NORTHWEST PIPELINE CORP - 10-Q Quarterly Report

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

FORM 10-Q

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

For the Quarterly Period Ended June 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 1-7414

NORTHWEST PIPELINE CORPORATION
------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 87-0269236
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

295 Chipeta Way
Salt Lake City, Utah 84108
---------------------------------------------------------------
(Address of principal executive offices and Zip Code)

(801) 583-8800
-----------------------------------------------------------------
(Registrant's telephone number, including area code)

No Change
------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

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.

Class Outstanding at August 13, 2002
- --------------------------- ------------------------------
Common stock, $1 par value 1,000 shares

The registrant meets the conditions set forth in General Instruction (H)(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.

NORTHWEST PIPELINE CORPORATION

TABLE OF CONTENTS

Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Northwest Pipeline Corporation
believes such forward-looking statements are based on reasonable assumptions, no
assurance can be given that every objective will be reached. Such statements are
made in reliance on the "safe harbor" protections provided under the Private
Securities Litigation Reform Act of 1995. Additional information about issues
that could lead to material changes in performance is contained in Northwest
Pipeline Corporation's annual report on Form 10-K and 2002 first quarter report
on Form 10-Q.

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NORTHWEST PIPELINE CORPORATION

CONDENSED STATEMENT OF INCOME

(Unaudited)

- ----------

See accompanying notes.

1

NORTHWEST PIPELINE CORPORATION
CONDENSED BALANCE SHEET
(Unaudited)

================================================================================

ASSETS

- ----------

See accompanying notes.

2

NORTHWEST PIPELINE CORPORATION
CONDENSED BALANCE SHEET
(Unaudited)

================================================================================

LIABILITIES AND STOCKHOLDER'S EQUITY

- ----------

See accompanying notes.

3

NORTHWEST PIPELINE CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)

- ----------

See accompanying notes.

4

NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
================================================================================

(1) General

The accompanying, unaudited interim condensed financial statements of
Northwest Pipeline Corporation ("Pipeline"), included herein, have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to such rules and
regulations; however, Pipeline believes that the disclosures made are adequate
to make the information presented not misleading. In the opinion of Pipeline,
all adjustments, which include only normal operating adjustments, have been made
to present fairly the financial position of Pipeline as of June 30, 2002 and
December 31, 2001, the results of operations for the three and six month periods
ended June 30, 2002 and 2001, and the cash flows for the six month periods ended
June 30, 2002 and 2001. The results of operations for the periods presented are
not necessarily indicative of the results for the respective complete years. It
is recommended that these condensed financial statements be read in conjunction
with the statements, the notes thereto and management's narrative analysis
included in Pipeline's 2001 Annual Report on Form 10-K and 2002 first quarter
report on Form 10-Q.

Pipeline is a wholly-owned subsidiary of Williams Gas Pipeline Company
LLC ("WGP"). WGP is a wholly-owned subsidiary of The Williams Companies, Inc.
("Williams").

Adoption of Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses accounting and reporting standards
for goodwill and other intangible assets. Under the provisions of this
statement, goodwill and intangible assets with indefinite useful lives are no
longer amortized, but will be tested annually for impairment. Pipeline applied
the new rules beginning January 1, 2002. Because Pipeline has no goodwill, and
intangible assets are amortized at rates approved by the Federal Energy
Regulatory Commission (FERC) through regulatory proceedings, there was no
impairment upon adoption.

In the second quarter of 2002, the FASB issued SFAS No. 145, "Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." The rescission of SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements," requires that gains and losses from
extinguishment of debt only be classified as extraordinary items in the event
that they meet the criteria of APB Opinion No. 30. SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers," established accounting requirements for
the effects of transition to the Motor Carriers Act of 1980 and is no longer
required now that the transitions have been completed. The amendments to SFAS
No.13 require certain lease modifications that have economic effects which are
similar to sale-leaseback transactions be accounted for as sale-leaseback
transactions. The provisions of SFAS No. 145 related to the rescission of SFAS
No. 4 are to be applied in fiscal years beginning after May 15, 2002, while the
provisions related to SFAS No. 13 are effective for transactions occurring after
May 15, 2002. All other provisions of the Statement are effective for financial
statements issued on or after May 15, 2002. There was no initial impact of SFAS
No. 145 on Pipeline's results of operations and financial position. Future gains
and losses from debt extinguishments will continue to be accounted for in
accordance with FERC regulations.

In the second quarter of 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." This statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. The provisions of the statement are effective for exit or
disposal activities that are initiated after December 31, 2002. The effect of
this standard on Pipeline's results of operations and financial position is
being evaluated.

5

NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
================================================================================

Other

Cash payments for interest were $12.1 million and $12.8 million, net of
interest capitalized, in the six month periods ended June 30, 2002 and 2001,
respectively.

Cash payments of $15.5 million and $15.8 million were made to Williams
for income taxes in the six month periods ended June 30, 2002 and 2001,
respectively.

(2) Basis of Presentation

Pipeline's 1983 acquisition by Williams has been accounted for using the
purchase method of accounting. Accordingly, an allocation of the purchase price
was assigned to the assets and liabilities of Pipeline, based on their estimated
fair values at the time of the acquisition. Williams has not pushed down the
purchase price allocation (amounts in excess of original cost) of $91.3 million,
as of June 30, 2002, to Pipeline as current Federal Energy Regulatory Commission
("FERC") policy does not permit Pipeline to recover through its rates amounts in
excess of original cost. The accompanying financial statements reflect
Pipeline's original basis in its assets and liabilities.

(3) Long-Term Debt and Banking Arrangements

Williams and certain of its subsidiaries, including Pipeline, are
parties to a $700 million credit agreement (Credit Agreement), under which
Pipeline can borrow up to $400 million if the funds available under the Credit
Agreement have not been borrowed by Williams or other subsidiaries. The Credit
Agreement expires in July 2005. Interest rates vary with current market
conditions based on the base rate of Citibank N.A., three-month certificates of
deposit of major United States money market banks, federal funds rate or the
London Interbank Offered Rate. The Credit Agreement contains restrictions, which
limit, under certain circumstances, the issuance of additional debt, the
attachment of liens on any assets and any change of ownership of Pipeline. As
Williams completes certain asset sales, the $700 million commitment from
participating banks in the Credit Agreement will ultimately be reduced to $400
million, but Pipeline will continue to have borrowing capacity up to $400
million if the funds available under the Credit Agreement have not been borrowed
by Williams or other subsidiaries. At June 30, 2002, $400 million of borrowing
capacity was available to Pipeline. At June 30, 2002, Pipeline had no
outstanding borrowings under this agreement.

Pipeline, through a wholly-owned bankruptcy remote subsidiary, sold
certain trade accounts receivable to a special-purpose entity ("SPE") in a
securitization structure requiring annual renewal. Pipeline acted as the
servicing agent for the sold receivables. The sale of receivables program
expired on July 25, 2002, and on July 26, 2002, Pipeline completed the
repurchase of $15 million of trade accounts receivable previously sold.

(4) Contingent Liabilities and Commitments

Pending Rate Cases

On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). Pipeline
made refunds to customers in June 1998 totaling $27 million, including interest,
reflecting the FERC's resolution of all disputed matters in this case. Pipeline
and other parties sought judicial review of the FERC's decision concerning rate
of return on equity. One party sought judicial review of the inclusion of unpaid
accruals in rate base. In July 1998, the FERC issued orders concerning its rate
of return on equity policy in rate proceedings of other pipelines adopting a
formula that gives less weight to the long-term growth component. In April 1999,
the Court of Appeals for the D.C. Circuit remanded the 1993 Rate Case to the
FERC for application of its revised rate of return on equity policy. On July 14,
1999, the FERC issued an order requiring Pipeline to: (a) submit a surcharge
plan to the FERC, (b) recalculate rates consistent with the new weighting
formula favoring short term growth, and (c) address in a remand hearing the
appropriate source for Gross Domestic Product ("GDP") growth data. The new
weighting formula generally results in a higher authorized rate of return on
equity. Pipeline and its customers resolved by settlement those issues relating
to long term GDP growth. In February 2000, the FERC approved the long-term
growth settlement and issued an order related to return on equity issues
requiring Pipeline to incorporate the effects of the settlement and to calculate
its allowed rate of return on equity consistent with the recently announced
policy changes in other proceedings. As a part of this recalculation of allowed
return on equity, the FERC provided that Pipeline must use the median instead of
the midpoint of the various results of Discounted Cash Flow ("DCF") analysis for
a proxy group. This resulted in a 13.67 percent return on equity for Pipeline.
On April 3, 2000, Pipeline made the necessary compliance filings to implement
the FERC's decision including the establishment of surcharges in order to
recollect moneys that shippers owe Pipeline for these corrective actions. On
July 14, 2000, the

6

NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
================================================================================

FERC issued an order denying customer rehearing requests and approving
Pipeline's compliance filing. The order reaffirmed Pipeline's right to use the
median result from the DCF proxy group analysis. Some of Pipeline's customers
sought judicial review concerning the FERC's orders with respect to return on
equity issues. On July 13, 2001, the D.C. Circuit issued its decision affirming
the FERC's earlier rulings on various rate base, accounting, and risk issues,
but remanding the case to the FERC to allow the FERC to set forth more clearly
its rationale for allowing Pipeline to utilize the median result of the DCF
proxy group analysis. On June 12, 2002, the FERC issued an Order on Remand
reaffirming its decision to utilize the median of the proxy companies in setting
Pipeline's return on equity.

On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate
Case"). During the first quarter of 1998, the Administrative Law Judge ("ALJ")
issued an Initial Decision. The ALJ found that the facts of this case continue
to support Pipeline's capital structure of 55 percent equity and 45 percent
debt. The ALJ also determined that Pipeline fits within the average risk range
for determining pipeline return on equity and allowed a return on equity of 11.2
percent. On June 1, 1999, the FERC issued its order affirming many aspects of
the ALJ's initial decision, but finding that the return on equity issue should
be resolved by using the FERC's new policy concerning rate of return
determinations. This resulted in an allowed return on equity of 12.22 percent.
On September 29, 2000, the FERC issued its Order on Rehearing, which, for the
most part, reaffirmed the FERC's earlier June 1, 1999 decision. Pipeline made a
compliance filing on October 16, 2000. On July 11, 2001, the FERC issued an
Order accepting Pipeline's compliance filings, subject to Pipeline making some
minor rate related changes relating to billing determinants and cost of service
recovery for facilities subject to reimbursement agreements. Some of Pipeline's
customers have sought judicial review concerning risk and return on equity
issues. On August 31, 2001, Pipeline made refunds to customers totaling $43.1
million, including interest.

Significant Litigation

In 1998, the United States Department of Justice informed Williams that
Jack Grynberg, an individual, had filed claims in the United States District
Court for the District of Colorado under the False Claims Act against Williams
and certain of its wholly-owned subsidiaries including Pipeline. Mr. Grynberg
had also filed claims against approximately 300 other energy companies and
alleged that the defendants violated the False Claims Act in connection with the
measurement and purchase of hydrocarbons. The relief sought was an unspecified
amount of royalties allegedly not paid to the federal government, treble
damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the
United States Department of Justice announced that it was declining to intervene
in any of the Grynberg qui tam cases; including the action filed against the
Williams entities in the United States District Court for the District of
Colorado. On October 21, 1999, the Panel on Multi-District Litigation
transferred all of the Grynberg qui tam cases, including those filed against
Williams to the United States District Court for the District of Wyoming for
pre-trial purposes. Motions to dismiss the complaints filed by various
defendants, including Williams, were denied on May 18, 2001.

On June 8, 2001, fourteen Williams entities, including Pipeline, were
named as defendants in a nationwide class action lawsuit which has been pending
against other defendants, generally pipeline and gathering companies, for more
than one year. The plaintiffs allege that the defendants, including the Williams
defendants, have engaged in mismeasurement techniques that distort the heating
content of natural gas, resulting in an alleged underpayment of royalties to the
class of producer plaintiffs. In September 2001, plaintiffs' counsel voluntarily
dismissed Williams Pipeline Company and Williams Interstate Natural Gas Company.
The Williams defendants, along with the coordinating defendants, filed a motion
to dismiss under Rules 9b and 12b of the Kansas Rules of Civil Procedure. Oral
argument was held in November 2001 and the decision is still pending. Many of
the Williams and coordinating defendants filed a motion to dismiss for lack of
personal jurisdiction. In the next several months, the Williams entities will
join with other defendants in contesting certification of the plaintiff class.

Other Legal and Regulatory Matters

On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking
("NOPR") proposing to adopt uniform standards of conduct for transmission
providers. The proposed rules define transmission providers as interstate
natural gas pipelines and public utilities that own, operate or control electric
transmission facilities. The proposed standards would regulate the conduct of
transmission providers with their energy affiliates. The FERC proposes to define
energy affiliates broadly to include any transmission provider affiliate that
engages in or is involved in transmission (gas or electric) transactions, or
manages or controls transmission capacity, or buys, sells, trades or administers
natural gas or electric energy or engages in financial transactions

7

NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
================================================================================

relating to the sale or transmission of natural gas or electricity. Current
rules regulate the conduct of Pipeline and its gas marketing affiliates. The
FERC invited interested parties to comment on the NOPR. On April 25, 2002, the
FERC issued its staff analysis of the NOPR and the comments received. The staff
analysis proposes redefining the definition of energy affiliates to exclude
affiliated transmission providers. On May 21, 2002, the FERC held a public
conference concerning the NOPR and the FERC invited the submission of additional
comments. If adopted, these new standards would require the adoption of new
compliance measures by Pipeline.

On July 17, 2002, the FERC issued a Notice of Inquiry to seek comments
on its negotiated rate policies and practices. The FERC states that it is
undertaking a review of the recourse rate as a viable alternative and safeguard
against the exercise of market power of interstate gas pipelines, as well as the
entire spectrum of issues related to its negotiated rate program. The FERC has
requested that interested parties respond to various questions related to the
FERC's negotiated rate policies and practices. Pipeline has negotiated certain
rates under the FERC's existing negotiated rate program.

On August 1, 2002, the FERC issued a NOPR that proposes restrictions on
the type of cash management program employed by Williams and its subsidiaries,
including Pipeline. In addition to stricter guidelines regarding the accounting
for and documentation of cash management or cash pooling programs, the FERC
proposal, if made final, would preclude public utilities, natural gas companies
and oil pipeline companies from participating in such programs unless the parent
company and its FERC-regulated affiliate maintain investment-grade credit
ratings and that the FERC-regulated affiliate maintains stockholders equity of
at least 30 percent of total capitalization. Williams' and Pipeline's current
credit ratings are not investment grade. The FERC is seeking public comments by
August 22, 2002.

In addition to the foregoing, various other proceedings are pending
against Pipeline incidental to its operations.

Summary of Contingent Liabilities

While no assurances may be given, Pipeline does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, recovery from customers, insurance coverage or
other indemnification arrangements, will have a materially adverse effect upon
Pipeline's future financial position, results of operations, or cash flow
requirements.

8

Item 2. Management's Narrative
Analysis of the
Results of Operations

Recent Events

As a result of credit issues facing Williams and the assumption of
payment obligations and performance on guarantees associated with Williams
Communications Group, Inc. (WCG), a former affiliate of Williams, Williams
announced plans during the first quarter of 2002 to strengthen its balance sheet
and support retention of its investment grade ratings. The plan included
reducing capital expenditures during the balance of 2002, future sales of assets
to generate proceeds to be used to reduce outstanding debt and the lowering of
expenses, in part through an enhanced-benefit early retirement program which
concluded during the second quarter.

During the second quarter, Williams experienced liquidity issues, the
effect of which limited Williams Energy Marketing & Trading's (WEM&T) ability to
manage market risk and exercise hedging strategies as market liquidity
deteriorated. During May 2002, major rating agencies lowered their credit
ratings on Williams' unsecured long-term debt; however, the ratings still were
maintained as investment grade for the balance of the quarter.

Subsequent to the end of the second quarter, Williams announced that it
would have a substantial net loss for the quarter. In addition, the Williams
board of directors reduced the Williams common stock dividend for the third
quarter from the prior level of 20 cents per share to 1 cent per share. The
major rating agencies downgraded Williams' credit ratings to below investment
grade reflecting the uncertainty associated with Williams' energy trading
business, short-term cash requirements facing Williams and the increased level
of debt Williams had incurred to meet the WCG payment obligations and
guarantees. Concurrent with these events, Williams was unable to complete a
renewal of its unsecured short-term bank facility, which expired on July 24,
2002. Subsequently, Williams did obtain two secured facilities totaling $1.3
billion and amended its existing $700 million credit agreement to a secured
basis. These borrowing facilities include pledges of certain assets and contain
financial ratios and other covenants that must be maintained. If such provisions
of the agreements are not maintained, then amounts outstanding can become due
immediately and payable. Williams believes that these financings and the
proceeds received from recent asset sales have significantly improved the
company's liquidity for the balance of the year. In addition, Williams is
pursuing the sale of other assets to enhance liquidity. The sales are
anticipated to close during the second half of 2002.

The energy trading sector has experienced deteriorating conditions
because of credit and regulatory concerns, and these have significantly reduced
WEM&T's ability to attract new business. In late July 2002, Williams' management
decided to continue to reduce Williams' commitment and exposure to its energy
marketing and risk management business. This reduction could be realized by
entering into a joint venture arrangement with a third party or a sale of a
portion or all of the marketing and trading portfolio. WEM&T, as well as several
unaffiliated energy trading companies, are Pipeline customers. Pipeline cannot
predict at this time to what extent its business may be impacted by the
deteriorating conditions in the energy trading sector, however, generally such
companies have continued to perform their contractual commitments to Pipeline.

General

This analysis discusses financial results of Pipeline's operations for
the six-month periods ended June 30, 2002 and 2001. Variances due to changes in
price and volume have little impact on revenues, because under Pipeline's rate
design methodology, the majority of overall cost of service is recovered through
firm capacity reservation charges in its transportation rates.

This analysis should be read in conjunction with the financial
statements, notes and management's narrative analysis of the results of
operations contained in Items 7 and 8 of Pipeline's 2001 Annual Report on Form
10-K and in Pipeline's 2002 First Quarter Report on Form 10-Q, and with the
condensed financial statements and notes contained in this report.

9

RESULTS OF OPERATIONS

Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001

Operating revenues increased $1.8 million, or 1%, due primarily to a
prior period cost of service adjustment for incremental facilities offset by a
$.8 million decrease in tracked costs.

Pipeline's transportation service accounted for 92% and 93% of operating
revenues for the six-month periods ended June 30, 2002 and 2001, respectively.
Additionally, gas storage service represented 3% of operating revenues in each
of the six-month periods ended June 30, 2002 and 2001.

Operating expenses increased $6.1 million, or 8%, due primarily to a
$5.3 million increase in retirement plan expenses, including $3.9 million
related to an enhanced-benefit early retirement option offered to certain
Williams employee groups and higher general and administrative costs from
Williams, partially offset by lower tracked costs.

Operating income decreased $4.3 million, or 6%, due to the reasons
identified above.

Other interest charges decreased $2.0 million resulting from the
RP95-409 settlement refund paid to customers in August 2001.

The following table summarizes volumes and capacity for the periods
indicated:

FINANCIAL CONDITION AND LIQUIDITY

Method of Financing

Pipeline funds its capital requirements with cash flows from operating
activities, by accessing capital markets, by repayments of funds advanced to
WGP, by borrowings under the Credit Agreement and, if required, advances from
WGP. Historically, Pipeline also funded its capital requirements through a sale
of receivables program. In July 2002, Pipeline's sale of receivables program
expired and was not renewed.

Pipeline has an effective registration statement on file with the
Securities and Exchange Commission. At June 30, 2002, approximately $150 million
of shelf availability remains under this registration statement which may be
used to issue debt securities. Interest rates and market conditions will affect
amounts borrowed, if any, under this arrangement. With the downgrade in
Pipeline's credit ratings (discussed below), interest rates on future financings
will be higher, but Pipeline believes any additional financing arrangements, if
required, can be obtained from the capital markets on terms that are
commensurate with its current credit ratings.

Williams and certain of its subsidiaries, including Pipeline, are
parties to a $700 million credit agreement (Credit Agreement), under which
Pipeline can borrow up to $400 million if the funds available under the Credit
Agreement have not been borrowed by Williams or other subsidiaries. The Credit
Agreement expires in July 2005. Interest rates vary with current market
conditions based on the base rate of Citibank N.A., three-month certificates of
deposit of major United States money market banks, federal funds rate or the
London Interbank Offered Rate. The Credit Agreement contains restrictions, which
limit, under certain circumstances, the issuance of additional debt, the
attachment of liens on any assets and any change of ownership of Pipeline. As
Williams completes certain asset sales, the $700 million commitment from
participating banks in the Credit Agreement will ultimately be reduced to $400
million, but Pipeline will continue to have borrowing capacity up to $400
million if the funds available under the Credit Agreement have not been borrowed
by Williams or other subsidiaries. At June 30, 2002, $400 million of borrowing
capacity was available to Pipeline. At June 30, 2002, Pipeline had no
outstanding borrowings under this agreement.

10

As a participant in Williams' cash management program, Pipeline has
advances to and from Williams through Pipeline's parent company, WGP. At June
30, 2002, the advances due Pipeline by WGP totaled $60.6 million. The advances
are represented by demand notes. The interest rate on intercompany demand notes
is the London Interbank Offered Rate ("LIBOR") on the first day of the month
plus an applicable margin based on the current Standard and Poor's credit rating
of Pipeline. Because of recent asset sales, anticipated asset sales in the
future and recently negotiated secured borrowing facilities, Williams has
indicated that it currently believes that it continues to have the financial
resources and liquidity to repay advances to Pipeline.

On August 1, 2002, the FERC issued a NOPR that proposes restrictions on
the type of cash management program employed by Williams and its subsidiaries,
including Pipeline. In addition to stricter guidelines regarding the accounting
for and documentation of cash management or cash pooling programs, the FERC
proposal, if made final, would preclude public utilities, natural gas companies
and oil pipeline companies from participating in such programs unless the parent
company and its FERC-regulated affiliate maintain investment-grade credit
ratings and that the FERC-regulated affiliate maintains stockholders equity of
at least 30 percent of total capitalization. Williams' and Pipeline's current
credit ratings are not investment grade. The FERC is seeking public comments by
August 22, 2002.

Pipeline, through a wholly-owned bankruptcy remote subsidiary, sold
certain trade accounts receivable to a special-purpose entity ("SPE") in a
securitization structure requiring annual renewal. Pipeline acted as the
servicing agent for the sold receivables. The sale of receivables program
expired on July 25, 2002, and on July 26, 2002, Pipeline completed the
repurchase of $15 million of trade accounts receivable previously sold.

Credit Ratings

Pipeline has no guarantees of off-balance sheet debt to third parties
and maintains no debt obligations that contain provisions requiring accelerated
payment of the related obligations in the event of specified levels of declines
in Williams' or Pipeline's credit ratings given by Moody's Investor's Service,
Standard and Poor's and Fitch Ratings (rating agencies).

In the second quarter and July 2002, Moody's Investor's Services,
Standard and Poor's and Fitch Ratings reduced Pipeline's credit ratings on its
unsecured long-term debt from Baa1, BBB+ and BBB+ to Ba2, B+ and BB-,
respectively.

The rating agencies have reduced Pipeline's credit ratings due to
concerns about the sufficiency of Williams' operating cash flow in relation to
its debt as well as the adequacy of Williams' liquidity. The ratings remain
under review pending the execution of Williams' plan to stabilize its financial
position.

Capital Expenditures

As discussed above, Williams has announced plans to strengthen its
balance sheet, which includes reductions in Williams' 2002 estimated capital
spending program. As a Williams subsidiary, Pipeline will participate in
Williams' plan to reduce capital spending, primarily by managing its 2002
capital spending program at a lower level than anticipated prior to Williams'
announcement.

Pipeline anticipates 2002 capital expenditures will total approximately
$209 million, of which $58 million has been expended through June 30, 2002.

Expansion Projects

On August 29, 2001, Pipeline filed an application with the FERC to
construct and operate an expansion of its pipeline system designed to provide an
additional 175,000 dekatherms per day of capacity to its transmission system in
Wyoming and Idaho in order to reduce reliance on displacement capacity. The
Rockies Expansion Project includes the installation of 91 miles of pipeline loop
and upgrades or modifications to five compressor stations for a total increase
of 24,924 horsepower. Pipeline reached a settlement agreement with the majority
of its firm shippers to support roll-in of the expansion costs into its existing
rates. Pipeline expects the FERC to issue a certificate by September 2002.
Pipeline plans to start construction by April 2003. The estimated cost of the
expansion project is approximately $154 million and the targeted completion date
is October 31, 2003.

On October 3, 2001, Pipeline filed an application with the FERC to
construct and operate an expansion of its pipeline system designed to provide
276 MMcf per day of firm transportation capacity to serve new power generation
demand in western Washington. The Evergreen Expansion Project includes
installing 28 miles of

11

pipeline loop, upgrading, replacing or modifying five compressor stations and
adding a net total of 67,000 horsepower of compression. The FERC issued a
certificate in June 2002. Pipeline plans to start construction by September
2002. The estimated cost of the expansion project is approximately $197 million
with a planned, initial in-service date of June 2003. The customers have agreed
to pay for the cost of service of this expansion on an incremental basis.

On October 3, 2001, Pipeline filed an application with the FERC to
construct and operate an expansion of its pipeline system designed to provide an
additional 57,000 dekatherms per day of capacity to its transmission system from
Stanfield, Oregon to Washougal, Washington. The Columbia Gorge Project includes
upgrading, replacing or modifying five existing compressor stations, adding a
net total of 24,430 horsepower of compression. The Columbia Gorge Project was
filed as part of the Evergreen Expansion Project to reduce reliance on
displacement capacity. Pipeline reached a settlement with the majority of its
firm shippers to support roll-in of 88 percent of the expansion costs with the
remainder to be allocated to the Evergreen Project. The FERC issued a
certificate in June 2002. Pipeline plans to start construction by April 2003.
The estimated cost of the expansion project is approximately $43 million with a
targeted in-service date of October 31, 2003.

On May 11, 2001, Pipeline filed an application with the FERC to
construct and operate a lateral pipeline designed to provide 161,500 dekatherms
per day of firm transportation capacity to serve a new power generation plant.
The Grays Harbor Lateral project includes installing 49 miles of 20-inch
pipeline, adding 4,700 horsepower at an existing compressor station, and adding
a new meter station. On April 24, 2002, Pipeline received the certificate from
the FERC authorizing construction and operation of this project. Pipeline
started construction in June 2002. The estimated cost of the lateral project is
approximately $85 million with a targeted in-service date of November 2002. The
customer has agreed to pay for the cost of service of the lateral on an
incremental rate basis.

OTHER

Reference is made to Note 4 of Notes to Condensed Financial Statements
for information about regulatory, judicial and business developments which cause
operating and financial uncertainties.

CONCLUSION

Although no assurances can be given, Pipeline currently believes that
the aggregate of cash flows from operating activities, supplemented, when
necessary, by repayments of funds advanced to WGP, advances or capital
contributions from Williams and borrowings under the Credit Agreement will
provide Pipeline with sufficient liquidity to meet its capital requirements.
When necessary, Pipeline also expects to access public and private markets on
terms commensurate with its current credit ratings to finance its capital
requirements.

12

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

See discussion in Note 4 of the Notes to Condensed Financial Statements
included herein.

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

(a) Exhibits.

The following instruments are included as exhibits to this
report. Those exhibits below incorporated by reference herein
are indicated as such by the information supplied in the
parenthetical thereafter. If no parenthetical appears after an
exhibit, copies of the instrument have been included herewith.

(10) Material contracts

- 1 Consent and Fourth Amendment to Credit
Agreement dated as of July 31, 2002, to
Credit Agreement dated July 25, 2000, among
The Williams Companies, Inc. and certain of
its subsidiaries, including Pipeline, the
banks named therein, the Co-Syndication
Agents as named therein, the Documentation
Agent as named therein and Citibank, N.A.,
as agent (Exhibit 10.12 to The Williams
Companies, Inc. Form 10-Q for the quarterly
period ended June 30, 2002 Commission File
Number 1-4174)

(99) Additional Exhibits

- 1 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002 by J. Douglas
Whisenant, Chief Executive Officer of
Northwest Pipeline Corporation

- 2 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002 by Richard
Rodekohr, Chief Financial Officer of
Northwest Pipeline Corporation

(b) Reports on Form 8-K.

None

13

SIGNATURE

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.

NORTHWEST PIPELINE CORPORATION
--------------------------------------
Registrant

By: /s/ Jeffrey P. Heinrichs
--------------------------------------
Jeffrey P. Heinrichs
Controller
(Duly Authorized Officer and
Chief Accounting Officer)

Date: August 13, 2002

14

EXHIBIT INDEX