PG&E GAS TRANSMISSION NORTHWEST CORP - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period to

Commission File No. 0-25842

PG&E Gas Transmission, Northwest Corporation

(Exact name of registrant as specified in its charter)

California		94-1512922
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1400 SW Fifth Avenue, Suite 900, Portland, OR		97201
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (503) 833-4000

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 twelve 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 July 31, 2002.

1,000 shares of common stock no par value. (All shares are owned by PG&E GTN Holdings LLC.)

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.

TABLE OF CONTENTS

		Page
PART I. Financial Information

Item 1.	Consolidated Financial Statements

	Statements of Consolidated Income	1

	Consolidated Balance Sheets	2

	Statements of Consolidated Common Stock Equity	4

	Statements of Consolidated Cash Flows	5

	Notes to Consolidated Financial Statements	6

	Note 1. General	6

	Note 2. Relationship with PG&E Corporation and the California Electric Industry	8

	Note 3. Price Risk Management	9

	Note 4. Debt Financing	10

	Note 5. Commitments and Contingencies	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19

PART II. Other Information

Item 1.	Legal Proceedings	19

Item 5.	Other Information	20

Item 6.	Exhibits and Reports on Form 8-K	20

Signatures		21

PART I: FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
	(In Thousands)
OPERATING REVENUES:
Gas transportation	$	43,215		$	53,403		$	90,206		$	109,465
Gas transportation for affiliates		10,845			10,228			22,333			19,038
Other		49			47			98			97

Total operating revenues		54,109			63,678			112,637			128,600

OPERATING EXPENSES:
Administrative and general		7,603			9,932			15,463			16,169
Operations and maintenance		3,770			4,302			7,543			9,086
Depreciation and amortization		11,208			10,408			22,416			20,759
Property and other taxes		2,641			2,835			5,447			6,129

Total operating expenses		25,222			27,477			50,869			52,143

OPERATING INCOME		28,887			36,201			61,768			76,457

OTHER INCOME AND (INCOME DEDUCTIONS):
Allowance for equity funds used during construction		1,214			62			2,171			88
Interest income		1,514			1,753			3,059			3,530
Other—net		14			1,529			(57	)		1,538

Total other income and (income deductions)		2,742			3,344			5,173			5,156

INTEREST EXPENSE:
Interest on long-term debt		9,389			9,000			18,299			18,537
Allowance for borrowed funds used during construction		(820	)		(42	)		(1,473	)		(64	)
Other interest charges		82			486			174			1,046

Net interest expense		8,651			9,444			17,000			19,519

INCOME BEFORE INCOME TAXES		22,978			30,101			49,941			62,094
INCOME TAX EXPENSE		8,501			11,636			18,640			24,116

NET INCOME	$	14,477		$	18,465		$	31,301		$	37,978

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2002			December 31, 2001
	(In Thousands)
ASSETS
PROPERTY, PLANT and EQUIPMENT:
Property, plant and equipment in service	$	1,573,648		$	1,566,796
Accumulated depreciation and amortization		(598,993	)		(578,517	)

Net plant in service		974,655			988,279
Construction work in progress		102,244			67,487

Total property, plant and equipment—net		1,076,899			1,055,766

CURRENT ASSETS:
Cash and cash equivalents		78,442			3,667
Accounts receivable—gas transportation (net of allowance for doubtful accounts of $1,406 in each period)		16,797			15,892
Accounts receivable—transportation imbalances and fuel		2,345			2,286
Accounts receivable—affiliated companies		9,912			10,536
Inventories (at average cost)		8,482			7,697
Prepayments and other current assets		3,309			5,167

Total current assets		119,287			45,245

OTHER NON-CURRENT ASSETS:
Note receivable—parent		—			75,000
Income tax related regulatory assets		25,909			24,912
Deferred charge on reacquired debt		8,233			8,835
Unamortized debt expense		3,748			2,725
Other regulatory assets		2,466			2,315
Other		2,684			2,582

Total other non-current assets		43,040			116,369

TOTAL ASSETS	$	1,239,226		$	1,217,380

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2002		December 31, 2001
	(In Thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock—no par value, 1,000 shares authorized, issued and outstanding	$	85,474	$	85,474
Additional paid-in capital		245,417		227,717
Reinvested earnings		101,267		113,966

Total common stock equity		432,158		427,157
Long-term debt		503,948		488,892

Total capitalization		936,106		916,049

CURRENT LIABILITIES:
Long-term debt—current portion		33,000		33,000
Accounts payable		16,624		29,475
Accounts payable to affiliates		15,954		16,029
Accrued interest		3,842		3,633
Accrued liabilities		7,267		3,570
Accrued taxes		928		1,093

Total current liabilities		77,615		86,800

NON-CURRENT LIABILITIES:
Deferred income taxes		209,385		202,467
Other		16,120		12,064

Total non-current liabilities		225,505		214,531

COMMITMENTS and CONTINGENCIES (Note 5)		—		—

TOTAL CAPITALIZATION AND LIABILITIES	$	1,239,226	$	1,217,380

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY

(Unaudited)

	Six Months Ended June 30,
	2002			2001
	(InThousand)
BALANCE AT BEGINNING OF PERIOD	$	427,157		$	386,761
Comprehensive income:
Net income		31,301			37,978
Other comprehensive income—Price risk management		—			—

Comprehensive Income		31,301			424,739

Dividend to parent company		(44,000	)		(35,000	)
Contribution from parent company		17,700			—

BALANCE AT END OF PERIOD	$	432,158		$	389,739

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2002			2001
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	31,301		$	37,978
Adjustments to reconcile net income to net cash provided by Operations:
Depreciation and amortization		23,227			22,438
Deferred income taxes		6,918			5,607
Allowance for equity funds used during construction		(2,171	)		(88	)
Changes in operating assets and liabilities:
Accounts receivable—gas transportation and other		(964	)		1,364
Accounts payable and accrued liabilities		(8,945	)		(268	)
Net receivable/payable—affiliates, income taxes and other		549			31,607
Accrued taxes, other than income		(165	)		(180	)
Inventory		(785	)		3,752
Other working capital		1,858			3,090
Regulatory accruals		3,803			3,014
Other—net		(2,179	)		311

Net cash provided by operating activities		52,447			108,625

CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures		(39,899	)		(18,859	)
Note receivable—parent		75,000			—
Allowance for borrowed funds used during construction		(1,473	)		(64	)

Net cash provided by (used in) investing activities		33,628			(18,923	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt		(287,000	)		(92,000	)
Long-term debt issued, net of issuance costs		302,000			44,729
Cash dividends paid to parent		(44,000	)		(35,000	)
Equity contribution from parent		17,700			—

Net cash used in financing activities		(11,300	)		(82,271	)

NET CHANGE IN CASH AND EQUIVALENTS		74,775			7,431
CASH AND CASH EQUIVALENTS AT JANUARY 1		3,667			2,528

CASH AND CASH EQUIVALENTS AT JUNE 30	$	78,442		$	9,959

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	17,253		$	18,437
Income taxes	$	12,515		$	20

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1: GENERAL

Organization and Basis of Presentation

PG&E Gas Transmission, Northwest Corporation (PG&E GTN) was incorporated in California in 1957 under its former name, Pacific Gas Transmission Company. PG&E GTN is an indirect wholly owned subsidiary of PG&E National Energy Group, Inc. (PG&E NEG) and is affiliated with, but is not the same company as, Pacific Gas and Electric Company (the Utility), the gas and electric company serving northern and central California. PG&E Corporation is the ultimate corporate parent for both PG&E NEG and the Utility.

The accompanying unaudited consolidated financial statements, which have been prepared in accordance with interim period reporting requirements, reflect the results for PG&E GTN and its wholly owned subsidiaries which include Pacific Gas Transmission Company, PG&E Gas Transmission Service Company LLC (PG&E GTS), Pacific Gas Transmission International, Inc., and a 50 percent interest in a joint venture known as Stanfield Hub Services, LLC.

PG&E GTN and its subsidiaries are collectively referred to herein as the “Company”. This information should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, in the Company’s Form 10-K for the fiscal year ended December 31, 2001.

In the opinion of management, the accompanying statements reflect all adjustments necessary to present a fair statement of the financial position and results of operations for the interim periods. All material adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q. Intercompany accounts and transactions have been eliminated. Prior year amounts in the consolidated financial statements have been reclassified where necessary to conform to the 2002 presentation. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

Significant Accounting Policies

Accounting for Goodwill and Other Intangible Assets

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” This Statement eliminates the amortization of goodwill, and requires that goodwill be reviewed at least annually for impairment. This Statement also requires that the useful lives of previously recognized intangible assets be reassessed and the remaining amortization periods be adjusted accordingly. Adoption of this Statement did not require any adjustments to be made to the useful lives of existing intangible assets and no reclassifications of intangible assets to goodwill were necessary. Implementation of this Statement did not have any impact on the consolidated financial statements of PG&E GTN.

Accounting for Impairment or Disposal of Long-Lived Assets

On January 1, 2002, PG&E GTN adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” but retains the fundamental provision for recognizing and measuring impairment of long-lived assets to be held and used. This Standard also requires that all long-lived assets to be disposed of by sale are carried at the lower of carrying amount or fair value less cost to sell, and that depreciation should cease to be recorded on such assets. SFAS No. 144 standardizes the accounting and presentation requirements for all long-lived assets to be disposed of by sale, superceding previous guidance for discontinued operations of business segments.The adoption of the Statement did not have any impact on the consolidated financial statements of PG&E GTN.

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

Accounting for Price Risk Management Activities

PG&E GTN adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137 and 138, on January 1, 2001. This standard requires the recognition of all derivatives, as defined in the Statement, on the balance sheet at fair value. Effective January 1, 2001, derivatives are classified as price risk management assets and liabilities. Derivatives, or any portion thereof, that are not effective hedges must be adjusted to fair value through income. If derivatives are effective hedges, depending on the nature of the hedges, changes in the fair value of derivatives either will offset the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or will be recognized in other comprehensive income, a component of shareholder’s equity, until the hedged items are recognized in earnings.

SFAS No. 133 also provides for certain derivative contracts for physical delivery of purchase and sale quantities transacted in the normal course of business to be exempt from the requirements of the Statement. In June 2001 (as amended in October 2001 and in December 2001), the Financial Accounting Standards Board (FASB) approved an interpretation issued by the Derivatives Implementation Group that changed the definition of normal purchases and sales. As such, certain derivative contracts no longer qualify as normal purchases and sales and are no longer exempt from the requirements of SFAS No. 133.

PG&E GTN has contracts for the transportation of natural gas transacted in the normal course of business. These transportation service contracts have been determined to be exempt from the requirements of SFAS No. 133, and will therefore, not be reflected on the Consolidated Balance Sheets at fair value.

The earnings impact of adopting SFAS No. 133, as amended, on January 1, 2001 was immaterial. The effect on other comprehensive income was a decrease of $5.0 million related to hedging certain negotiated rate transportation contracts. See “Note 3: Price Risk Management Activities,” below for a further discussion of the hedging activities.

Related Party Transactions

On October 26, 2000, PG&E GTN loaned $75.0 million to PG&E Corporation pursuant to a promissory note bearing a floating interest rate tied to PG&E Corporation’s external borrowing rate. The loan was payable upon demand but had been recorded under non-current assets and shown as a Note receivable—parent company on the Consolidated Balance Sheets, which reflected PG&E GTN’s expectations about the timing of repayment. In June, 2002 PG&E Corporation repaid the loan with accrued interest. During 2002, PG&E GTN accrued interest income on the loan at an average interest rate of 7.6 percent.

PG&E GTN is charged by PG&E Corporation, PG&E NEG, and other affiliates for services, such as legal, tax, treasury, human resources, and other administrative functions, and for other costs incurred on PG&E GTN’s behalf, including employee benefit costs, insurance, and other related costs. The charges for these costs are based on direct assignment to the extent practicable or by using allocation methods that PG&E GTN believes are reasonable reflections of the utilization of services provided to or for the benefits received by PG&E GTN.

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

On January 1, 2002, PG&E GTN entered into a management services agreement with PG&E GTS, a wholly owned subsidiary, under which PG&E GTS will provide all operations and management services previously performed internally by PG&E GTN. Pursuant to the terms of that agreement, PG&E GTN transferred to PG&E GTS, and PG&E GTS accepted assignment of, all employees and the management of all employment-related obligations for current employees. PG&E GTN will reimburse PG&E GTS for such services based on direct assignment to the extent practicable or by using allocation methods that PG&E GTN believes are reasonable reflections of the utilization of services provided to or for the benefits received by PG&E GTN.

PG&E GTN had been authorized by its Board of Directors to execute and deliver guarantees to support obligations of PG&E Energy Trading Holdings Corporation, a wholly owned subsidiary of PG&E NEG, in an aggregate amount not to exceed $2.0 billion and to support the obligations of North Baja Pipeline, LLC, a wholly owned pipeline subsidiary of PG&E NEG, in an amount not to exceed $146 million. In April 2002, the Board of Directors modified authorizations regarding guarantees to reduce the amount of guarantees that can be outstanding on behalf of PG&E NEG subsidiaries to an aggregate maximum of $900 million.

At June 30, 2002 and December 31, 2001 guarantees, on behalf of PG&E NEG subsidiaries other than North Baja Pipeline, LLC, with a face value of $614.8 million and $985.4 million, respectively, were outstanding, with an overall net exposure of $60.7 million and $28.9 million, respectively, on the transactions supported by the guarantees. The net exposure is comprised of the amount of outstanding guarantees directly supporting underlying transactions, net of offsetting positions, cash, and other collateral. Also, at June 30, 2002 and December 31, 2001, a total of $13 million and $47 million, respectively, of guarantees were outstanding on behalf of North Baja Pipeline, LLC.

During the three-month periods ended June 30, 2002 and 2001, PG&E GTN provided transportation services to the Utility and its affiliates in the normal course of business which accounted for approximately $10.8 million, or 20 percent, and $10.2 million, or 16 percent, respectively, of PG&E GTN’s transportation revenues. For the six-month periods ended June 30, 2002 and 2001, PG&E GTN provided transportation services to the Utility and its affiliates in the normal course of business which accounted for approximately $22.3 million, or 20 percent, and $19.0 million, or 15 percent, respectively, of PG&E GTN’s transportation revenues. The lower percentages in 2001 reflect higher overall revenues that year combined with lower revenues from the Utility due to its release of capacity to other shippers early in 2001.

NOTE 2: RELATIONSHIP WITH PG&E CORPORATION AND THE CALIFORNIA ELECTRIC INDUSTRY

In December 2000, and January and February 2001, PG&E Corporation and PG&E NEG completed a corporate restructuring that involved the use or creation of limited liability companies (LLCs) as intermediate owners between a parent and its subsidiaries. The LLCs include among others, GTN Holdings LLC which owns 100 percent of the stock of PG&E GTN. In addition, PG&E NEG’s organization documents were modified to include the same structural elements as the LLCs.

GTN Holdings LLC’s charter requires unanimous approval of its Board of Control, including at least one independent director, before it can (a) consolidate or merge with any entity, (b) transfer substantially all of its assets to any entity, or (c) institute or consent to bankruptcy, insolvency, or similar proceedings or actions. GTN Holdings LLC may not declare or pay dividends unless the Board of Control has unanimously approved such action and GTN Holdings LLC, on a consolidated basis with PG&E GTN, meets specified financial requirements. After the restructuring was completed, two independent rating agencies, Standard & Poors and Moody’s Investor Services, reaffirmed investment grade ratings for PG&E GTN and issued investment grade ratings for PG&E NEG. On July 31, 2002, Standard & Poors downgraded PG&E NEG to BB+ and CreditWatch with negative implications from BBB/stable.

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

On April 6, 2001, the Utility filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. Pursuant to Chapter 11 of the U.S. Bankruptcy Code, the Utility retains control of its assets and is authorized to operate its business as a debtor-in-possession while being subject to the jurisdiction of the Bankruptcy Court. Subsequent to the bankruptcy filing the Company’s ratings on its debt were reaffirmed.

The Utility and PG&E Corporation have filed a proposed plan of reorganization for the Utility that entails separating the Utility into four distinct businesses. The proposed plan of reorganization does not directly affect the Company or any of its subsidiaries, except that the Company has reached an agreement to sell to a subsidiary of the Utility approximately 2.66 miles of 42-inch and 36-inch mainline pipe from the Company’s southernmost meter station to the California border, and has filed an application with the Federal Energy Regulatory Commission (FERC or Commission) requesting approval to effectuate the sale. This sale is conditioned on the confirmation of the reorganization plan by the Bankruptcy Court and approval by FERC of the Utility’s application to acquire, and PG&E GTN’s related application to abandon, the facilities. The facilities will be priced at the Company’s net book value for that portion of pipe at the time the transaction closes. The proposed plan is subject to confirmation by the Bankruptcy Court. In addition, before the plan can become effective, various regulatory approvals must be obtained and certain other conditions must be satisfied.

Management believes that the Company would not be substantively consolidated with PG&E Corporation in any insolvency or bankruptcy proceeding involving PG&E Corporation or the Utility.

The Utility has been PG&E GTN’s largest customer, accounting for over 15 percent of its transportation revenues for the past several years. As a result of the April 6, 2001 filing with the Bankruptcy Court, all $2.9 million due from the Utility for transportation services as of that date remains outstanding pending the decision of the Bankruptcy Court. In accordance with PG&E GTN’s FERC tariff provisions, the Utility has provided assurances in the form of cash to support its position as a shipper on the PG&E GTN pipeline. The Utility is current on all subsequent obligations incurred for the transportation services provided by PG&E GTN and has indicated its intention to remain current. The proposed plan of reorganization filed by PG&E Corporation and the Utility contemplates that the Utility will pay all its legitimate debts with interest. The Company anticipates that the Utility will pay the outstanding $2.9 million at the conclusion of the bankruptcy proceedings.

NOTE 3: PRICE RISK MANAGEMENT

PG&E GTN has contracts for the transportation of natural gas transacted in the normal course of business. PG&E GTN has used and may use other derivative contracts (i.e., other than the transportation service contracts), in limited instances and solely for hedging purposes, to offset price risk associated with certain negotiated rate transportation contracts. Commodity price risk is the risk that changes in market prices will adversely affect earnings and cash flows. PG&E GTN had exposure to commodity price risk associated with negotiated rate index price contracts to provide transportation service during 2001. The goal of the hedging program was to effectively convert a portion of PG&E GTN’s variable-rate future revenues into fixed-rate revenues by locking in forward prices on certain volumes through the basis swap arrangements with its affiliate, PG&E Energy Trading. These hedge contracts were effective from April through October of 2001. In late June of 2001, PG&E GTN entered into new contracts exactly offsetting the initial basis swap arrangements for July through October. The initial and offsetting swap contracts were designated as cash flow hedges and recorded on the balance sheet at fair value, with the offset in the other comprehensive income section of equity. All swaps were settled by the end of October 2001, and no further hedging activity has been conducted since that time.

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

The earnings impact of adopting SFAS No. 133, as amended, on January 1, 2001 was immaterial. The effect on other comprehensive income was a decrease of $5.0 million. Through June 30, 2001, PG&E GTN recorded $3.4 million of pre-tax ($2.1 million after tax) swap losses reported as an offset against gas transportation revenues. As of June 30, 2001, due to the execution of new contracts which exactly offset the remaining initial basis swap arrangements, GTN had reflected no remaining other comprehensive income. All 2001 unrealized losses were amortized to income in 2001 as they were realized. At June 30, 2002, there are no cash flow hedges recorded in relation to SFAS No. 133.

The schedule below summarizes the activities affecting accumulated other comprehensive income (loss) from derivative instruments:

	Six Months Ended June 30,
	2002		2001
	(In Millions)
Beginning Accumulated other comprehensive income (loss) from SFAS No. 133 transition adjustments at January 1, 2001	$	—	$	(5.0	)
Net change of current period hedging transactions gain (loss)		—		2.9
Net reclassification to earnings		—		2.1

Ending Accumulated other comprehensive income (loss)	$	—	$	—

NOTE 4: DEBT FINANCING

On May 2, 2002, PG&E GTN entered into a three-year $125 million corporate credit facility pursuant to a credit agreement dated as of May 2, 2002 (Credit Agreement) to replace (1) the then existing $100 million revolving credit agreement which was due to expire on May 30, 2002, and (2) the promissory agreement and note with PG&E NEG, which was correspondingly terminated.

At June 30, 2002, there were no outstanding borrowings under the Credit Agreement. At December 31, 2001, PG&E GTN had classified its borrowings under the revolving credit agreement as long-term debt as the Company intended to refinance such borrowing with the promissory note with NEG or the new three-year revolving credit agreement.

On June 6, 2002, PG&E GTN issued $100 million of 6.62% Senior Notes due June 6, 2012 pursuant to a Note Purchase Agreement dated June 6, 2002 (Note Purchase Agreement). Proceeds were used to repay $90 million of debt under the Credit Agreement, and the balance retained to meet general corporate needs. A commitment from a financial institution for a back-up 364-day bank facility, obtained in the event PG&E GTN had decided to postpone such long-term financing, was correspondingly terminated.

The Credit Agreement and the Note Purchase Agreement contain a covenant which limits total debt to 70 percent of total capitalization. At June 30, 2002, the total debt to total capitalization ratio, as defined in the agreements, was 55 percent and PG&E GTN was in compliance with all terms and conditions of its debt agreements.

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 5: COMMITMENTS AND CONTINGENCIES

Credit Support

PG&E GTN is authorized by its Board of Directors to provide credit support including the execution and delivery of guarantees to support the obligations of various PG&E NEG subsidiaries. See “Related Party Transactions” in “Note 1: General,” above for a further discussion of the credit support.

Legal Matters

In addition to the following legal proceeding, PG&E GTN is subject to routine litigation incidental to its business.

Natural Gas Royalties Complaint

This litigation involves the consolidation of approximately 77 False Claims Act cases filed in various federal district courts by Jack J. Grynberg (called a relator in the parlance of the False Claims Act) on behalf of the United States of America against more than 330 defendants, including PG&E GTN. The cases were consolidated for pretrial purposes in the U.S. District Court, for the District of Wyoming. The current case grows out of prior litigation brought by the same relator in 1995 that was dismissed in 1998.

Under procedures established by the False Claims Act, the United States (acting through the Department of Justice (DOJ)) is given an opportunity to investigate the allegations and to intervene in the case and take over its prosecution if it chooses to do so. In April 1999, the DOJ declined to intervene in any of the cases.

The complaints allege that the various defendants (most of which are pipeline companies or their affiliates) mismeasured the volume and heating content of natural gas produced from federal or Indian leases. As a result, the relator alleges that the defendants underpaid, or caused others to underpay, the royalties that were due to the United States for the production of natural gas from those leases.

The complaints do not seek a specific dollar amount or quantify the royalties claim. The complaints seek unspecified treble damages, civil penalties, and expenses associated with the litigation.

PG&E GTN believes that the allegations of the complaint are without merit and will vigorously respond to and defend the litigation. PG&E GTN also believes that the ultimate outcome of the litigation will not have a material adverse effect on its financial condition or results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

PG&E Gas Transmission, Northwest Corporation (PG&E GTN) is an indirect wholly owned subsidiary of PG&E National Energy Group, Inc. (PG&E NEG) and is affiliated with, but is not the same company as, Pacific Gas and Electric Company (the Utility), the gas and electric company serving northern and central California. PG&E Corporation is the ultimate corporate parent for both PG&E NEG and the Utility.

The consolidated financial statements include PG&E GTN and its wholly owned subsidiaries, Pacific Gas Transmission International, Inc., Pacific Gas Transmission Company, PG&E Gas Transmission Service Company LLC, and its 50 percent ownership interest in a joint venture known as Stanfield Hub Services, LLC.

PG&E GTN operates an open-access transportation system that transports primarily western Canadian gas from the British Columbia-Idaho border to the Oregon-California border for third-party shippers on a nondiscriminatory basis. PG&E GTN’s transportation system also provides service to various delivery points in Idaho, Washington, and Oregon. PG&E GTN’s natural gas transportation services are regulated by the Federal Energy Regulatory Commission (FERC), and various safety issues are subject to the jurisdiction of the U.S. Department of Transportation.

RISK FACTORS

The information in this Form 10-Q includes forward-looking statements that are necessarily subject to various risks and uncertainties. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to management. These forward-looking statements are identified by words such as “estimates,” “expects,” “anticipates,” “plans,” “believes,” and other similar expressions. Actual results could differ materially from those contemplated by the forward-looking statements.

Although PG&E GTN is not able to predict all of the factors that may affect future results, some of the factors that could cause future results to differ materially from those expressed or implied by the forward-looking statements, or historical results include:

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volatility of commodity fuel and electricity prices (which may result from a variety of factors, including: weather; the supply and demand for energy commodities; the availability of competitively priced alternative energy sources; the level of production and availability of natural gas, crude oil, and coal; transmission or transportation constraints; federal and state energy and environmental regulation and legislation; the degree of market liquidity; natural disasters, wars, embargoes, and other catastrophic events); any resulting increases in the cost of producing power and decreases in prices of power sold, and whether PG&E GTN’s strategies to manage and respond to such volatility are successful;

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the extent and timing of generating, pipeline, and storage capacity expansion and retirements by others;

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future sales levels, and general economic and financial market conditions and changes in interest rates;

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the extent to which PG&E GTN’s current or planned development of pipeline projects are completed and the pace and cost of that completion, including the extent to which commercial operations of these development projects are delayed or prevented because of various development and construction risks such as PG&E GTN’s failure to obtain necessary permits or equipment, the failure of third-party contractors to perform their contractual obligations, or the failure of necessary equipment to perform as anticipated;

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the success of PG&E GTN’s pursuit of potential business strategies, including acquisitions or dispositions of assets or internal restructuring;

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PG&E GTN’s ability to obtain financing for PG&E GTN and its subsidiaries’ planned development projects and related equipment purchases and to refinance PG&E GTN and its subsidiaries’ existing indebtedness as it matures, in each case, on reasonable terms while preserving PG&E GTN’s credit quality; which ability could be negatively affected by conditions in the general economy or the energy or capital markets;

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the impact on PG&E GTN of a loss of confidence in the energy industry;

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the ability of PG&E GTN’s counterparties to satisfy their financial commitments to PG&E GTN and the impact of counterparties’ nonperformance on PG&E GTN’s liquidity position;

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heightened rating agency criteria and the impact of changes in credit ratings on PG&E GTN’s future financial condition, particularly a downgrade below investment grade which would impair PG&E GTN’s ability to obtain financing for planned development projects;

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the extent to which our assumptions underlying PG&E GTN’s risk management programs are not realized;

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the effect of new accounting pronouncements;

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legislative or regulatory changes affecting the electric and natural gas industries in the United States, including the pace and extent of efforts to restructure the electric and natural gas industries;

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the effect of compliance with existing and future environmental laws, regulations, and policies, the cost of which could be significant;

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restrictions imposed upon PG&E GTN under certain term loans of PG&E Corporation or PG&E NEG;

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the effect of the Utility bankruptcy proceedings upon PG&E Corporation, PG&E NEG, and PG&E GTN; and in particular the impact a protracted delay in the Utility’s bankruptcy proceeding could have on PG&E Corporation’s liquidity and access to capital markets;

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the outcomes of the California Public Utilities Commission’s (CPUC’s) pending investigation into whether the California investor-owned utilities and their parent holding companies, including PG&E Corporation, have complied with past CPUC decisions, rules, or orders authorizing their holding company formations; the outcomes of the lawsuits brought by the California Attorney General, the City and County of San Francisco, and the People of the State of California against PG&E Corporation alleging unfair or fraudulent business acts or practices based on alleged violations of conditions established in the CPUC’s holding company decisions; and the outcome of the California Attorney General’s petition requesting revocation of PG&E’s exemption from the Public Utility Holding Company Act of 1935, and the effect of such outcomes, if any, on PG&E Corporation, PG&E NEG, and PG&E GTN;

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changes in or application of federal, state, and local laws and regulations to which PG&E GTN and its subsidiaries and the projects in which PG&E GTN invests are subject;

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changes in or application of Canadian laws, regulations, and policies which may impact PG&E GTN and its subsidiaries;

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the continuing ability of existing customers to meet their financial obligations;

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the financial condition of affiliates for whom PG&E GTN has provided credit support; and

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the outcome of pending or future litigation and environmental matters.

Although PG&E GTN believes that the expectations reflected in the forward-looking statements are reasonable, PG&E GTN cannot guarantee future results, events, levels of activity, performance, or achievements.

LIQUIDITY AND FINANCIAL RESOURCES

Sources of Capital—The Company’s capital requirements are funded from cash provided by operations and, to the extent necessary, external financing and capital contributions from its parent company. PG&E GTN has paid dividends as part of a balanced approach to managing its capital structure, funding its operations and capital expenditures, and maintaining appropriate cash balances. PG&E Corporation and PG&E NEG completed a corporate restructuring that involved the use or creation of limited liability companies as intermediate owners between a parent and its subsidiaries. For more information on these corporate actions, see “Note 2: Relationship with PG&E Corporation and the California Electric Industry” included in “Item 1. Notes to Consolidated Financial Statements,” above. As a result of these actions, GTN Holdings LLC, PG&E GTN’s immediate parent, may not declare or pay dividends unless its Board of Control (including at least one independent director) has unanimously approved such dividends, and GTN Holdings LLC, on a consolidated basis with PG&E GTN, maintains a debt coverage ratio of not less than 2.25:1 and a leverage ratio of not greater than 0.70:1 after giving effect to the dividend, or an investment grade credit rating.

Net Cash Provided by Operating Activities—For the six months ended June 30, 2002, net cash provided by operating activities was $52.4 million, compared with $108.6 million for the same period in 2001. The $56.2 million decrease was due to a number of factors, including the payment of income taxes to PG&E GTN’s parent in 2002, which was not done in the first half of 2001, lower net income in 2002, and changes in the balances of certain operating assets and liabilities.

Net Cash Provided by (Used in) Investing Activities—For the six months ended June 30, 2002, net cash provided by investing activities was $33.6 million. During the same six months ended 2001, net cash used in investing activities was $18.9 million. The 2002 total reflects the repayment by PG&E Corporation of the $75 million note receivable partially offset by higher construction expenditures which have occurred in 2002. See “Future Expansion and Business Development” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” below for a further discussion of investing activities.

Net Cash Used in Financing Activities—For the six months ended June 30, 2002, net cash used in financing activities was $11.3 million reflecting $44.0 million of dividends to parent, partially offset by $17.7 million equity contributions and $15.0 million net borrowing of long-term debt. For the six months ended June 30, 2001, cash used in financing activities was $82.3 million, reflecting a reduction in long-term debt and the payment of cash dividends to parent. See “Note 4: Debt Financing” included in “Item 1. Notes to Consolidated Financial Statements,” above for a further discussion of financing activities.

PG&E GTN believes that it will have the ability to fully finance its operations and construction activities and to comply with all of the terms of its existing debt covenants not withstanding the financial situation or rating changes of any of its affiliates. PG&E GTN has retained its stand-alone investment grade rating. On July 31, 2002, S&P reduced PG&E GTN’s credit rating to BBB+ and CreditWatch with negative implications from A-/stable. S&P’s ratings action was taken due to S&P’s policy of not rating any subsidiary more than three notches above its parent company. Also on July 31, 2002, S&P downgraded PG&E NEG to BB+ and CreditWatch with negative implications from BBB/stable. S&P’s ratings action will increase PG&E GTN’s costs to borrow money under its Credit Agreement which currently has no outstanding borrowings. Management has determined that such an increase will not have a material impact on its financial condition or results of operations.

RISK MANAGEMENT ACTIVITIES

PG&E Corporation and PG&E NEG have established officer-level risk policy and risk management committees. The PG&E NEG risk management policies are applicable to PG&E GTN. PG&E GTN may only engage in the use of derivatives in accordance with policies established by the Risk Management Committees of PG&E Corporation and PG&E NEG. PG&E NEG measures its commodity price risk exposure using value-at-risk and other methodologies that simulate future price movement in the energy markets to estimate the size and probability of future potential losses. Market risk is quantified using the variance/co-variance value-at-risk model that provides a consistent measure of risk across diverse energy markets and products. The use of this methodology requires a number of important assumptions, including the selections of confidence level for losses, volatility of prices, market liquidity, and holding period.

Credit Risk—Credit risk is the risk of loss that PG&E GTN would incur if counterparties fail to perform their contractual obligations. PG&E GTN conducts business primarily with customers in the energy industry, and this concentration of counterparties may impact the overall exposure to credit risk in that its counterparties may be similarly affected by changes in economic, regulatory, or other conditions. PG&E GTN mitigates potential credit losses in accordance with established credit approval practices and limits by conducting business primarily with creditworthy counterparties (counterparties considered investment grade or higher). PG&E GTN reviews credit exposure to each counterparty monthly or on an event driven basis. To be considered creditworthy for firm transportation, counterparties must have BBB S&P equivalent rating or higher, or provide assurances either in the form of cash, a guarantee from a BBB or better entity, or a standby letter of credit. For creditworthy shippers, PG&E GTN will extend limited credit based on a shipper’s financials or on the financials of a guarantor.

On December 2, 2001, Enron Corporation and certain subsidiaries that were then shippers on PG&E GTN’s system, including Enron Energy Services and Enron North America (collectively referred to as “Enron”), filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. During the six months ended June 30, 2002, 20,000 Dth per day of capacity held by Enron was assigned to third parties. Enron’s remaining firm transportation contracts with a capacity of 10,099 Dth per day expiring on October 31, 2002 and 42,500 Dth per day expiring on October 31, 2008 were terminated effective April 11, 2002 pursuant to an order of the Enron Bankruptcy Judge. PG&E GTN has now remarketed this capacity on a short-term basis and anticipates that it will remarket the capacity on a long-term basis in the future. At June 30, 2002, PG&E GTN had an unpaid receivable from Enron of approximately $3.5 million and has recorded a reserve of $1.4 million against such receivable representing the amount that may not be collectible. PG&E GTN believes that its exposure to Enron will not have a material impact on its financial condition or results of operations.

RESULTS OF OPERATIONS

Selected operating results and other data are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
	(In Millions)				(In Millions)
Operating revenues	$	54.1	$	63.7	$	112.6	$	128.6
Operating expenses		25.2		27.5		50.9		52.1

Operating income		28.9		36.2		61.7		76.5
Other income and (income deductions), net		2.7		3.3		5.2		5.1
Net interest expense		8.6		9.4		17.0		19.5

Income before taxes		23.0		30.1		49.9		62.1
Income tax expense		8.5		11.6		18.6		24.1

Net Income	$	14.5	$	18.5	$	31.3	$	38.0

Net Income—For the three- and six-month periods ended June 30, 2002, net income decreased $4.0 million and $6.7 million, respectively, compared to the same periods in 2001. The decreases in net income resulted primarily from lower operating revenues as noted below.

Operating Revenues—Operating revenues for the three- and six-month periods ended June 30, 2002 decreased $9.6 million and $16.0 million, respectively, compared to the same periods in 2001. The decreases resulted from weak pricing fundamentals on gas transportation to the California and Pacific Northwest gas markets compared to the same periods in 2001.

Operating Expenses—The components of total operating expenses are as follows:

	Three Months Ended June 30,				Six Months Ended June 30
	2002		2001		2002		2001
	(In Millions)				(In Millions)
Administrative and general	$	7.6	$	9.9	$	15.5	$	16.1
Operations and maintenance		3.8		4.3		7.5		9.1
Depreciation and amortization		11.2		10.4		22.4		20.8
Property and other taxes		2.6		2.9		5.5		6.1

Total operating expenses	$	25.2	$	27.5	$	50.9	$	52.1

For the three-and six-month periods ended June 30, 2002, compared with the same period in 2001, operating expenses decreased $2.3 million and $1.2 million, respectively. The lower administrative and general expenses in the three months ended June 30, 2002 are primarily reflective of the timing of certain allocated charges from PG&E NEG to PG&E GTN during the comparable period of 2001. Operations and maintenance expense decreased $1.6 million during the six months ended June 30, 2002 compared to the same period in 2001 related to a reduction in compressor overhaul activity. The reduction in property and other taxes during 2002 compared to 2001 are primarily the result of lower Washington compressor fuel use tax which is based on the indexed price of natural gas. Offsetting these decreases was an increase in depreciation and amortization expense related to the placement in service of a portion of the 2002 expansion project and the accelerated amortization of computer software which will be replaced before the end of its originally estimated useful life.

Other income and (income deductions)—The decrease in other income for the three months ended June 30, 2002 is primarily due to the loss of rental income which was present in 2001 and higher interest income in 2001. Additional Allowance for Funds Used During Construction (AFUDC) recorded in the current year as a result of significantly higher levels of construction work in process existing in 2002 when compared to the prior year, partially offsets the year-to-year decreases.

Interest Expense—Interest expense for the three- and six-month periods ended June 30, 2002 was $0.8 and $2.5 million less, respectively, than interest expense for the same periods in 2001. The reduction of interest expense is primarily due to higher AFUDC credits in 2002, the absense of interest on the capital lease which was disposed of in late 2001, and lower average rates, partially offset by higher debt balances (excluding the capital lease obligations). For the three months ended June 30, 2002, and 2001, the average interest rate was approximately 7.1 percent and 7.5 percent, respectively, while the average balance of debt outstanding (excluding capital lease obligations) was $533 million and $479 million, respectively. For the six months ended June 30, 2002 and 2001, the average interest rate was approximately 6.9 percent and 7.5 percent, while the average balance of long-term debt (excluding capital lease obligations) outstanding was $533 million and $495 million, respectively.

FUTURE EXPANSION AND BUSINESS DEVELOPMENT

PG&E GTN is in the process of completing its 2002 Expansion Project, which, when completed, will expand its system by approximately 217 MMcf per day. Approximately 40 MMcf per day of that expansion capacity was placed in service in November 2001 and the remaining capacity is expected to be placed in service by the end of 2002. The total cost of the expansion is estimated to be $122 million, of which $118 million has been spent through June 30, 2002. In addition, the FERC has issued a preliminary determination on non-environmental matters authorizing PG&E GTN to complete a second expansion of approximately 150 MMcf per day of additional capacity, at a cost of approximately $111 million of which approximately $5 million has been spent through June 30, 2002. PG&E GTN is evaluating plans for the timing of the second expansion and may defer its construction. PG&E GTN expects to fund these expansions from cash provided by operations, external financing, and capital contributions from PG&E NEG.

PG&E GTN regularly solicits expressions of interest for the acquisition or development of additional pipeline capacity and may develop additional firm transportation capacity as sufficient demand is demonstrated. PG&E GTN has initiated a preliminary assessments of lateral pipelines that would originate on the PG&E GTN mainline system and would extend to metropolitan areas in the Pacific Northwest.

CRITICAL ACCOUNTING POLICIES—ACCOUNTING FOR THE EFFECTS OF REGULATION

PG&E GTN accounts for the financial effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation.” As a result of applying the provisions of SFAS No. 71, PG&E GTN has accumulated approximately $36.6 million of regulatory assets and $14.6 million of regulatory liabilities as of June 30, 2002.

ENVIRONMENTAL MATTERS

The following discussion includes certain forward-looking information relating to the possible future impact of environmental compliance. This information reflects PG&E GTN’s current estimates which are periodically evaluated and revised. These estimates are subject to a number of assumptions and uncertainties, including changing laws and regulations, the ultimate outcome of complex factual investigations, evolving technologies, selection of compliance alternatives, the nature and extent of required remediation, the extent of PG&E GTN’s responsibility, and the availability of recoveries or contributions from third parties. Future estimates and actual results may differ materially from those indicated below.

PG&E GTN is subject to a number of federal, state and local laws and regulations designed to protect human health and the environment by imposing stringent controls with regard to planning and construction activities, land use, and air and water pollution, and, in recent years, by governing the use, treatment, storage, and disposal of hazardous or toxic materials. These laws and regulations affect future planning and existing operations, including environmental protection and remediation activities. PG&E GTN has generally been able to recover the costs of compliance with environmental laws and regulations in its rates.

On an ongoing basis, PG&E GTN assesses measures that may need to be taken to comply with environmental laws and regulations related to its operations. PG&E GTN believes that it is in substantial compliance with applicable existing environmental requirements and that the ultimate amount of costs, individually or in the aggregate, that it may incur in connection with its compliance and remediation activities will not have a material effect on its financial position, cash flows, or results of operations.

ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

In August 2001, the Financial Accounting Statements Board (FASB) issued Statement of Financial Accounting Statements (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” This Statement is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 provides accounting requirements for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under the Statement, the asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value in each subsequent period and the capitalized cost is depreciated over the useful life of the related asset. PG&E GTN is currently evaluating the impact of SFAS No. 143 on its consolidated financial statements.

In April 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.” This Statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current criteria under accounting principles generally accepted in the United States of America for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The Statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. Adoption of this Statement has no immediate effect on PG&E GTN’s consolidated financial statements. PG&E GTN will apply this guidance prospectively.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See “Risk Management Activities” included in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” above.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

Natural Gas Royalties Complaint—See “Legal Matters” in “Note 5: Commitments and Contingencies” in Notes to Consolidated Financial Statements included in “Item 1. Consolidated Financial Statements,” above.

PG&E Gas Transmission, Northwest Corporation, FERC Docket Nos. RP99-518-019; RP99-518-020; RP99-518-021; RP99-518-022—Between March 1, 2001 and June 1, 2001, PG&E GTN entered into ten contracts with eight different shippers under which the shippers agreed to pay a negotiated rate for service based on the differentials between spot market gas prices at various points on PG&E GTN’s system. In accordance with procedures established by FERC, PG&E GTN filed Tariff sheets with the Commission outlining the specific transactions. In a series of orders, FERC accepted each of these filings, allowed PG&E GTN to place the negotiated rates into effect, but set the rates subject to refund. On January 28, 2002, PG&E GTN submitted an Offer of Settlement in this proceeding, which does not propose a refund of any revenue collected by PG&E GTN. FERC staff filed comments in support of the Offer of Settlement, and the CPUC filed comments opposed to the Offer of Settlement. Both PG&E GTN and FERC staff filed reply comments in opposition to the CPUC’s comments and urged the Administrative Law Judge (ALJ) to certify the Offer of Settlement to the Commission. On April 4, 2002, the ALJ certified the Offer of Settlement to the Commission.

At the conclusion of these proceedings, FERC may require PG&E GTN to refund revenues received under some or all of these contracts in excess of revenues that would have been received under PG&E GTN’s recourse tariff rate. The total amount of potential refunds as of June 30, 2002, is approximately $10.2 million (including interest). PG&E GTN does not expect that the ultimate outcome of this matter will have a material adverse effect on its financial condition or results of operations.

Item 5. Other Information

PG&E Gas Transmission, Northwest Corporation’s earnings to fixed charges ratio for the six months ended June 30, 2002 was 3.7:1. The statement of the foregoing ratio, together with the statement of the computation of the foregoing ratio filed as Exhibit 12 hereto, is included herein for the purpose of incorporating such information and exhibit into Registration Statement No. 33-91048 relating to PG&E GTN’s debt outstanding.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit 12—Computation of Ratio of Earnings to Fixed Charges.

Exhibit 99.1—Certification of Principal Executive Officer or Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, dated July 31, 2002.

Exhibit 99.2—Certification of Principal Executive Officer or Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, dated July 31, 2002.

(b) Reports on Form 8-K issued during the quarter ended June 30, 2002, and through the date hereof:

1. May 8, 2002

Item 5. Other Events—PG&E GTN entered into a new three-year $125 million corporate revolving credit facility.

Item 7. Financial Statements and Exhibits—Credit Agreement dated May 2, 2002.

2. June 13, 2002

Item 5. Other Events—PG&E GTN entered into a ten-year $100 million private debt financing.

Item 7. Financial Statements and Exhibits—Form of Note Purchase Agreement dated June 6, 2002.

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.

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION (Registrant)

By:		/s/ THOMAS B. KING
		Thomas B. King President and Chief Operating Officer

August 2, 2002

By:		/s/ THOMAS E. LEGRO
		Thomas E. Legro Vice President and Controller

August 2, 2002

EXHIBIT INDEX

Exhibit No.:		Description of Exhibit

12		Computation of Ratio of Earnings to Fixed Charges

99.1		Certification of Principal Executive Officer or Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, dated July 31, 2002.

99.2		Certification of Principal Executive Officer or Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, dated July 31, 2002.

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