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 MARCH 31, 2003

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-7320

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

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

Common Stock, par value $1 per share. Shares outstanding on May 14, 2003:
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 AND SIGNIFICANT ACCOUNTING POLICIES

We are an indirect wholly owned subsidiary of El Paso Corporation (El
Paso). We prepared the Quarterly Report on Form 10-Q under the rules and
regulations of the United States Securities and Exchange Commission (SEC).
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 2002 Annual Report on
Form 10-K, which includes a summary of our significant accounting policies and
other disclosures. The financial statements as of March 31, 2003, and for the
quarters ended March 31, 2003 and 2002, are unaudited. We derived the balance
sheet as of December 31, 2002, from the audited balance sheet filed in our 2002
Form 10-K. As discussed below, our historical financial information has been
presented to reflect the contribution of El Paso Great Lakes, Inc. to us by our
parent for all periods presented in a manner similar to a pooling of interests.
In our opinion, we have made all adjustments, all of which are of a normal,
recurring nature, to fairly present our interim period results. Due to the
seasonal nature of our business, information for interim periods may not
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.

Acquisition of El Paso Great Lakes

In March 2003, American Natural Resources Company, an affiliate and
subsidiary of El Paso, contributed to us all of the common stock of its wholly
owned subsidiary, El Paso Great Lakes, Inc. El Paso Great Lakes had a net book
value at the time of its contribution of approximately $247 million. El Paso
Great Lakes' principal asset consists of its effective 50 percent interest in
Great Lakes Gas Transmission Limited Partnership, a Delaware limited
partnership. Since both El Paso Great Lakes and our common stock were owned by
El Paso at the time of the contribution, we were required to reflect the
contribution at its historical cost and its operating results in our financial
statements for all periods presented in a manner, similar to a pooling of
interests. Our financial statements reflect our ownership of El Paso Great Lakes
in the earliest period presented combined with our historical results. Our
combined net income for the quarters ended March 31, 2003 and 2002 is presented
below.

Significant Accounting Policies

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

Accounting for Costs Associated with Exit or Disposal Activities. As of
January 1, 2003, we adopted Statement of Financial Accounting Standards (SFAS)
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
No. 146 requires that we recognize costs associated with exit or disposal
activities when they are incurred rather than when we commit to an exit or
disposal plan. There was no initial financial statement impact of adopting this
standard.

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Accounting for Guarantees. On January 1, 2003, we adopted Financial
Accounting Standards Board Interpretation (FIN) No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN No. 45 requires that we record a liability for all
guarantees, including financial performance and fair value guarantees, issued
after December 31, 2002, at fair value when they are issued. There was no
initial financial statement impact of adopting this standard.

Accounting for Regulated Operations. We continue to evaluate the
application of SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation, for changes in the competitive environment and our operating cost
structures. See a further discussion of our accounting for regulated operations
in our 10-K.

2. DEBT AND CREDIT FACILITIES

In March 2003, we issued $300 million of senior unsecured notes with an
annual interest rate of 8.875%. The notes mature in 2010. Net proceeds of $288
million were used to pay off intercompany payables of $263 million. The
remaining net proceeds of $25 million were retained for future capital
expenditure requirements.

In April 2003, El Paso entered into a new $3 billion revolving credit
facility, with a $1.5 billion letter of credit sublimit, which matures in June
2005. This facility replaces the previous $3 billion, revolving credit facility.
El Paso's existing $1 billion revolving credit facility, which matures in August
2003, and approximately $1 billion of other financing arrangements (including
leases, letters of credit and other facilities) were also amended to conform El
Paso's obligations to the new $3 billion revolving credit facility. We, along
with our affiliates, Tennessee Gas Pipeline Company, El Paso Natural Gas
Company, and El Paso, are borrowers under the $3 billion revolving credit
facility.

El Paso's equity in several of its subsidiaries, including us,
collateralizes the revolving credit facility and the other financing
arrangements. We are only liable for amounts we borrow under revolving credit
facility. The revolving credit facilities have a borrowing cost of LIBOR plus
350 basis points and letter of credit fees of 350 basis points. The key
financial covenant is a requirement that El Paso maintain a debt to capital
ratio, as defined in the revolving credit facilities, not to exceed 75 percent.
We and the other pipeline company borrowers cannot incur incremental debt if the
incurrence of debt would cause our debt to EBITDA ratio, as defined in the
revolving credit facilities, to exceed 5 to 1. The proceeds from the issuance of
debt by the pipeline company borrowers can be used only for maintenance and
expansion capital expenditures or investments in other FERC-regulated assets and
to refinance existing debt. As of March 31, 2003, $1.5 billion was outstanding
under the $3 billion facility, none of which was borrowed by us.

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

Will Price (formerly Quinque). We and a number of our affiliates 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

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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 natural gas
working interest owners and natural 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. Plaintiff's motion for class certification was denied on
April 10, 2003. Our costs and legal exposure related to these lawsuits and
claims are not currently determinable.

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 March 31, 2003, we had approximately $1 million accrued for all
outstanding legal matters.

Environmental Matters

We are subject to federal, state and local laws and regulations governing
environmental quality and pollution control. These laws and regulations require
us to remove or remedy the effect on the environment of the disposal or release
of specified substances at current and former operating sites. As of March 31,
2003, we had accrued approximately $27 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. The range
of high and low reserve estimates were not materially different. Below is a
reconciliation of our accrued liability as of March 31, 2003 (in millions):

Balance as of January 1..................................... $26
Additions/adjustments for remediation activities............ 1
Payments for remediation activities......................... (2)
Other changes, net.......................................... 2
---
Balance as of March 31...................................... $27
===

In addition, we expect to make capital expenditures for environmental
matters of approximately $28 million in the aggregate for the years 2003 through
2008. These expenditures primarily relate to compliance with clean air
regulations. For 2003, we estimate that our total remediation expenditures will
be approximately $4 million, which primarily will be expended under government
directed clean-up plans.

CERCLA Matters. We have received notice that we could be designated, or
have been asked for information to determine whether we could be designated, as
a Potentially Responsible Party (PRP) with respect to four active sites under
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) or state equivalents. We have sought to resolve our liability as a PRP
at these sites through indemnification by third parties and settlements which
provide for payment of our allocable share of remediation costs. As of March 31,
2003, we have estimated our share of the remediation costs at these sites to be
approximately $1 million. Since the clean-up costs are estimates and are subject
to revision as more information becomes available about the extent of
remediation required, and because in some cases we have asserted a defense to
any liability, our estimates could change. Moreover, liability under the federal
CERCLA statute is joint and several, meaning that we could be required to pay in
excess of our pro rata share of remediation costs. Our understanding of the
financial strength of other PRPs has been considered, where appropriate, in
estimating our liabilities.

It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply

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

Rates and Regulatory Matters

Order No. 637. Order No. 637 made five major changes to the structure of
pipeline tariffs and services, and required a compliance filing by each
pipeline. Among the changes, Order No. 637 impacted the manner in which
pipelines conduct their operational activities, including how they release
capacity, segment capacity, manage imbalance services, issue operational flow
orders, and impose pipeline penalties. We filed our compliance proposal in June
2000, and subsequently filed an Offer of Settlement in July 2001. On December 2,
2002, we sought rehearing of an October 31, 2002 FERC order responding to the
United States Court of Appeals for the District of Columbia Circuit's order
remanding various aspects of order No. 637. In December 2001, the FERC approved
the Settlement subject to certain modifications and conditions. Due to the
modifications and conditions, and after meeting with parties to our Order No.
637 proceeding, we submitted a modified Settlement for approval by the FERC.

On April 9, 2003, the FERC issued an order accepting the modified
Settlement, but requiring further changes and in particular rejecting our
proposed limitations on the ability of certain Replacement Shippers to use
segmenting to reserve point capacity and, therefore, firm capacity on a primary
firm basis. On April 24, 2003, we advised the FERC that, due to the required
changes, we were unwilling to accept the settlement as modified by its April 9
Order. On May 8, 2003, we met with parties to the proceeding to determine
whether the Settlement can be preserved through further negotiations. Those
negotiations are continuing and meanwhile on May 9, 2003, we filed for rehearing
of the April 9 order. We cannot predict the outcome of such negotiations or our
requests for rehearing.

Marketing Affiliate NOPR. In September 2001, the 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 hearing, 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 and 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.

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 and a non-FERC regulated parent 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

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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, which was effective immediately. The Accounting Release provides
guidance on how companies should account for money pool arrangements and the
types of documentation that should be maintained for these arrangements.
However, it 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.

Emergency Reconstruction of Interstate Natural Gas Facilities NOPR. On
January 17, 2003, FERC issued a NOPR proposing, in emergency situations, to (1)
expand the scope of construction activities authorized under a pipeline's
blanket certificate to allow replacement of mainline facilities; (2) authorize a
pipeline to commence reconstruction of the affected system without a waiting
period; and (3) authorize automatic approval of construction that would be above
the normal cost ceiling. Comments on the NOPR were filed on February 27, 2003.
At this time, we cannot predict the outcome of this rulemaking.

Pipeline Safety Notice of Proposed Rulemaking. On January 28, 2003, the
U.S. Department of Transportation issued a NOPR proposing to establish a rule
requiring pipeline operators to develop integrity management programs to
comprehensively evaluate their pipelines, and take measures to protect pipeline
segments located in what the notice refers to as "high consequence areas." The
proposed rule resulted from the enactment of the Pipeline Safety Improvement Act
of 2002, a new bill signed into law in December 2002. Comments on the NOPR were
filed on April 30, 2003. At this time, we cannot predict the outcome of this
rulemaking.

FERC Inquiry. On February 26, 2003, El Paso received a letter from the
Office of the Chief Accountant at the FERC requesting details of its
announcement of 2003 asset sales and plans for us and our pipeline affiliates to
issue a combined $700 million of long-term notes. The letter requested that El
Paso explain how it intended to use the proceeds from the issuance of the notes
and if the notes will be included in the two regulated companies' capital
structure for rate-setting purposes. Our response to the FERC was filed on March
12, 2003, and we fully responded to the request. On April 2, 2003, we received
an additional request for information, which we fully responded to on April 15,
2003.

While the outcome of our outstanding legal matters, environmental matters
and rates and regulatory matters cannot be predicted with certainty, based on
current information and our existing accruals, we do not expect the ultimate
resolution of these matters to have a material adverse effect on our financial
position, operating results or cash flows. However, it is possible that new
information or future developments could require us to reassess our potential
exposure related to these matters. It is also possible that the outcome of these
matters could impair our credit rating and that of our parent. 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, our financial position, and on our cash flows in the
period the event occurs.

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4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS

Great Lakes

In March 2003, American Natural Resources contributed the common stock of
its wholly owned subsidiary, El Paso Great Lakes, Inc, to us. El Paso Great
Lake's principal asset consists of its effective 50 percent ownership interest
in Great Lakes Gas Transmission Limited Partnership. Great Lakes Gas
Transmission owns and operates a 2,115 mile interstate natural gas pipeline that
transports gas to customers in the midwestern and northwestern United States and
Canada.

Summarized financial information of our proportionate share of our
investment in Great Lakes Gas Transmission for the quarters ended March 31, 2003
and 2002 are as follows:

Transactions with Affiliates

We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of participating affiliates, thus minimizing
total borrowings from outside sources. Our continued participation in the
program may be dependent on any final rule issued by the FERC in connection with
its cash management notice of proposed rulemaking discussed in Note 3. In
February 2003, we made a non-cash distribution of $400 million of our
outstanding affiliated receivables to our parent. As of March 31, 2003 and
December 31, 2002, we had advances to El Paso of $325 million and $560 million.
The market rate of interest at March 31, 2003 and December 31, 2002 was 1.3% and
1.5%. These receivables are due upon demand. However, as of March 31, 2003 and
December 31, 2002, we have classified these amounts as non-current notes
receivables from affiliates because we do not anticipate settlement within the
next twelve months.

At March 31, 2003 and December 31, 2002, we had accounts receivable from
related parties of $63 million and $14 million. In addition, we had accounts
payable to related parties of $22 million and $10 million at March 31, 2003, and
December 31, 2002. These balances arose in the normal course of business.

At March 31, 2003 and December 31, 2002, we had payables to an affiliate of
$204 million for obligations related to a non-cancelable lease on our Detroit
building. Of this amount, $8 million was classified as current at March 31,
2003. 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.

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

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

The information contained in Item 2 updates, and should be read in
conjunction with, the information disclosed in our 2002 Form 10-K in addition to
the financial statements and notes presented in Item 1, Financial Statements, of
this Form 10-Q.

RESULTS OF OPERATIONS

We use earnings before interest and income taxes (EBIT) to assess the
operating results and effectiveness of our business. EBIT is operating income,
adjusted to include earnings from unconsolidated affiliates and other
miscellaneous non-operating income. Items that are not included in this measure
are financing costs, including interest and debt expense, income 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. 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 income or operating cash flow. As discussed in Item 1, Note 1,
in March 2003 El Paso Great Lakes was contributed to us by our parent. Our
historical financial statements have been restated to reflect this transaction
in the earliest period presented in this filing. Presented below is a
reconciliation of our operating results to EBIT and EBIT to net income for the
quarters ended March 31 and a discussion of these results for the periods
presented:

- ----------

(1) BBtu/d means billion British thermal units per day. Throughput includes
volumes associated with our 50 percent equity investment in Great Lakes.
Prior period volumes have been restated to reflect our current year
presentation which includes billable transportation throughput volume for
storage withdrawal.

First Quarter 2003 Compared to First Quarter 2002

Operating revenues for the quarter ended March 31, 2003, were $29 million
higher than the same period in 2002. The increase was primarily due to sales of
operational natural gas recoveries in 2003 of $13 million that did not occur in
2002 and $10 million from higher realized prices in 2003 on the resale of
natural gas purchased from the Dakota gasification facility. Also contributing
to the increase were higher transportation revenues of $5 million primarily due
to colder winter weather in 2003.

Operating expenses for the quarter ended March 31, 2003, were $19 million
higher than the same period in 2002. The increase was primarily due to higher
prices on natural gas purchased at the Dakota gasification facility of $9
million. Also contributing to the increase was $6 million from lower benefit
costs in 2002 and an additional accrual in 2003 of $1 million on estimated
liabilities to assess and remediate our environmental exposure due to an ongoing
evaluation of the exposure at those facilities.

Earnings from unconsolidated affiliates for the quarter ended March 31,
2003, was $4 million lower than the same period in 2002 primarily as a result of
lower equity earnings from our investment in Great Lakes due to a favorable use
tax settlement recorded by Great Lakes in the first quarter 2002.
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INTEREST AND DEBT EXPENSE

Interest and debt expense for the quarter ended March 31, 2003, was $3
million higher than the same period in 2002 due to the issuance of $300 million
senior unsecured notes with an annual interest rate of 8.875% in March 2003.

INCOME TAXES

Income tax expense for the quarters ended March 31, 2003 and 2002, was $36
million and $34 million, resulting in effective tax rates of 37 percent and 36
percent. Our effective tax rates were different than the statutory rate of 35
percent primarily due to state income taxes.

COMMITMENTS AND CONTINGENCIES

See Item 1, Financial Statements, Note 3, 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, 2002, 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, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures. Under the supervision and with the
participation of management, including our principal executive officer and
principal financial officer, we have evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (Disclosure Controls)
and internal controls (Internal Controls) 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 (Exchange Act).

Definition of Disclosure Controls and Internal Controls. Disclosure
Controls are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified under the Exchange Act. Disclosure Controls include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure. Internal Controls are procedures
which are designed with the objective of providing reasonable assurance that (1)
our transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded and
reported, all to permit the preparation of our financial statements in
conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls. ANR Pipeline Company's
management, including the principal executive officer and principal financial
officer, does not expect that our Disclosure Controls and Internal Controls will
prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple errors or mistakes. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become
12

inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.

No Significant Changes in Internal Controls. We have sought to determine
whether there were any "significant deficiencies" or "material weaknesses" in
ANR Pipeline Company's Internal Controls, or whether ANR Pipeline Company had
identified any acts of fraud involving personnel who have a significant role in
ANR Pipeline Company's Internal Controls. This information was important both
for the controls evaluation generally and because the principal executive
officer and principal financial officer are required to disclose that
information to our Board and our independent accountants and to report on
related matters in this section of the Quarterly Report. The principal executive
officer and principal financial officer note that, from the date of the controls
evaluation to the date of this Quarterly Report, there have been no significant
changes in Internal Controls or in other factors that could significantly affect
Internal Controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Effectiveness of Disclosure Controls. Based on the controls evaluation,
our principal executive officer and principal financial officer have concluded
that, subject to the limitations discussed above, the Disclosure Controls are
effective to ensure that material information relating to ANR Pipeline Company
and its consolidated subsidiaries is made known to management, including the
principal executive officer and principal financial officer, particularly during
the period when our periodic reports are being prepared.

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

13

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Part I, Item 1, Financial Statements, Note 3, 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.

14

b. Reports on Form 8-K

We filed a Current Report on Form 8-K dated March 5, 2003 reporting the
sale of $300 million in notes.

We filed a Current Report on Form 8-K dated March 14, 2003 announcing our
acquisition of El Paso Great Lakes.

We filed a Current Report on Form 8-K dated April 18, 2003 announcing an
amendment to our financing facilities.

We also furnished information to the SEC in an Item 9 Current Report on
Form 8-K on February 25, 2003. Item 9 Current Reports on Form 8-K are not
considered to be "filed" for purposes of Section 18 of the Securities and
Exchange Act of 1934 and are not subject to the liabilities of that section, but
are furnished to comply with Regulation FD.

15

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: May 14, 2003 /s/ JOHN W. SOMERHALDER II
----------------------------------
John W. Somerhalder II
Chairman of the Board and Director
(Principal Executive Officer)

Date: May 14, 2003 /s/ GREG G. GRUBER
----------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial and
Accounting Officer)

16

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: May 14, 2003

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

17

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: May 14, 2003

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

18

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.