting from our current or past operations, could
result in substantial costs and liabilities in the future. As new information
for our outstanding legal matters, environmental matters and rates and
regulatory matters becomes available, or relevant developments occur, we will
review our accruals and make any appropriate adjustments. The impact of these
changes may have a material effect on our results of operations and on our cash
flows in the period the event occurs.

6. RELATED PARTY TRANSACTIONS

We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of participating affiliates, thus minimizing
total borrowing from outside sources. As of September 30, 2002 and December 31,
2001, we had advanced $437 million and $299 million. The market rate of interest
at September 30, 2002 and December 31, 2001 was 1.8% and 2.1%.

At September 30, 2002 and December 31, 2001, we had accounts receivable
from related parties of $5 million and $10 million. In addition, we had accounts
payable to related parties of $77 million and $46 million at September 30, 2002,
and December 31, 2001. These balances arose in the normal course of business.

At September 30, 2002 and December 31, 2001, we had payables to an
affiliate of $204 million for obligations related to a non-cancelable lease on
our Detroit building. Of this amount, $4 million was classified as current at
September 30, 2002. This payable resulted from the relocation of our
headquarters from Detroit, Michigan to Houston, Texas and the transfer of this
lease to our affiliate from a third party. The lease payments are due
semi-annually.

We are in the process of selling our Typhoon offshore natural gas gathering
pipeline to El Paso Energy Partners L.P., a related party. See Note 2 for
further discussion. This proposed sale was approved by both El Paso's and El
Paso Energy Partners' Boards of Directors which included the approval by El Paso
Energy
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Partners' special conflicts committee. In addition, El Paso received an opinion
from Deutsche Bank stating that the proceeds to be received from El Paso Energy
Partners for all of the assets being sold, including our Typhoon pipeline,
represent the fair value of the related assets. This transaction is subject to
customary regulatory reviews and approvals, as well as the execution of
definitive agreements, completing due diligence, and the partnership's ability
to successfully obtain financing for the transaction. The closing of this sale
is expected to occur by the end of 2002.

7. COMMON STOCK

On March 7, 2002, our Board of Directors approved and we filed an amended
and restated certificate of incorporation, changing our authorized shares of
stock to 1,000 shares of common stock, with a par value of $1 per share. This
action and the reclassification did not impact our total equity. As of December
31, 2001, we had 1,000 authorized and issued shares with a par value of $100 per
share.

8. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Accounting for Asset Retirement Obligations

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations. This statement requires
companies to record a liability for the estimated retirement and removal costs
of assets used in their business. The liability is recorded at its fair value,
with a corresponding asset which is depreciated over the remaining useful life
of the long-lived asset to which the liability relates. An ongoing expense will
also be recognized for changes in the value of the liability as a result of the
passage of time. The provisions of SFAS No. 143 are effective for fiscal years
beginning after June 15, 2002. We are currently assessing and quantifying the
asset retirement obligations associated with our long-lived assets. We expect to
complete our assessment of these asset retirement obligations and be able to
estimate their effect on our financial statements in the fourth quarter of 2002.

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement will require us to recognize
costs associated with exit or disposal activities when they are incurred rather
than when we commit to an exit or disposal plan. Examples of costs covered by
this guidance include lease termination costs, employee severance costs
associated with a restructuring, discontinued operations, plant closings or
other exit or disposal activities. This statement is effective for fiscal years
beginning after December 31, 2002, and will impact any exit or disposal
activities we initiate after January 1, 2003.

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

The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in our 2001 Annual Report on Form 10-K
in addition to the financial statements and notes presented in Item 1, Financial
Statements, of this Quarterly Report on Form 10-Q.

RECENT DEVELOPMENTS

Since the fourth quarter of 2001, a number of recent developments in our
business and industry have impacted our operations and liquidity. These have
included:

- The bankruptcy of Enron Corp. and the resulting decline in the energy
trading industry; and

- The modification of credit standards by the rating agencies.

Credit rating agencies have recently re-evaluated the credit ratings of
companies involved in energy trading activities, which included our indirect
parent and our affiliates. The recent developments referenced above, as well as
the Administrative Law Judge's decision dated September 23, 2002 in the FERC
proceeding entitled Public Utilities Commission of the State of California v. El
Paso Natural Gas Company, et al., appear to have influenced both Moody's and
Standard & Poor's in downgrading our parent's credit rating, and it remains on
negative credit watch by both. Our senior unsecured debt was downgraded from
Baa1 to Baa2 by Moody's and from BBB+ to BBB by Standard & Poor's and we remain
on a negative credit watch by both rating agencies.

While these developments do not have an immediate impact on our financial
position or results of operations, a further downgrade of our debt securities
could result in higher cash requirements to conduct our operations (through cash
collateral requirements). If this were to occur, we would have less cash
available to use for capital expenditures and other purposes, although we do
believe we would have sufficient operating resources to fund our ongoing
operating activities.

In addition, as a result of the rating agencies' downgrading the credit
rating of several members of the energy sector, including energy trading
companies, and placing them on negative credit watch, the credit-worthiness of
these companies has been questioned. We have taken actions to mitigate our
exposure by requesting these companies to provide us with a letter of credit or
prepayments as permitted by our tariff. Our tariff permits us to request
additional credit assurance from our shippers equal to the cost of performing
transportation services for a three month period. If these companies file for
Chapter 11 bankruptcy protection and our contracts are not assumed by other
counterparties, or if the capacity is unavailable for resale, it could have a
material adverse effect on our financial position, operating results or cash
flows.

RESULTS OF OPERATIONS

Our business consists of interstate natural gas transmission and gas
storage operations. Our interstate natural gas transmission system faces varying
degrees of competition from other pipelines, as well as alternate energy
sources, such as electricity, hydroelectric power, coal and fuel oil. We are
regulated by the Federal Energy Regulatory Commission. The FERC sets the rates
we can recover from our customers. These rates are generally a function of our
costs of providing services to our customers, as well as a return on our
invested capital. As a result, our results have historically been relatively
stable. However, they can be subject to volatility due to factors such as
weather, changes in natural gas prices, regulatory actions and the
credit-worthiness of our customers. In addition, our ability to extend our
existing contracts or re-market expiring capacity is dependent on competitive
alternatives, the regulatory environment and supply and demand factors at the
relevant extension or expiration dates. While we make every attempt to negotiate
contract terms at fully-subscribed quantities and at maximum rates allowed under
our tariffs, some of our contracts are discounted to meet competition.

We use earnings before interest and income taxes (EBIT) to assess the
operating results and effectiveness of our business. We define EBIT as operating
income, adjusted for equity earnings from unconsolidated investments, gains and
losses on sales of assets and other miscellaneous non-operating items. Items
that are not included in this measure are financing costs, including interest
and debt expense, income

9

taxes and extraordinary items. We believe this measurement is useful to our
investors because it allows them to evaluate the effectiveness of our businesses
and operations and our investments from an operational perspective, exclusive of
the costs to finance those activities and exclusive of income taxes, neither of
which are directly relevant to the efficiency of those operations. This
measurement may not be comparable to measurements used by other companies and
should not be used as a substitute for net income or other performance measures
such as operating cash flow. Below are the operating results and an analysis of
these results for the periods ended September 30:

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(1) BBtu/d means billion British thermal units per day.

Third Quarter 2002 Compared to Third Quarter 2001

Operating revenues for the quarter ended September 30, 2002, were $4
million lower than the same period in 2001. The decrease was primarily due to
lower transportation revenues of $2 million from lower summer capacity sold
under short-term contracts and $1 million from lower realized prices on resales
of natural gas purchased from the Dakota gasification facility.

Operating expenses for the quarter ended September 30, 2002, were $4
million higher than the same period in 2001 primarily as a result of an $8
million change in estimate of our environmental remediation liabilities recorded
in 2001. Also contributing to the increase were additional 2002 accruals of $2
million on estimated liabilities to assess and remediate our environmental
exposure due to an ongoing evaluation of our facilities and higher corporate
overhead allocations of $2 million in the third quarter of 2002. These increases
were partially offset by merger-related costs of $6 million incurred in 2001
primarily associated with asset impairments, $2 million from lower benefit costs
and $1 million from lower prices on natural gas purchased at the Dakota
gasification facility. For a discussion of our merger-related costs, see Item 1,
Financial Statements, Note 3.

Nine Months Ended 2002 Compared to Nine Months Ended 2001

Operating revenues for the nine months ended September 30, 2002, were $66
million lower than the same period in 2001. The decrease was primarily due to
sales of excess natural gas in 2001 of $25 million that did not recur in 2002
and $23 million from lower realized prices in 2002 on resales of natural gas
purchased from the Dakota gasification facility. Also contributing to the
decrease were lower transportation revenues of $9 million primarily due to
milder winter weather in 2002 and increased levels of discounting as older
contracts, that were initially established at or near the maximum FERC-approved
rates, terminated or rolled over and the capacity was recontracted at lower
rates.

Operating expenses for the nine months ended September 30, 2002, were $225
million lower than the same period in 2001 primarily as a result of
merger-related costs of $180 million incurred in 2001 associated with relocating
our headquarters from Detroit, Michigan to Houston, Texas, asset impairments,
costs for employee benefits, severance, retention and transition charges. Also
contributing to the decrease were $23 million from lower prices on natural gas
purchased at the Dakota gasification facility, $18 million from lower benefit
costs and lower operating expenses due to cost efficiencies following El Paso's
merger with Coastal and a change in estimate of $11 million recorded in 2001
primarily for additional environmental remediation liabilities. These decreases
were partially offset by additional 2002 accruals of $13 million on
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estimated liabilities to assess and remediate our environmental exposure due to
an ongoing evaluation of the exposure at our facilities.

Other income for the nine months ended September 30, 2002, was $7 million
lower than the same period in 2001 primarily as a result of lower equity
earnings as a result of our sale of our equity investments in Deepwater Holdings
Inc. and Iroquois pipeline in 2001.

Negotiation of Agreements

On October 30, 2002, we and our largest customer, We Energies, announced
that we had renegotiated multiple firm transportation, storage and related
natural gas service agreements, totaling 866,500 dekatherms per day of service
starting in 2003 under contracts of various terms extending to 2010. A number of
these contracts were discounted. The Public Service Commission of Wisconsin and
the FERC approved the agreements.

INCOME TAXES

Income tax expense for the quarter and nine months ended September 30,
2002, was $9 million and $49 million, resulting in effective tax rates of 35
percent and 36 percent. Income tax expense for the quarter and income tax
benefit for the nine months ended September 30, 2001, was $12 million and $6
million, resulting in effective tax rates of 35 percent and 38 percent. Our
effective tax rates were different than the statutory rate of 35 percent in all
periods primarily due to state income taxes.

COMMITMENTS AND CONTINGENCIES

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

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

See Item 1, Financial Statements, Note 8, which is incorporated herein by
reference.

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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 2001, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.

There are no material changes in our quantitative and qualitative
disclosures about market risks from those reported in our Annual Report on Form
10-K for the year ended December 31, 2001.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934 (the "Exchange Act"). Based on that evaluation, our principal executive
officer and principal financial officer have concluded that these controls and
procedures are effective. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified under the
Exchange Act. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.

The principal executive officer and principal financial officer
certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 have been included herein, or as Exhibits to this Quarterly Report on Form
10-Q, as appropriate.

12

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a. Exhibits

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

Undertaking

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

b. Reports on Form 8-K

None.

13

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.

ANR PIPELINE COMPANY

Date: November 13, 2002 /s/ JOHN W. SOMERHALDER II
----------------------------------
John W. Somerhalder II
Chairman of the Board and Director
(Principal Executive Officer)

Date: November 13, 2002 /s/ GREG G. GRUBER
----------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial and
Accounting Officer)

14

CERTIFICATION

I, John W. Somerhalder II, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ANR Pipeline
Company;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002

/s/ JOHN W. SOMERHALDER II
--------------------------------------
John W. Somerhalder II
Chairman of the Board
(Principal Executive Officer)
ANR Pipeline Company

15

CERTIFICATION

I, Greg G. Gruber, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ANR Pipeline
Company;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002

/s/ GREG G. GRUBER
--------------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
ANR Pipeline Company

16

EXHIBIT INDEX

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