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 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 1-7414

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 October 31, 2002
- ----------------------------- -------------------------------
Common stock, $1.00 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
INDEX

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 and Second
Quarter Reports on Form 10-Q.

1

PART 1 - FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS.

NORTHWEST PIPELINE CORPORATION
CONDENSED STATEMENT OF INCOME
(Thousands of Dollars)
(Unaudited)

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

See accompanying notes.

2

NORTHWEST PIPELINE CORPORATION
CONDENSED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)

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

See accompanying notes.

3

NORTHWEST PIPELINE CORPORATION
CONDENSED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)

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

See accompanying notes.

4

NORTHWEST PIPELINE CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)

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

See accompanying notes.

5

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

1. CORPORATE STRUCTURE AND CONTROL

Northwest Pipeline Corporation (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").

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 $90.2
million, as of September 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.

The condensed financial statements have been prepared from the books
and records of Pipeline. 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. The condensed unaudited financial statements include all adjustments
both normal recurring and others which, in the opinion of Pipeline's management,
are necessary to present fairly its financial position at September 30, 2002,
results of operations for the three and nine months ended September 30, 2002 and
2001, and cash flows for the nine months ended September 30, 2002 and 2001.
These condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in Pipeline's 2001 Annual
Report on Form 10-K and 2002 First and Second Quarter Reports on Form 10-Q.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets." Pipeline adopted this Statement effective January 1, 2002.
This Statement 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. 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 June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which is effective for fiscal years beginning after
June 15, 2002. The Statement requires legal obligations associated with the
retirement of long-lived assets to be recognized at their fair value at the time
that the obligations are incurred. Upon initial recognition of a liability, that
cost should be capitalized as part of the related long-lived asset and allocated
to expense over the useful life of the asset. Williams and its subsidiaries,
including Pipeline, will adopt the new rules on asset retirement obligations on
January 1, 2003. The impact of adoption is to be reported as a cumulative effect
of a change in accounting principle. Retirement obligations have not been
estimated for pipeline transmission assets, because the remaining life is not
currently determinable.

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. Finally, 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 this Statement 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. However, in subsequent reporting periods, gains and losses
from debt extinguishments will continue to be accounted for in accordance with
FERC regulations.

6

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

Also 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 is being evaluated.

OTHER

Cash payments for interest were $12.8 million and $28.8 million, net of
interest capitalized, in the nine month periods ended September 30, 2002 and
2001, respectively.

Cash payments of $21.1 million and $19.3 million were made to Williams
for income taxes in the nine month periods ended September 30, 2002 and 2001,
respectively.

3. CONTINGENT LIABILITIES AND COMMITMENTS

RATE AND REGULATORY MATTERS

GENERAL RATE CASE (DOCKET NO. RP93-5) 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 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. No requests for
rehearing were filed in response to the June 12, 2002 order. This effectively
brought the 1993 Rate Case to its conclusion.

GENERAL RATE CASE (DOCKET NO. RP95-409) 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

7

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

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. Some shippers filed petitions for review concerning
return on equity issues. On October 25, 2002, the United States Court of Appeals
for the D. C. Circuit affirmed the FERC's decision in its treatment of return on
equity issues.

NOTICE OF PROPOSED RULEMAKING (DOCKET NO. RM01-10-000) 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 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.

NOTICE OF INQUIRY (DOCKET NO. PL02-6-000) 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, and participated in comments filed in this proceeding
by Williams in support of the FERC's existing negotiated rate program.

NOTICE OF PROPOSED RULEMAKING (DOCKET NO. RM02-14-000) 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. Pipeline participated in comments filed in this
proceeding on August 28, 2002 by the Interstate Natural Gas Association of
America. On September 25, 2002, the FERC convened a technical conference to
discuss issues raised in the comments filed by parties in this proceeding.

LEGAL PROCEEDINGS

In 1998, the United States Department of Justice ("DOJ") 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, royalty valuation 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 DOJ 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

8

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

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.
On October 9, 2002, the court granted a motion to dismiss Grynberg's royalty
valuation claims. Grynberg's measurement claims remain pending against Williams
and the other defendants.

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 two of the fourteen Williams entities named as defendants in the
lawsuit. In November 2001, The Williams defendants, along with other
coordinating defendants, filed a motion to dismiss on non-jurisdictional
grounds. In January 2002, most of the Williams defendants, along with a group of
coordinating defendants filed a motion to dismiss for lack of personal
jurisdiction. On August 19, 2002, defendants' motion to dismiss on
non-jurisdictional grounds was dismissed. On September 17, 2002, the plaintiffs
filed a motion for class certification. 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

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

SUMMARY

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.

4. DEBT AND FINANCING 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 participating subsidiaries. At September 30, 2002, the
commitment from participating banks had been reduced to $660 million, the
borrowing capacity available to Pipeline was $400 million, and 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.

9

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

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF 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 remained
investment grade for the balance of the quarter.

Williams experienced a substantial net loss for the second 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' unsecured
long-term debt 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
credit agreement, which expires in July 2005, to make it secured. These
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 and payable
immediately. In addition, Williams is pursuing the sale of other assets to
enhance liquidity. The sales are anticipated to close during the remainder of
2002 and the first half of 2003.

As part of the effort to reduce future operating expenses, certain
employee positions are being eliminated through organizational changes. In the
second quarter of 2002, Pipeline recorded $3.9 million of pension benefits
expense associated with an enhanced-benefit early retirement option offered to
certain Williams employee groups. In the third quarter, Pipeline recorded $.6
million of severance costs. Additional severance costs are expected in the
fourth quarter of 2002 as additional positions are eliminated within the
Pipeline organization. Further, if lump sum payments from the pension plan reach
a settlement accounting threshold, Williams and Pipeline would be required to
recognize certain unrecognized net losses, which would increase pension expense.
Williams anticipates that the threshold will be reached in the fourth quarter of
2002 resulting in an additional expense charge to Pipeline of $3.5 million to
$5.0 million.

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. On August 1, 2002, Williams' announced
its intention to further reduce its 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 nine-month periods ended September 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 and second quarter reports on Form 10-Q, and
with the condensed financial statements and notes contained in this report.

10

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2002 VS. NINE MONTHS ENDED SEPTEMBER 30, 2001

Operating revenues increased $5.2 million, or 2%, due primarily to
higher short-term firm and interruptible transportation, partially offset by a
$1.2 million decrease in tracked fuel costs and Gas Research Institute charges
billed to customers.

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

Operating expenses increased $5.3 million, or 5%, due primarily to a
$5.9 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 allocated general and administrative costs
from Williams, partially offset by lower tracked fuel costs and Gas Research
Institute charges collected from customers and a $1.5 million reduction in
employee costs resulting from recent staff reductions in connection with the
early retirement option and organizational changes across Williams.

Operating income decreased $.1 million due to the reasons identified
above.

Other income increased $6.5 million primarily due to reduced charitable
contribution commitments.

Other interest charges decreased $2.6 million resulting from the
RP95-409 rate case settlement refund paid to customers in August 2001.

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

CAPITAL RESOURCES 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 September 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

11

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 participating
subsidiaries. At September 30, 2002, the commitment from participating banks had
been reduced to $660 million, the borrowing capacity available to Pipeline was
$400 million, and Pipeline had no outstanding borrowings under this agreement.

As a participant in Williams' cash management program, Pipeline has
advances to and from Williams through Pipeline's parent company, WGP. At
September 30, 2002, the advances due Pipeline by WGP totaled $54.2 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.

NOTICE OF PROPOSED RULEMAKING (DOCKET NO. RM02-14-000) 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. Pipeline participated in comments filed in this proceeding on
August 28, 2002 by the Interstate Natural Gas Association of America. On
September 25, 2002, the FERC convened a technical conference to discuss issues
raised in the comments filed by parties in this proceeding.

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
$200 million, of which $115 million has been expended through September 30,
2002.

EXPANSION PROJECTS

On August 29, 2001, Pipeline filed an application with the FERC to
construct and operate an expansion

12

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
seven 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. The FERC issued a
certificate in September 2002. Pipeline plans to start construction by May 2003.
The estimated cost of the expansion project is approximately $154 million with a
targeted in-service date of November 1, 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
276,625 dekatherms per day of firm transportation capacity to serve new power
generation demand in western Washington. The Evergreen Expansion Project
includes installing 28 miles of pipeline loop, upgrading, replacing or modifying
five compressor stations and adding a net total of 67,150 horsepower of
compression. The FERC issued a certificate on June 27, 2002. Pipeline started
construction in October 2002. The estimated cost of the expansion project is
approximately $197 million with a targeted in-service date of October 1, 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 54,000 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 84 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 May 2003. The
estimated cost of the expansion project is approximately $43 million with a
targeted in-service date of November 1, 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 and placed the project in-service effective
November 1, 2002. The estimated cost of the lateral project is approximately $87
million. The customer has agreed to pay for the cost of service of the lateral
on an incremental rate basis.

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.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation of the effectiveness of the design and operation of
Pipeline's disclosure controls and procedures (as defined in Rules 13a-14 and
15d -14 of the Securities Exchange Act) was performed within the 90 days prior
to the filing date of this report. This evaluation was performed under the
supervision and with the participation of Pipeline's management, including
Pipeline's Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, Pipeline's Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures are effective.

There have been no significant changes in Pipeline's internal controls
or other factors that could significantly affect internal controls since the
certifying officers' most recent evaluation of those controls.

13

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

See discussion in Note 3 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 First Amended and Restated Credit Agreement
dated as of October 31, 2002 among The
Williams Companies, Inc., Northwest Pipeline
Corporation, Transcontinental Gas Pipe Line
Corporation and Texas Gas Transmission
Corporation, as Borrowers, the Banks named
therein, JPMorgan Chase Bank and Commerzbank
AG, as Co-Syndication Agents, Credit
Lyonnais New York Branch, as Documentation
Agent, Citicorp USA, Inc., as Agent, and
Salomon Smith Barney Inc., as Arranger
(filed as Exhibit 10.2 to The Williams
Companies, Inc. Form 10-Q for the quarter
ended September 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, President and 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, Vice President and Chief Financial
Officer of Northwest Pipeline Corporation

(b) Reports on Form 8-K.

None

14

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: November 14, 2002

15

Certifications

I, J. Douglas Whisenant, President and Chief Executive Officer of Northwest
Pipeline Corporation ("registrant") certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

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.

Dated: November 14, 2002 /s/ J. Douglas Whisenant
-------------------------------------
J. Douglas Whisenant
President and Chief Executive Officer

Certifications

I, Richard Rodekohr, Vice President and Chief Financial Officer of Northwest
Pipeline Corporation ("registrant") certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

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.

Dated: November 14, 2002 /s/ Richard Rodekohr
------------------------------------------
Richard Rodekohr
Vice President and Chief Financial Officer

EXHIBIT INDEX