-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O5YeXG55ov9udIgjNL71UV1gEyQZXAD0eL7qXDRQGgPt4mRBBZT4UUCja6j/FLDJ a9A3CxRVB9tRfIKM+zYUtA== 0000950134-01-002045.txt : 20010313 0000950134-01-002045.hdr.sgml : 20010313 ACCESSION NUMBER: 0000950134-01-002045 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST PIPELINE CORP CENTRAL INDEX KEY: 0000110019 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 870269236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-07414 FILM NUMBER: 1565990 BUSINESS ADDRESS: STREET 1: 295 CHIPETA WAY CITY: SALT LAKE CITY STATE: UT ZIP: 84158-0900 BUSINESS PHONE: 8015838800 MAIL ADDRESS: STREET 1: 295 CHIPETA WAY CITY: SALT LAKE STATE: UT ZIP: 84158 10-K405 1 d84915e10-k405.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 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) (Zip Code) (801) 583-8800 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange Title of Each Class On Which Registered ------------------- -------------------- 6.625 % Debentures due 2007 New York Stock Exchange 9% Debentures due 2022 New York Stock Exchange 7.125% Debentures due 2025 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the registrant. No voting stock of registrant is held by non-affiliates. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at March 12, 2001 - ------------------------------------------ ----------------------------- Common stock, $1 par value 1,000 shares
Documents Incorporated by Reference: None The registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format. 2 TABLE OF CONTENTS PART I
Heading Page - ------- ---- Items 1. and 2. BUSINESS AND PROPERTIES .......................................... 1 Item 3. LEGAL PROCEEDINGS ................................................ 5 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Omitted)..... 5 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK- HOLDER MATTERS .................................................. 6 Item 6. SELECTED FINANCIAL DATA (Omitted)................................. 6 Item 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS ..... 6 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................... 9 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................................ 26 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Omitted)...... 27 Item 11. EXECUTIVE COMPENSATION (Omitted).................................. 27 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Omitted)............................................. 27 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Omitted).......... 27 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .................................................... 27
3 NORTHWEST PIPELINE CORPORATION FORM 10-K PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES BUSINESS ENVIRONMENT 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"). Pipeline owns and operates an interstate natural gas pipeline system, including facilities for mainline transmission and gas storage. Pipeline's transmission and storage activities are subject to regulation by the Federal Energy Regulatory Commission ("FERC") under the Natural Gas Act of 1938 ("Natural Gas Act") and under the Natural Gas Policy Act of 1978 ("NGPA"), and, as such, its rates and charges for the transportation of natural gas in interstate commerce, the extension, enlargement or abandonment of its jurisdictional facilities, and its accounting, among other things, are subject to regulation. Pipeline has significant future opportunities to provide service to meet the demands of growing gas markets. Pipeline's geographical position allows access to the incremental sources of supply required by these markets. TRANSMISSION Pipeline owns and operates a pipeline system for the mainline transmission of natural gas. This system extends from the San Juan Basin in northwestern New Mexico and southwestern Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near Sumas, Washington. At December 31, 2000, Pipeline's system, having an aggregate mainline deliverability of approximately 2.9 Bcf* of gas per day, was composed of approximately 3,900 miles of mainline and branch transmission pipelines, and 41 mainline compressor stations with a combined capacity of approximately 317,000 horsepower. Pipeline operates under an open-access transportation certificate wherein gas is transported for third party shippers. In 2000, Pipeline transported natural gas for a total of 152 customers. Pipeline provides services for markets in California, New Mexico, Colorado, Utah, Nevada, Wyoming, Idaho, Oregon and Washington. Transportation customers include distribution companies, municipalities, interstate and intrastate pipelines, gas marketers and direct industrial users. The two largest transportation customers of Pipeline in 2000 accounted for approximately 14.6% and 13.6%, respectively, of total operating revenues. No other customer accounted for more than 10% of total operating revenues in 2000. Pipeline's firm transportation agreements are generally long-term agreements with various expiration dates and account for the major portion of Pipeline's business. Additionally, Pipeline offers interruptible transportation service under agreements that are generally short term. * The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet and "Bcf" means billion cubic feet. All volumes of natural gas are stated at a pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit. The term "MMBtu" means one million British Thermal Units and "TBtu" means one trillion British Thermal Units. 4 No other interstate natural gas pipeline company presently provides significant service to Pipeline's primary gas consumer market area. However, competition with other interstate carriers exists for expansion markets. Competition also exists with alternate fuels. Electricity and distillate fuel oil are the primary alternate energy sources in the residential and commercial markets. In the industrial markets, high sulfur residual fuel oil is the main alternate fuel source. Pipeline believes that strong economies in the Pacific Northwest and the growing preference for natural gas in response to environmental concerns support future expansions of its mainline capacity. GAS STORAGE Underground gas storage facilities enable Pipeline to balance daily receipts and deliveries and provide storage services to certain major customers. Pipeline has a contract with a third party, under which gas storage services are provided to Pipeline in an underground storage reservoir in the Clay Basin Field located in Daggett County, Utah. Pipeline is authorized to utilize the Clay Basin Field at a seasonal storage level of 3.04 Bcf of working gas, with a firm delivery capability of 25.3 MMcf of gas per day. Pipeline owns a one-third interest in the Jackson Prairie underground storage facility located near Chehalis, Washington, with the remaining interests owned by two of Pipeline's distribution customers. The authorized seasonal storage capacity of the facility is 18.3 Bcf of working gas. The facility provides peak day deliveries to Pipeline of up to 850 MMcf per day on a firm basis and up to an additional 150 MMcf per day on a best-efforts basis. Pipeline also owns and operates a liquefied natural gas ("LNG") storage facility located near Plymouth, Washington, which provides standby service for Pipeline's customers during extreme peaks in demand. The facility has a total LNG storage capacity equivalent to 2.285 Bcf of working gas, liquefaction capability of 12 MMcf per day and regasification capability of 300 MMcf per day. Certain of Pipeline's major customers own the working gas stored at the LNG plant. EXPANSION PROJECTS Pipeline has several system expansion and enhancement proposals in various stages of development, although at the present time, there are no pending certificate applications for major expansion projects. OPERATING STATISTICS The following table summarizes volumes and capacity for the periods indicated:
Year Ended December 31, 2000 1999 1998 ---- ---- ---- Total throughput (TBtu)................................... 752 708 732 Average Daily Transportation Volumes (TBtu)............... 2.1 1.9 2.0 Average Daily Firm Reserved Capacity (TBtu)............... 2.7 2.5 2.6
OTHER REGULATORY MATTERS Pipeline's transportation of natural gas in interstate commerce is subject to regulation by the FERC under the Natural Gas Act and the NGPA. Pipeline holds certificates of public convenience and necessity issued by the FERC authorizing it to own and operate all pipelines, facilities and properties considered jurisdictional for which certificates are required under the Natural Gas Act. -2 - 5 Pipeline is subject to the Natural Gas Pipeline Safety Act of 1968, as amended by Title I of the Pipeline Safety Act of 1979, which regulates safety requirements in the design, construction, operation and maintenance of interstate gas transmission facilities. On February 9, 2000, the FERC issued a final rule, Order No. 637, in response to the comments received on the Notice of Proposed Rulemaking ("NOPR") and Notice of Inquiry ("NOI"). The FERC adopted in Order No. 637 certain policies that it found are necessary to adjust its current regulatory model to the needs of the evolving markets, but determined that any fundamental changes to its regulatory policy, which changes were raised and commented on in the NOPR and NOI, would be considered after further study and evaluation of the evolving marketplace. Most significantly, in Order No. 637, the FERC (i) revised its pricing policy to waive, for a two-year period, the maximum price ceilings for short-term releases of capacity of less than one year, and (ii) permitted pipelines to file proposals to implement seasonal rates for short-term services and term-differentiated rates, subject to certain requirements including the requirement that a pipeline be limited to recovering its annual revenue requirement under those rates. 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 results 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. During the first quarter of 2000, Pipeline recorded surcharges of $11.4 million, of which $7 million increased revenues and $4.4 million, representing interest, increased other income. The results of these adjustments are reflected in the accompanying statements. 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. The FERC's action resulted in Pipeline's booking $3.2 million of additional revenues and $2.6 million of interest income in July 2000. Some of Pipeline's customers have sought judicial review concerning the FERC's orders with respect to return on equity issues. 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"). On October 18, 1996, the Commission issued an order approving a settlement concerning certain liquid revenue credit issues relating to Pipeline's agreement with an affiliate to have liquid hydrocarbon products extracted from Pipeline's transportation stream at Ignacio, Colorado. The litigation of all remaining issues took place in late 1996. Pipeline's rate application sought a revenue increase for increases in rate base related primarily to the Northwest Natural and Expansion II facilities placed into service December 1, 1995 and increased operating costs primarily associated with an increase in headquarters office rent. During the first quarter of 1998, the ALJ issued an Initial Decision. The ALJ found that the facts of this case continue to support Pipeline's capital structure of 55% equity and 45% debt. The ALJ also determined that Pipeline fits within the average risk range for determining pipeline return on equity and allowed a return on equity of 11.2 percent. On June 1, 1999, the FERC issued its order affirming many aspects of the ALJ's initial decision, but finding that the return on equity issue should be resolved by using the FERC's new policy concerning rate of return determinations. This resulted in an allowed return on equity of 12.22 percent. During the second quarter of 1999, Pipeline reduced its rate refund liabilities $9.9 million, of which $7.7 million increased revenues -3- 6 and $2.2 million reduced interest expense, to reflect the FERC's action in this proceeding. 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. Upon approval, Pipeline will issue appropriate refunds to its customers, and does not anticipate other changes to current rate refund liabilities related to this rate case. On March 1, 1997, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed August 30, 1996 ("1996 Rate Case"). The application sought an increase in rates due to a proposed use of a higher depreciation rate which also considers a net negative salvage value for Pipeline's facilities, higher operating costs and a redesign of Pipeline's rates because of impacts relating to the sale of Pipeline's south-end facilities in the third quarter of 1996. On July 22, 1997, Pipeline filed a settlement to resolve all issues in this rate case. On November 25, 1997, the FERC, over the objection of one dissenting party, issued an order approving all aspects of the settlement. The one dissenting party sought and was denied rehearing of the FERC's order. That party sought judicial review of certain aspects of the FERC's decision. Pipeline made refunds to customers in August 1998 totaling $16.7 million, including interest, in this rate case. A settlement was reached with the one dissenting party on issues pending review in the proceeding and on other business related issues. The settlement with the one dissenting party had no impact on Pipeline's financial position or results of operations. All remaining judicial challenges in this matter were withdrawn in the third quarter of 2000. OWNERSHIP OF PROPERTY Pipeline's system is owned in fee. However, a substantial portion of Pipeline's system is constructed and maintained pursuant to rights-of-way, easements, permits, licenses or consents on and across properties owned by others. The compressor stations of Pipeline, with appurtenant facilities, are located in whole or in part upon lands owned by Pipeline and upon sites held under leases or permits issued or approved by public authorities. The LNG plant is located on lands owned in fee by Pipeline. Pipeline's debt indentures restrict the sale or disposal of a major portion of its pipeline system. EMPLOYEES At December 31, 2000, Pipeline employed 532 persons, none of whom are represented under collective bargaining agreements. No strike or work stoppage in any of Pipeline's operations has occurred in the past and relations with employees are good. ENVIRONMENTAL MATTERS Pipeline is subject to the National Environmental Policy Act and other federal and state legislation regulating the environmental aspects of its business. Management believes that Pipeline is in substantial compliance with existing environmental requirements. Pipeline believes that, with respect to any capital expenditures required to meet applicable standards and regulations, the FERC would grant the requisite rate relief so that, for the most part, such expenditures and a return thereon would be permitted to be recovered. Pipeline believes that compliance with applicable environmental requirements is not likely to have a material effect upon Pipeline's earnings or competitive position. FORWARD-LOOKING INFORMATION Certain matters discussed in this report, excluding historical information, include forward-looking statements. Although Pipeline 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. As required by such Act, Pipeline hereby identifies the following important factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted by Pipeline in forward-looking statements: (i) risks and uncertainties related to changes in general economic conditions in the United States, changes in laws and regulations to which Pipeline is subject, including tax, environmental and employment laws and regulations, the cost and effects of legal and administrative claims and proceedings against Pipeline or its subsidiary or which may be brought against Pipeline or its subsidiary, the effect of changes in accounting policies, and conditions of the capital markets Pipeline utilizes to access capital to finance operations; (ii) risks and uncertainties related to the -4- 7 impact of future federal and state regulation of business activities, including allowed rates of return and the resolution of other regulatory matters discussed herein; (iii) risks and uncertainties related to the ability to develop expanded markets as well as the ability to maintain existing markets; and (iv) risks and uncertainties related to the ability to control costs. In addition, future utilization of pipeline capacity will depend on energy prices, competition from other pipelines and alternate fuels, the general level of natural gas demand, decisions by customers not to renew expiring natural gas transportation contracts and weather conditions, among other things. ITEM 3. LEGAL PROCEEDINGS Other than as described in Note 9 of Notes to Financial Statements and above under Items 1 and 2 - Business and Properties, there are no material pending legal proceedings. Pipeline is subject to ordinary routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Since Pipeline meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, this information is omitted. -5- 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Pipeline is wholly-owned by WGP, a wholly-owned subsidiary of Williams. The payment of dividends by Pipeline on its common stock is restricted under various debt agreements. Under the most restrictive provisions, the amount of Pipeline's retained earnings available for dividends on its common stock as of December 31, 2000, was approximately $191.8 million. In 2000 and 1999, Pipeline paid cash dividends on common stock of $80 million and $56 million, respectively. ITEM 6. SELECTED FINANCIAL DATA Since Pipeline meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, this information is omitted. ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS This analysis discusses financial results of Pipeline's operations for the years 1998 through 2000. 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. RESULTS OF OPERATIONS Year Ended December 31, 2000 vs. Year Ended December 31, 1999 Operating revenues increased $8.6 million, or 3%, due primarily to the recognition of a $10.2 million surcharge resulting from a favorable FERC decision on return on equity related to the 1993 rate case, a $3.5 million increase in other revenues associated with full year operation of the Columbia Gorge project placed into service in November 1999 and higher short-term firm and interruptible transportation revenues, partially offset by a 1999 reduction to rate refund liabilities of $8.3 million associated with the 1995 rate case. Pipeline's transportation service accounted for 94% and 95% of operating revenues for the years ended December 31, 2000 and 1999, respectively. Additionally, 3% and 2% of operating revenues represented gas storage service for the years ended December 31, 2000 and 1999, respectively. Operating expenses increased $2.1 million, or 1%, due primarily to higher depreciation in 2000 coupled with a 1999 $2.1 million reduction to depreciation associated with the 1995 rate case and a 1999 $1.4 million reduction to liability reserves for sales and use tax audits resulting from a favorable ALJ decision, partially offset by the receipt in 2000 of $2.1 million in environmental liability insurance settlements, lower 2000 retirement plan contributions and a 1999 adjustment to expense of $1.2 million for software reengineering, training and other costs previously capitalized. Operating income increased $6.5 million, or 5%, due to the reasons identified above. Other income increased $8 million primarily resulting from $7 million of interest on the 1993 rate case surcharge revenues discussed above in operating revenues. Other interest expense increased $2.1 million due primarily to the 1999 reduction to accrued interest liabilities of $2.2 million associated with the 1995 rate case. Year Ended December 31, 1999 vs. Year Ended December 31, 1998 Operating revenues increased $.4 million due primarily to the 1999 reductions to rate refund liabilities of $8.3 million associated with the 1995 rate case and a $1.4 million gain on the sale of gas from Jackson Prairie, mostly offset by lower short-term firm and interruptible transportation revenues, reductions in 1998 of a demand charge credit reserve of $1.2 million and rate refund liabilities of $4.2 million -6- 9 associated with the 1993 and 1996 rate cases and a gain in 1998 of $.4 million on the sale of system balancing gas. Pipeline's transportation service accounted for 95% of operating revenues for each of the years ended December 31, 1999 and 1998. Additionally, gas storage service represented 2% and 3% of operating revenues for the years ended December 31, 1999 and 1998, respectively. Operating expenses decreased $4.6 million, or 3%, primarily due to a $2.1 million reduction to depreciation associated with the 1995 rate case, a $1.4 million reduction to liability reserves for sales and use tax audits resulting from a favorable ALJ decision, the 1998 increase to property damage reserves of $1.2 million, and the 1998 modification of an employee benefit program associated with the vesting of paid time off of $3 million, partially offset by $1.2 million of software reengineering, training and other costs previously capitalized, a $2.6 million increase in depreciation resulting primarily from additions of short-lived property and accruals for damages of $2.3 million associated with 1999 pipeline ruptures. Operating income increased $5 million, or 4%, due to reasons identified above. Interest on long-term debt decreased $3 million as a result of the early retirement of the remaining $34 million owed on the 10.65% Debentures in November of 1998. Other interest expense decreased $4.3 million due to the reduction to accrued interest liabilities of $2.2 million associated with the 1995 rate case and lower revenues subject to refund as a result of lower rate refund liabilities. FINANCIAL CONDITION AND LIQUIDITY Capital Expenditures and Financing Pipeline's expenditures for property, plant and equipment additions amounted to $47.9 million, $65.6 million and $60.1 million for 2000, 1999 and 1998, respectively. Funds necessary to complete capital projects are expected to come from several sources, including Pipeline's operations and available cash. In addition, Pipeline expects to be able to obtain financing, when necessary, on reasonable terms. To allow flexibility in the timing of issuance of long-term securities, financing may be provided on an interim basis with bank debt and from sources discussed below. As a participant in Williams' cash management program, Pipeline has advances to and from Williams through Pipeline's parent company, WGP. 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 Rating of Pipeline. Pipeline has an outstanding registration statement filed with the Securities and Exchange Commission. At March 1, 2001, approximately $150 million of shelf availability remains under this outstanding registration statement and may be used to issue debt securities. Interest rates and market conditions will affect amounts borrowed, if any, under this arrangement. Pipeline is a participant in a $700 million Revolving Credit Facility with Williams and certain affiliated companies. Pipeline's maximum borrowing availability, subject to prior borrowing by other affiliated companies, is $400 million, none of which was used by Pipeline at December 31, 2000. Interest rates vary with current market conditions based on the base rate of Citibank N.A., federal funds rate or LIBOR. The Facility 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. Any borrowings by Pipeline under this Facility are not guaranteed by Williams and are based on Pipeline's financial need and credit worthiness. Pipeline has an agreement to sell, on an ongoing basis, certain of its accounts receivable to a special-purpose entity ("SPE"). At December 31, 2000, Pipeline sold $15 million of its accounts receivable in exchange for $15 million in cash. For 2000, cash inflows from the SPE were approximately $130 million. The sales of these receivables resulted in a net charge to results of operations of approximately $.7 million and $.6 million in 2000 and 1999, respectively. -7- 10 OTHER Pipeline believes that strong economies in the Pacific Northwest and the growing preference for natural gas in response to environmental concerns support future expansions of its mainline capacity. Refer to Items 1 and 2 Business and Properties for information about regulation of Pipeline's business. See Note 2 of Notes to Financial Statements for fair value of financial instruments. Contingencies Reference is made to Note 9 of Notes to Financial Statements for information about regulatory, judicial and business developments which cause operating and financial uncertainties. Effect of Inflation Pipeline generally has experienced increased costs in recent years due to the effect of inflation on the cost of labor, materials and supplies, and property, plant and equipment. A portion of the increased labor and materials and supplies cost can directly affect income through increased maintenance and operating costs. The cumulative impact of inflation over a number of years has resulted in increased costs for current replacement of productive facilities. The majority of Pipeline's property, plant and equipment and inventory is subject to rate-making treatment, and under current FERC practices, recovery is limited to historical costs. While amounts in excess of historical cost are not recoverable under current FERC practices, Pipeline believes it will be allowed to recover and earn a return based on increased actual cost incurred when existing facilities are replaced. Cost-based regulation along with competition and other market factors limit Pipeline's ability to price services or products based upon inflation's effect on costs. MARKET RISK DISCLOSURES Interest Rate Risk Pipeline's interest rate risk exposure primarily results from its debt portfolio, which is influenced by short-term rates, primarily LIBOR based borrowings from commercial banks and long-term U.S. Treasury rates. To mitigate the impact of fluctuations in interest rates, Pipeline targets to maintain a significant portion of its debt portfolio in fixed rate debt. At December 31, 2000, the amount of Pipeline's fixed and variable rate debt was at targeted levels. Pipeline has traditionally maintained an investment grade credit rating as one aspect of managing its interest rate risk. In order to fund its 2001 capital expenditure plan, Pipeline may need to access various sources of liquidity, which may include traditional borrowing. The following table provides information as of December 31, 2000, about Pipeline's long-term debt that is subject to interest rate risk. The table presents principal cash flows and weighted average interest rates by expected maturity dates.
December 31, 2000 (Millions of Dollars) 2001 2002 2003 2004 2005 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Long-term debt, including current portion: Fixed rate -- -- $ 7.5 $ 7.5 $ 7.5 $345.0 $367.5 $366.0 Interest rate 7.0% 7.0% 6.9% 6.9% 6.8% 6.8% -- -- Variable rate $ 1.7 $ 1.6 -- -- -- -- $ 3.3 $ 3.4 Interest rate (1)
(1) The interest rate on these notes will be adjusted periodically based on a calculation using the United States Treasury Rate, but will never exceed 25% or be less than 9% per annum. The interest rate at December 31, 2000 was 9%. -8- 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Report of independent auditors............................................. 10 Covered by report of independent auditors: Statement of income for the years ended December 31, 2000, 1999 and 1998................................ 11 Balance sheet at December 31, 2000 and 1999........................... 12 Statement of cash flows for the years ended December 31, 2000, 1999 and 1998................................ 14 Statement of capitalization for the years ended December 31, 2000, 1999 and 1998................................ 15 Notes to financial statements......................................... 16 Not covered by report of independent auditors: Quarterly financial data (unaudited).................................. 26
All schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. -9- 12 REPORT OF INDEPENDENT AUDITORS The Board of Directors Northwest Pipeline Corporation We have audited the accompanying balance sheet of Northwest Pipeline Corporation as of December 31, 2000 and 1999, and the related statements of income, cash flows, and capitalization for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northwest Pipeline Corporation at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Tulsa, Oklahoma February 19, 2001 -10- 13 NORTHWEST PIPELINE CORPORATION STATEMENT OF INCOME ================================================================================
Year Ended December 31, ----------------------------------- 2000 1999 1998 -------- -------- -------- (Thousands of Dollars) OPERATING REVENUES ..................... $ 296,361 $ 287,793 $ 287,390 --------- --------- --------- OPERATING EXPENSES: General and administrative .......... 39,912 43,441 47,283 Operation and maintenance ........... 36,666 37,784 38,156 Depreciation ........................ 56,558 51,444 50,957 Taxes, other than income taxes ...... 13,363 11,777 12,610 --------- --------- --------- 146,499 144,446 149,006 --------- --------- --------- Operating income ................. 149,862 143,347 138,384 --------- --------- --------- OTHER INCOME - net ..................... 10,656 2,657 3,722 --------- --------- --------- INTEREST CHARGES: Interest on long-term debt .......... 25,914 26,064 29,064 Other interest ...................... 6,273 4,185 8,496 Allowance for borrowed funds used during construction .............. (273) (833) (520) --------- --------- --------- 31,914 29,416 37,040 --------- --------- --------- INCOME BEFORE INCOME TAXES ............ 128,604 116,588 105,066 PROVISION FOR INCOME TAXES ............. 48,862 43,575 41,030 --------- --------- --------- NET INCOME ............................. $ 79,742 $ 73,013 $ 64,036 ========= ========= ========= CASH DIVIDENDS ON COMMON STOCK ......... $ 80,000 $ 56,000 $ 36,000 ========= ========= =========
See accompanying notes. -11- 14 NORTHWEST PIPELINE CORPORATION BALANCE SHEET ================================================================================ ASSETS
December 31, ----------------------- 2000 1999 ---------- ---------- (Thousands of Dollars) PROPERTY, PLANT AND EQUIPMENT, at cost ............................... $1,678,814 $1,616,904 Less - Accumulated depreciation .................................. 758,375 701,127 ---------- ---------- 920,439 915,777 Construction work in progress .................................... 13,121 26,900 ---------- ---------- 933,560 942,677 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents ........................................ 1,890 342 Advances to affiliates ........................................... 53,882 30,842 Accounts receivable - Trade ......................................................... 12,227 17,748 Affiliated companies .......................................... 3,149 2,027 Materials and supplies (principally at lower of average cost or market) ......................................................... 10,798 10,734 Exchange gas due from others ..................................... 28,371 6,337 Deferred income taxes ............................................ 2,244 19,741 Prepayments and other ............................................ 9,238 2,725 ---------- ---------- 121,799 90,496 ---------- ---------- OTHER ASSETS: Deferred charges ................................................. 48,720 47,594 ---------- ---------- $1,104,079 $1,080,767 ========== ==========
See accompanying notes. -12- 15 NORTHWEST PIPELINE CORPORATION BALANCE SHEET ================================================================================ LIABILITIES AND STOCKHOLDER'S EQUITY
December 31, ----------------------- 2000 1999 ---------- ---------- (Thousands of Dollars) CAPITALIZATION: Common stockholder's equity - Common stock, par value $1 per share; authorized and outstanding, 1,000 shares ......................... $ 1 $ 1 Additional paid-in capital ............................... 262,844 262,844 Retained earnings ........................................ 206,536 206,794 ---------- ---------- 469,381 469,639 Long-term debt, less current maturities ..................... 369,146 370,793 ---------- ---------- 838,527 840,432 ---------- ---------- CURRENT LIABILITIES: Current maturities of long-term debt ........................ 1,667 1,667 Accounts payable - Trade .................................................... 12,729 10,289 Affiliated companies ..................................... 6,351 2,238 Accrued liabilities - Income taxes due to affiliate ............................ 8,067 8,546 Taxes, other than income taxes ........................... 2,701 2,400 Interest ................................................. 15,310 12,030 Employee costs ........................................... 9,512 11,413 Exchange gas due to others ............................... 35,475 8,612 Reserves for estimated rate refunds ...................... 16,198 29,059 Other .................................................... 2,029 2,001 ---------- ---------- 110,039 88,255 ---------- ---------- DEFERRED INCOME TAXES ........................................... 149,072 143,519 ---------- ---------- OTHER DEFERRED CREDITS .......................................... 6,441 8,561 ---------- ---------- CONTINGENT LIABILITIES AND COMMITMENTS ---------- ---------- $1,104,079 $1,080,767 ========== ==========
See accompanying notes. -13- 16 NORTHWEST PIPELINE CORPORATION STATEMENT OF CASH FLOWS ================================================================================
Year Ended December 31, ----------------------------------------- 2000 1999 1998 --------- --------- --------- (Thousands of Dollars) OPERATING ACTIVITIES: Net Income ................................................. $ 79,742 $ 73,013 $ 64,036 Adjustments to reconcile to cash provided by operations- Depreciation ............................................ 56,558 51,444 50,957 Provision for deferred income taxes ..................... 23,050 8,119 14,725 Amortization of deferred charges and credits ............ 1,111 2,112 1,908 Sale of receivables ..................................... 5,000 -- -- Allowance for equity funds used during construction ..... (496) (1,475) (813) Changes in: Accounts receivable and exchange gas due from Others ............................................. (22,635) 13,098 1,190 Materials and supplies ............................... (64) (159) 44 Other current assets ................................. (6,513) (962) 6,332 Other assets and deferred charges .................... (4,124) 2,075 (124) Accounts payable, income taxes due to affiliate and exchange gas due to others ........... 27,242 (11,584) (8,225) Other accrued liabilities ............................ (3,086) (8,838) (46,420) Other deferred credits ............................... (213) (518) 3,312 Other ................................................... -- 3 (7) --------- --------- --------- Net cash provided by operating activities .................. 155,572 126,328 86,915 --------- --------- --------- INVESTING ACTIVITIES: Property, plant and equipment - Capital expenditures .................................... (47,933) (65,642) (60,102) Proceeds from sales ..................................... 988 -- 1,455 Asset removal cost ...................................... -- (45) -- Changes in accounts payable ............................. (2,372) 312 878 Payments from (advances to) affiliates ..................... (23,040) (4,108) 45,089 --------- --------- --------- Net cash used by investing activities ...................... (72,357) (69,483) (12,680) --------- --------- --------- FINANCING ACTIVITIES: Principal payments on long-term debt ....................... (1,667) (1,667) (35,847) Premium on early retirement of long-term debt .............. -- -- (1,851) Dividends paid ............................................. (80,000) (56,000) (36,000) --------- --------- --------- Net cash used by financing activities ...................... (81,667) (57,667) (73,698) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... 1,548 (822) 537 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................ 342 1,164 627 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ...................... $ 1,890 $ 342 $ 1,164 ========= ========= =========
See accompanying notes. -14- 17 NORTHWEST PIPELINE CORPORATION STATEMENT OF CAPITALIZATION ================================================================================
Year Ended December 31, ----------------------------------------- 2000 1999 1998 --------- --------- --------- (Thousands of Dollars) COMMON STOCKHOLDER'S EQUITY: Common stock, par value $1 per share, Authorized and outstanding, 1,000 shares ... $ 1 $ 1 $ 1 --------- --------- --------- Additional paid-in capital - Balance at beginning and end of period .. 262,844 262,844 262,844 --------- --------- --------- Retained earnings - Balance at beginning of period ............. 206,794 190,507 162,617 Net income .............................. 79,742 73,013 64,036 Cash dividends .......................... (80,000) (56,000) (36,000) Noncash dividend ........................ -- (726) (146) --------- --------- --------- Balance at end of period ................... 206,536 206,794 190,507 --------- --------- --------- Total common stockholder's equity ....... 469,381 469,639 453,352 --------- --------- --------- LONG-TERM DEBT: Debentures - 6.625%, payable 2007 ....................... 250,000 250,000 250,000 7.125%, payable 2025 ....................... 84,718 84,706 84,695 9%, payable 2003 through 2007 .............. 32,766 32,758 32,749 Adjustable rate notes, payable through 2002 ... 1,662 3,329 4,996 --------- --------- --------- Total long-term debt .................... 369,146 370,793 372,440 --------- --------- --------- Total capitalization .................... $ 838,527 $ 840,432 $ 825,792 ========= ========= =========
See accompanying notes. -15- 18 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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"). Nature of Operations Pipeline owns and operates a pipeline system for the mainline transmission of natural gas. This system extends from the San Juan Basin in northwestern New Mexico and southwestern Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near Sumas, Washington. 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 $97.5 million, as of December 31, 2000, 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. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Property, Plant and Equipment Property, plant and equipment ("plant"), consisting principally of natural gas transmission facilities, is recorded at original cost. Expenditures which materially increase values or capacities or extend useful lives of plant are capitalized. Routine maintenance, repairs and renewal costs are charged to income as incurred. Gains or losses from the ordinary sale or retirement of plant are charged or credited to accumulated depreciation. Depreciation is provided by the straight-line method for utility plant. The annual weighted average composite depreciation rate recorded for transmission and storage plant was 3.16%, 2.88% and 3.03% for 2000, 1999 and 1998, respectively, including an allowance for negative salvage. Allowance for Borrowed and Equity Funds Used During Construction Allowance for funds used during construction ("AFUDC") represents the estimated cost of borrowed and equity funds applicable to utility plant in process of construction. Recognition is made of this item as a cost of utility plant because it constitutes an actual cost of construction under established regulatory practices. The FERC has prescribed a formula to be used in computing separate allowances for borrowed and equity AFUDC. The composite rate used to capitalize AFUDC was approximately 9.9%, 9.9% and 9.7% for 2000, 1999 and 1998, respectively. Equity AFUDC of $.5 million, $1.5 million and $.8 million for 2000, 1999 and 1998, respectively, is reflected in other income. -16- 19 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ Income Taxes Pipeline is included in Williams' consolidated federal income tax return. Pipeline's federal income tax provisions are computed as though separate tax returns are filed. Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of Pipeline's assets and liabilities. Deferred Charges Pipeline amortizes deferred charges over varying periods consistent with the FERC approved accounting treatment for such deferred items. Unamortized debt expense, debt discount and gains or losses on reacquired long-term debt are amortized by the bonds outstanding method over the related debt repayment periods. Cash and Cash Equivalents Cash and cash equivalents include demand and time deposits, certificates of deposit and other marketable securities with a term to maturity of three months or less when acquired. Exchange Gas Imbalances In the course of providing transportation services to customers, Pipeline may receive different quantities of gas from shippers than the quantities delivered on behalf of those shippers. These transactions result in imbalances, which are typically settled through the receipt or delivery of gas in the future. Customer imbalances to be repaid or recovered in-kind are recorded as exchange gas due from others or due to others in the accompanying balance sheets. These imbalances are valued at the average of the spot market rates at the Canadian border and the Rocky Mountain market as published in "Inside FERC's Gas Market Report." Settlement of imbalances requires agreement between the pipelines and shippers as to allocations of volumes to specific transportation contracts and timing of delivery of gas based on operational conditions. Revenue Recognition Revenues from the transportation of gas are recognized based on contractual terms and the related transported volumes. Pipeline is subject to FERC regulations and, accordingly, certain revenues collected may be subject to possible refunds upon final orders in pending rate cases. Pipeline records rate refund liabilities considering Pipeline and other third party regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks. Environmental Matters Pipeline is subject to Federal, state, and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their future economic benefit and potential for rate recovery. Pipeline believes that, with respect to any expenditures required to meet applicable standards and regulations, the FERC would grant the requisite rate relief so that, for the most part, such expenditures would be permitted to be recovered. Pipeline believes that compliance with applicable environmental requirements is not likely to have a material effect upon Pipeline's financial position. Interest Payments Cash payments for interest were $25.7 million, $25.3 million and $29 million, net of $.3 million, $.8 million and $.5 million of interest capitalized in 2000, 1999 and 1998, respectively. Stock-Based Compensation Williams' employee stock-based awards are accounted for under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. -17- 20 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ Williams' fixed plan common stock options generally do not result in compensation expense, because the exercise price of the stock options equals the market price of the underlying stock on the date of grant. Adoption of Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This was followed in June 2000 by the issuance of SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which amends SFAS No. 133. SFAS No. 133 and No. 138 establish accounting and reporting standards for derivative financial instruments. The standards require that all derivative financial instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings if the derivative is not a hedge. If a derivative is a hedge, changes in the fair value of the derivative will either be recognized in earnings along with the change in the fair value of the hedged asset, liability or firm commitment also recognized in earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. For a derivative recognized in other comprehensive income, the ineffective portion of the derivative's change in fair value will be recognized immediately in earnings. Pipeline adopted these standards effective January 1, 2001. The adoption of these standards had no impact on Pipeline's financial position or results of operations. The FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The Statement provides guidance for determining whether a transfer of financial assets should be accounted for as a sale or a secured borrowing, and whether a liability has been extinguished. The Statement is effective for recognition and reclassification of collateral and for disclosures which relate to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Statement will become effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The initial application of SFAS No. 140 will not have a material impact to Pipeline's results of operations and financial position. The FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation." This interpretation modified the practice of accounting for certain stock award agreements and was generally effective beginning July 1, 2000. The initial impact of this interpretation on Pipeline's results of operations and financial position was not material. Reclassifications Certain reclassifications have been made in the 1999 and 1998 financial statements to conform to the 2000 presentation. (2) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash, cash equivalents and advances to affiliate - The carrying amounts of these items are assumed to be indicative of their fair value. Long-term debt - The fair value of Pipeline's publicly traded long-term debt is valued using year-end traded market prices. Private debt is valued based on the prices of similar securities with similar terms and credit ratings. Pipeline used the expertise of an outside investment-banking firm to estimate the fair value of long-term debt. The carrying amount and estimated fair value of Pipeline's long term debt, including current maturities, were $371 million and $369 million, respectively, at December 31, 2000, and $372 million and $352 million, respectively, at December 31, 1999. -18- 21 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ (3) CONCENTRATION OF OFF-BALANCE-SHEET AND OTHER CREDIT RISK During some or all of the periods presented, more than 10% of Pipeline's operating revenues were generated from each of the following customers.
Year Ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (Thousands of Dollars) Puget Sound Energy, Inc. $43,368 $43,762 $42,565 Northwest Natural Gas Co. 40,376 39,064 40,557
Pipeline's major customers are located in the Pacific Northwest. As a general policy, collateral is not required for receivables, but customers' financial condition and credit worthiness are regularly evaluated and historical losses have been minimal. A portion of the revenues reflected above may be subject to refund due to Pipeline's pending rate cases as discussed in Note 9. Pipeline has an agreement to sell, on an ongoing basis, certain of its accounts receivable to a special-purpose entity ("SPE"). At December 31, 2000, Pipeline sold $15 million of its accounts receivable in exchange for $15 million in cash. For 2000, cash inflows from the SPE were approximately $130 million. The sales of these receivables resulted in a net charge to results of operations of approximately $.7 million and $.6 million in 2000 and 1999, respectively. (4) INCOME TAXES Significant components of the deferred tax liabilities and assets are as follows:
December 31, ---------------------- (Thousands of Dollars) 2000 1999 -------- -------- Property, plant and equipment $142,230 $139,070 Regulatory assets 5,431 5,515 Loss on reacquired debt 8,294 9,227 Other - net 534 628 -------- -------- Deferred tax liabilities 156,489 154,440 -------- -------- Rate refunds -- 17,688 Regulatory liabilities 3,305 2,209 Accrued liabilities 6,356 7,596 Contributions in aid of construction -- 3,169 -------- -------- Deferred tax assets 9,661 30,662 -------- -------- Net deferred tax liabilities $146,828 $123,778 ======== ======== Reflected as: Deferred income taxes - current asset $ 2,244 $ 19,741 Deferred income taxes - noncurrent liability 149,072 143,519 -------- -------- $146,828 $123,778 ======== ========
-19- 22 The provision for income taxes includes:
Year Ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (Thousands of Dollars) Current: Federal ......... $23,150 $31,804 $22,480 State ........... 2,662 3,652 3,825 ------- ------- ------- 25,812 35,456 26,305 ------- ------- ------- Deferred: Federal ......... 20,598 7,255 13,159 State ........... 2,452 864 1,566 ------- ------- ------- 23,050 8,119 14,725 ------- ------- ------- Total provision .... $48,862 $43,575 $41,030 ======= ======= =======
A reconciliation of the statutory Federal income tax rate to the provision for income taxes is as follows:
Year Ended December 31, --------------------------------------- 2000 1999 1998 -------- -------- -------- (Thousands of Dollars) Provision at statutory Federal income tax Rate of 35% ....................................... $ 45,011 $ 40,806 $ 36,773 Increase (decrease) in tax provision resulting from - State income taxes net of Federal tax benefit .... 3,324 2,999 3,504 Other - net ...................................... 527 (230) 753 -------- -------- -------- Provision for income taxes .................... $ 48,862 $ 43,575 $ 41,030 ======== ======== ======== Effective tax rate .................................. 37.99% 37.38% 39.05% ======== ======== ========
Net cash payments made to Williams for income taxes were $26.3 million, $35.5 million and $26.7 million in 2000, 1999 and 1998, respectively. (5) LONG-TERM DEBT, LEASES AND BANKING ARRANGEMENTS Debt Covenants The terms of Pipeline's debt indentures preclude the issuance of mortgage bonds. The indentures contain provisions for the acceleration of repayment or the reset of interest rates under certain conditions. Pipeline's debt indentures also contain restrictions which, under certain circumstances, limit the issuance of additional debt and restrict the disposal of a major portion of its natural gas pipeline system. Pipeline's debt indentures also contain provisions limiting common stock dividends. Under the most restrictive provisions, the amount of Pipeline's retained earnings available for dividends on its common stock as of December 31, 2000, was approximately $191.8 million. -20- 23 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ Adjustable Interest Rate Notes The interest rate on these notes will be adjusted periodically based on a calculation using the United States Treasury Rate, but will never exceed 25% or be less than 9% per annum. The interest rate at December 31, 2000 was 9%. Sinking Fund Requirements and Maturities As of December 31, 2000, cumulative sinking fund requirements and other maturities of long-term debt for each of the next five years are as follows:
(Thousands of Dollars) -------- 2001 ................................ $ 1,667 2002 ................................ 1,662 2003 ................................ 7,500 2004 ................................ 7,500 2005 ................................ 7,500 Thereafter .......................... $344,984 -------- Total ............................ $370,813 ========
Line-of-Credit Arrangements During 2000, Williams replaced its $1 billion Revolving Credit Facility with a $700 million Revolving Credit Facility. Pipeline is a participant in this $700 million Revolving Credit Facility with Williams and certain affiliated companies. Pipeline's maximum borrowing availability, subject to prior borrowing by other affiliated companies, is $400 million, none of which was used by Pipeline at December 31, 2000. Interest rates vary with current market conditions based on the base rate of Citibank N.A., federal funds rate or the London Interbank Offered Rate ("LIBOR"). This new Facility 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. Any borrowings by Pipeline under this new Facility are not guaranteed by Williams and are based on Pipeline's financial need and credit worthiness. Leases Pipeline's leasing arrangements include mostly premise and equipment leases that are classified as operating leases. The major operating lease is a leveraged lease, which became effective during 1982 for Pipeline's headquarters building. The agreement has an initial term of approximately 27 years, with options for consecutive renewal terms of approximately 9 years and 10 years. The major component of the lease payment is set through the initial and first renewal terms of the lease. Various purchase options exist under the building lease, including options involving adverse regulatory development. -21- 24 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ Pipeline subleases portions of its headquarters building to third parties under agreements with varying terms. Following are the estimated future minimum yearly rental payments required under operating leases, which have initial or remaining noncancelable lease terms in excess of one year:
(Thousands of Dollars) ------------ 2001 .......................... $ 8,806 2002 .......................... 8,806 2003 .......................... 8,806 2004 .......................... 8,806 2005 .......................... 8,806 Thereafter .................... 55,243 ------- $99,273 Less: noncancelable Subleases .................... 16,600 ------- Total .................... $82,673 =======
Operating lease rental expense amounted to $8.8 million, $8.3 million and $8.3 million for 2000, 1999 and 1998, respectively. Capital lease payments for the periods presented are not significant. (6) EMPLOYEE BENEFIT PLANS Pipeline's employees are covered by Williams' non-contributory defined-benefit pension plan and Williams' health care plan that provides postretirement medical benefits to certain retired employees. Contributions for pension and postretirement medical benefits related to Pipeline's participation in these plans were $2.8 million, $4.9 million and $5.5 million in 2000, 1999 and 1998, respectively. These amounts are currently recoverable in Pipeline's rates. Pipeline's employees are also covered by various Williams' defined-contribution plans. Pipeline's costs related to these plans totaled $1.8 million, $1.7 million and $1.9 million in 2000, 1999 and 1998, respectively. (7) STOCK-BASED COMPENSATION Williams has several plans providing for common stock-based awards to its employees and employees of its subsidiaries. The plans permit the granting of various types of awards including, but not limited to, stock options, stock appreciation rights, restricted stock and deferred stock. Awards may be granted for no consideration other than prior and future services or based on certain financial performance targets being achieved. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. Depending on the terms of the respective plans, stock options generally become exercisable in one-third increments each year from the anniversary of the grant or after three and five years, subject to accelerated vesting if certain future stock prices are achieved. Stock options expire 10 years after grant. FAS No. 123, "Accounting for Stock-Based Compensation," requires that companies who continue to apply APB Opinion No. 25 disclose pro forma net income assuming that the fair-value method in FAS 123 had been applied in measuring compensation cost. Pro forma net income for Pipeline was $78.4 million, $71.5 million and $63 million for 2000, 1999 and 1998, respectively. Reported net income was $79.7 million, $73 million and $64 million for 2000, 1999 and 1998, respectively. Pro forma amounts for 2000 include compensation expense for certain awards made in 1999 and the total compensation expense from awards made in 2000, as these awards fully vested in 2000 as a result of accelerated vesting provisions. Pro forma amounts for 1999 include the remaining total compensation expense from awards made in 1998 and the total compensation from certain awards made in 1999, as these awards -22- 25 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ fully vested in 1999 as a result of the accelerated vesting provisions. Pro forma amounts for 1998 include the remaining total compensation expense from the awards made in 1997 as these awards fully vested in 1998 as a result of the accelerated vesting provisions. Since compensation expense from stock options is recognized over the future years' vesting period for pro forma disclosure purposes, and additional awards generally are made each year, pro forma amounts may not be representative of future years' amounts. Stock options granted to employees of Pipeline in 2000, 1999 and 1998 were 135,851 shares, 160,647 shares and 149,850 shares, respectively, at a weighted average grant date fair value of $15.44, $11.90 and $8.19, respectively. Stock options outstanding and options exercisable for employees of Pipeline were 1,200,313 shares and 1,169,078 shares, respectively, at December 31, 2000; 1,182,172 shares and 1,150,997 shares, respectively, at December 31, 1999; and 1,292,429 shares and 1,143,757 shares, respectively, at December 31, 1998. The fair value of the stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: expected life of the stock options of approximately five years; volatility of the expected market price of Williams common stock of 31 percent (28 percent in 1999 and 25 percent in 1998); risk-free interest rate of 6.5 percent (5.6 percent in 1999 and 5.3 percent in 1998); and a dividend yield of 1.5 percent (1.5 percent in 1999 and 2.0 percent in 1998). (8) RELATED PARTY TRANSACTIONS As a subsidiary of Williams, Pipeline engages in transactions with Williams and other Williams subsidiaries characteristic of group operations. As a participant in Williams' cash management program, Pipeline has advances to and from Williams through Pipeline's parent company, WGP. The advances are represented by demand notes. The interest rate on intercompany demand notes is LIBOR on the first day of the month plus an applicable margin based on the current Standard and Poor's Rating of the Pipeline. Pipeline received interest income from advances to these affiliates of $3.4 million, $1.4 million, and $3.2 million during 2000, 1999 and 1998, respectively. Williams' corporate overhead expenses allocated to Pipeline were $4.5 million, $4.3 million and $4.1 million for 2000, 1999 and 1998, respectively. Such expenses have been allocated to Pipeline by Williams primarily based on the Modified Massachusetts formula, which is a FERC approved method utilizing a combination of net revenues, gross payroll and gross plant for the allocation base. In addition, Williams or an affiliate has provided executive, data processing, legal, aviation, internal audit and other administrative services to Pipeline on a direct charge basis, which amounted to $4.8 million, $3.8 million and $3.2 million for 2000, 1999 and 1998, respectively. During the periods presented, Pipeline's revenues reflect transportation and exchange transactions with subsidiaries of Williams. Combined revenues for these activities totaled $1.2 million, $.6 million and $1.4 million for 2000, 1999 and 1998, respectively. Pipeline has entered into various other transactions with certain related parties, the amounts of which were not significant. These transactions and the above-described transactions are charged on the basis of commercial relationships and prevailing market prices or general industry practices. (9) CONTINGENT LIABILITIES AND COMMITMENTS Pending Rate Cases On April 1, 1993, Pipeline began collecting new rates, subject to refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). Pipeline made refunds to customers in June 1998 totaling $27 million, including interest, reflecting the FERC's resolution of all disputed matters in this case. Pipeline and other parties sought judicial review of the FERC's decision concerning rate of return on equity. One party sought judicial review of the inclusion of unpaid accruals in rate base. In July 1998, the FERC issued orders concerning its rate of return on equity policy in rate proceedings of other pipelines adopting a formula that gives less weight to the long-term growth component. In April 1999, the Court of Appeals for the D.C. Circuit remanded the 1993 Rate Case to the FERC for application of its revised rate of return -23- 26 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ 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 results 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. During the first quarter of 2000, Pipeline recorded surcharges of $11.4 million, of which $7 million increased revenues and $4.4 million, representing interest, increased other income. The results of these adjustments are reflected in the accompanying statements. 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. The FERC's action resulted in Pipeline's booking $3.2 million of additional revenues and $2.6 million of interest income in July 2000. Some of Pipeline's customers have sought judicial review concerning the FERC's orders with respect to return on equity issues. 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"). On October 18, 1996, the Commission issued an order approving a settlement concerning certain liquid revenue credit issues relating to Pipeline's agreement with an affiliate to have liquid hydrocarbon products extracted from Pipeline's transportation stream at Ignacio, Colorado. The litigation of all remaining issues took place in late 1996. Pipeline's rate application sought a revenue increase for increases in rate base related primarily to the Northwest Natural and Expansion II facilities placed into service December 1, 1995 and increased operating costs primarily associated with an increase in headquarters office rent. During the first quarter of 1998, the ALJ issued an Initial Decision. The ALJ found that the facts of this case continue to support Pipeline's capital structure of 55% equity and 45% debt. The ALJ also determined that Pipeline fits within the average risk range for determining pipeline return on equity and allowed a return on equity of 11.2 percent. On June 1, 1999, the FERC issued its order affirming many aspects of the ALJ's initial decision, but finding that the return on equity issue should be resolved by using the FERC's new policy concerning rate of return determinations. This resulted in an allowed return on equity of 12.22 percent. During the second quarter of 1999, Pipeline reduced its rate refund liabilities $9.9 million, of which $7.7 million increased revenues and $2.2 million reduced interest expense, to reflect the FERC's action in this proceeding. 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. Upon approval, Pipeline will issue appropriate refunds to its customers, and does not anticipate other changes to current rate refund liabilities related to this rate case. On March 1, 1997, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed August 30, 1996 ("1996 Rate Case"). The application sought an increase in rates due to a proposed use of a higher depreciation rate which also considers a net negative salvage value for Pipeline's facilities, higher operating costs and a redesign of Pipeline's rates because of impacts relating to the sale of Pipeline's south-end facilities in the third quarter of 1996. On July 22, 1997, Pipeline filed a settlement to resolve all issues in this rate case. On November 25, 1997, the FERC, over the objection of one dissenting party, issued an order approving all aspects of the settlement. The one dissenting party sought and was denied rehearing of the FERC's order. That party sought judicial review of certain aspects of the FERC's decision. Pipeline made refunds to customers in August 1998 totaling $16.7 million, including interest, in this rate case. A settlement was reached with the one dissenting party on issues pending review in the proceeding and on other business related issues. The settlement with the one dissenting party had no impact on Pipeline's financial position or results of operations. All remaining judicial challenges in this matter were withdrawn in the third quarter of 2000. -24- 27 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS ================================================================================ Significant Litigation In 1998, the United States Department of Justice informed Williams that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against Williams and certain of its wholly-owned subsidiaries including Pipeline. Mr. Grynberg had also filed claims against approximately 300 other energy companies and alleged that the defendants violated the False Claims Act in connection with the measurement and purchase of hydrocarbons. The relief sought was an unspecified amount of royalties allegedly not paid to the Federal government, treble damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the United States Department of Justice announced that it was declining to intervene in any of the Grynberg qui tam cases; including the action filed against the Williams entities in the United States District Court for the District of Colorado. On October 21, 1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui tam cases, including the ones filed against Williams to the United States District Court for the District of Wyoming for pre-trial purposes. Motions to dismiss the complaint, filed by various defendants including Williams, are pending. Other Legal and Regulatory Matters On February 9, 2000, the FERC issued a final rule, Order No. 637, in response to the comments received on the Notice of Proposed Rulemaking ("NOPR") and Notice of Inquiry ("NOI"). The FERC adopted in Order No. 637 certain policies that it found are necessary to adjust its current regulatory model to the needs of the evolving markets, but determined that any fundamental changes to its regulatory policy, which changes were raised and commented on in the NOPR and NOI, would be considered after further study and evaluation of the evolving marketplace. Most significantly, in Order No. 637, the FERC (i) revised its pricing policy to waive, for a two-year period, the maximum price ceilings for short-term releases of capacity of less than one year, and (ii) permitted pipelines to file proposals to implement seasonal rates for short-term services and term-differentiated rates, subject to certain requirements including the requirement that a pipeline be limited to recovering its annual revenue requirement under those rates. In addition to the foregoing, various other proceedings are pending against Pipeline incidental to its operations. Summary of Contingent Liabilities Management believes that the ultimate resolution of the foregoing matters, based on advise of counsel and after consideration of amounts accrued, insurance coverage, potential recovery from customers, and other indemnification arrangements, will not have a materially adverse effect upon Pipeline's future financial position, results of operations, and cash flow requirements. Other Matters Commitments for construction and acquisition of property, plant and equipment are approximately $98.2 million at December 31, 2000. -25- 28 NORTHWEST PIPELINE CORPORATION QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of quarterly financial data for 2000 and 1999:
Quarter of 2000 ---------------------------------------------- First Second Third Fourth ------- ------- ------- ------- (Thousands of Dollars) Operating revenues ...... $79,760 $69,114 $73,819 $73,668 Operating income ........ 41,402 34,190 39,027 35,243 Net income .............. 23,980 17,271 21,291 17,200
Operating results for the first and third quarters of 2000 include the recognition of surcharges associated with the 1993 rate case. See Note 9 of Notes to Consolidated Financial Statements.
Quarter of 2000 ---------------------------------------------- First Second Third Fourth ------- ------- ------- ------- (Thousands of Dollars) Operating revenues ...... $70,141 $77,276 $68,642 $71,734 Operating income ........ 29,981 42,470 32,509 38,387 Net income .............. 13,276 23,917 15,879 19,941
Operating results for the second quarter of 1999 include reductions to rate refund liabilities associated with the 1995 rate case. See Note 9 of Notes to Consolidated Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -26- 29 PART III Since Pipeline meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, this information is omitted. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1 AND 2. FINANCIAL STATEMENTS AND SCHEDULES (included in Parts II and IV of this report). The financial statements are listed in the Index to Financial Statements on page 9. No schedules are required to be filed. (a)3. EXHIBITS: (2) Plan of acquisition, reorganization, arrangement, liquidation or succession: *(a) Merger Agreement, dated as of September 20, 1983, between Williams and Northwest Energy Company ("Energy") (Exhibit 18 to Energy schedule 14D-9 (Amendment No. 3) dated September 22, 1983). *(b) The Plan of Merger, dated as of November 7, 1983, between Energy and a subsidiary of Williams (Exhibit 2(b) to Pipeline report on Form 10-K, No. 1-7414, filed March 22, 1984). (3) Articles of incorporation and by-laws: *(a) Restated Certificate of Incorporation (Exhibit 3a to Amendment No. 1 to Registration Statement on Form S-1, No. 2-55-273, filed January 13, 1976). *(b) By-laws, as amended (Exhibit 3c to Registration Statement on Form S-1, No. 2-55273, filed December 30, 1975). (4) Instruments defining the rights of security holders, including indentures: *(a) Note Purchase Agreement, dated as of April 15, 1982, between Pipeline and Teachers Insurance and Annuity Association of America relating to Adjustable Rate Notes, due March 31, 2002 (Exhibit (a)4(e) to Energy Report on Form 10-Q for the quarter ended June 30, 1982, No. 1-7987). *(b) Senior Indenture, dated as of August 1, 1992, between Pipeline and Continental Bank, N.A., relating to Pipeline's 9% Debentures, due 2022 (Exhibit 4.1 to Registration Statement on Form S-3, No. 33-49150, filed July 2, 1992). *(c) Senior Indenture, dated as of November 30, 1995 between Pipeline and Chemical Bank, relating to Pipeline's 7.125% Debentures, due 2025 (Exhibit 4.1 to Registration Statement on Form S-3, No. 33-62639, filed September 14, 1995). *(d) Senior indenture, dated as of December 8, 1997 between Pipeline and The Chase Manhattan Bank, relating to Pipeline's 6.625% Debentures, due 2007 (Exhibit 4.1 to Registration Statement on Form S-3, No. 333-35101, filed September 8, 1997. *(e) Credit Agreement dated July 25, 2000, among Pipeline, Williams and certain affiliated companies and the banks named therein and Citibank N.A., as agent. (Exhibit 4.1 to Williams Form 10-Q for the period ended June 30, 2000, Commission File Number 1-4174). -27- 30 (10) Material contracts: (c) *(1) Form of Transfer Agreement, dated July 1, 1991, between Pipeline and Gas Processing (Exhibit 10(c)(8) to Pipeline Report on Form 10-K, No. 1-7414, filed March 26, 1992). *(2) Form of Operating Agreement, dated July 1, 1991, between Pipeline and Williams Field Services Company (Exhibit 10(c)(9) to Pipeline Report on Form 10-K, No. 1-7414, filed March 26, 1992). (23) Consent of Independent Auditors (24) Power of Attorney with Certified Resolution (b) REPORTS ON FORM 8-K: No reports on Form 8-K have been filed by Pipeline during the last quarter of the period covered by this report. - ---------- *Exhibits so marked have heretofore been filed with the Securities and Exchange Commission as part of the filing indicated and are incorporated herein by reference. -28- 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 R. Valentine ---------------------------------------- Jeffrey R. Valentine Controller (Principal Accounting Officer) Date: March 12, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title --------- ----- /s/ Keith E. Bailey* Chairman of the Board and Director - ------------------------------ Keith E. Bailey /s/ Cuba Wadlington, Jr.* President (Principal Executive Officer) - ------------------------------ and Director Cuba Wadlington, Jr. /s/ J. Douglas Whisenant* Sr. Vice President and General Manager - ------------------------------ and Director J. Douglas Whisenant /s/ Nick A. Bacile* Vice President and Treasurer (Principal - ------------------------------ Financial Officer) Nick A. Bacile /s/ Jeffrey R. Valentine* Controller (Principal Accounting Officer) - ------------------------------ Jeffrey R. Valentine * By /s/ Jeffrey R. Valentine ---------------------------- Jeffrey R. Valentine Attorney-in-fact
Date: March 12, 2001 -29- 32 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 23 Consent of Independent Auditors 24 Power of Attorney with Certified Resolution
EX-23 2 d84915ex23.txt CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-35101) of Northwest Pipeline Corporation and in the related Prospectus of our report dated February 19, 2001, with respect to the consolidated financial statements of Northwest Pipeline Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2000. /s/ Ernst & Young LLP Tulsa, Oklahoma March 9, 2001 EX-24 3 d84915ex24.txt POWER OF ATTORNEY WITH CERTIFIED RESOLUTION 1 EXHIBIT 24 NORTHWEST PIPELINE CORPORATION POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned individuals, in their capacity as a director or officer, or both, as hereinafter set forth below their signature, of NORTHWEST PIPELINE CORPORATION, a Delaware corporation ("NWP"), does hereby constitute and appoint NICK A. BACILE AND JEFFREY R. VALENTINE their true and lawful attorneys and each of them (with full power to act without the other) their true and lawful attorneys for them and in their name and in their capacity as a director or officer, or both, of NWP, as hereinafter set forth below their signature, to sign NWP's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2000, and any and all amendments thereto or all instruments necessary or incidental in connection therewith; and THAT the undersigned NWP does hereby constitute and appoint NICK A. BACILE AND JEFFREY R. VALENTINE its true and lawful attorneys and each of them (with full power to act without the other) its true and lawful attorney for it and in its name and on its behalf to sign said Form 10-K and any and all amendments thereto and any and all instruments necessary or incidental in connection therewith. Each of said attorneys shall have full power of substitution and resubstitution, and said attorneys or any of them or any substitute appointed by any of them hereunder shall have full power and authority to do and perform in the name and on behalf of each of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully to all intents and purposes as each of the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys or any of them or of any such substitute pursuant hereto. IN WITNESS WHEREOF, the undersigned have executed this instrument, all as of the 18th day of February, 2001. /s/ Cuba Wadlington, Jr. /s/ Nick A. Bacile - ----------------------------------------- --------------------------- Cuba Wadlington, Jr. Nick A. Bacile President, Chief Executive Vice President and Officer, and Director Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer) /s/ Jeffrey R. Valentine ----------------------------- Jeffrey R. Valentine Controller (Principal Accounting Officer) /s/ Keith E. Bailey /s/ J. Douglas Whisenant - --------------------------------------- -------------------------- Keith E. Bailey J. Douglas Whisenant Director Director NORTHWEST PIPELINE CORPORATION By /s/ Nick A. Bacile ------------------------- Nick A. Bacile Vice President and Chief Financial Officer 2 ATTEST: /s/ Shawna L. Gehres - ------------------------ Shawna L. Gehres Secretary 3 NORTHWEST PIPELINE CORPORATION I, the undersigned, Shawna L. Gehres, Secretary of NORTHWEST PIPELINE CORPORATION, a Delaware company (hereinafter called the "Company"), do hereby certify that pursuant to Section 141(f) of the General Corporation Law of Delaware, the Board of Directors of this Corporation unanimously consented, as of February 18, 2001, to the following: RESOLVED that the Chairman of the Board, the President or any Vice President of the Company be, and each of them hereby is, authorized and empowered to execute a Power of Attorney for use in connection with the execution and filing, for and on behalf of the Company, under the Securities Exchange Act of 1934, of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. I further certify that the foregoing resolution has not been modified, revoked or rescinded and is in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of NORTHWEST PIPELINE CORPORATION this 18th day of February, 2001. /s/ Shawna L. Gehres ------------------------ Shawna L. Gehres Secretary [CORPORATE SEAL] -----END PRIVACY-ENHANCED MESSAGE-----