10-Q 1 d96710e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ---------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number 1-7414 NORTHWEST PIPELINE CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 87-0269236 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 295 Chipeta Way Salt Lake City, Utah 84108 ----------------------------------------------------- (Address of principal executive offices and Zip Code) (801) 583-8800 ---------------------------------------------------- (Registrant's telephone number, including area code) No Change ------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 9, 2002 -------------------------- -------------------------- Common stock, $1 par value 1,000 shares The registrant meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format. NORTHWEST PIPELINE CORPORATION TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements - Condensed Statement of Income, three months ended March 31, 2002 and 2001.................................................... 1 Condensed Balance Sheet as of March 31, 2002 and December 31, 2001................................................................ 2 Condensed Statement of Cash Flows, three months ended March 31, 2002 and 2001............................................. 4 Notes to Condensed Financial Statements ............................................ 5 Item 2. Management's Narrative Analysis of the Results of Operations ................. 9 PART II. OTHER INFORMATION .............................................................. 11
Certain matters discussed in this report, excluding historical information, include forward-looking statements. Although Northwest Pipeline Corporation believes such forward-looking statements are based on reasonable assumptions, no assurance can be given that every objective will be reached. Such statements are made in reliance on the "safe harbor" protections provided under the Private Securities Litigation Reform Act of 1995. Additional information about issues that could lead to material changes in performance is contained in Northwest Pipeline Corporation's annual report on Form 10-K. i PART I. FINANCIAL INFORMATION Item 1. Financial Statements NORTHWEST PIPELINE CORPORATION CONDENSED STATEMENT OF INCOME (Unaudited)
Three Months Ended March 31, ------------------------------ 2002 2001 ------------ ------------ (Thousands of Dollars) OPERATING REVENUES ............................................... $ 71,617 $ 71,198 ------------ ------------ OPERATING EXPENSES: General and administrative .................................... 11,029 10,213 Operation and maintenance ..................................... 8,134 8,374 Depreciation .................................................. 14,752 14,013 Taxes, other than income taxes ................................ 3,668 4,161 ------------ ------------ 37,583 36,761 ------------ ------------ Operating income ......................................... 34,034 34,437 ------------ ------------ OTHER INCOME - net ............................................... 2,300 1,860 ------------ ------------ INTEREST CHARGES: Interest on long-term debt .................................... 6,394 6,469 Other interest ................................................ 680 1,686 Allowance for borrowed funds used during construction ......... (278) 8 ------------ ------------ 6,796 8,163 ------------ ------------ INCOME BEFORE INCOME TAXES ....................................... 29,538 28,134 PROVISION FOR INCOME TAXES ....................................... 11,161 10,602 ------------ ------------ NET INCOME ....................................................... $ 18,377 $ 17,532 ============ ============ CASH DIVIDENDS ON COMMON STOCK ................................... $ -- $ 10,000 ============ ============
---------- See accompanying notes. -1- NORTHWEST PIPELINE CORPORATION CONDENSED BALANCE SHEET (Unaudited) ASSETS
March 31, December 31, 2002 2001 ------------ ------------ (Thousands of Dollars) PROPERTY, PLANT AND EQUIPMENT, at cost ........................... $ 1,787,903 $ 1,775,222 Less - Accumulated depreciation ............................... 814,704 807,579 ------------ ------------ 973,199 967,643 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents ..................................... 205 443 Advances to affiliates ........................................ 66,610 72,073 Accounts receivable - Trade, less reserves of $246 for March 31, 2002 and $138 for December 31, 2001 ............................. 12,067 12,497 Affiliated companies ..................................... 6,448 5,407 Materials and supplies ........................................ 11,093 11,009 Exchange gas due from others .................................. 3,951 2,236 Deferred income taxes ......................................... 3,837 3,810 Excess system gas ............................................. 10,903 13,000 Prepayments and other ......................................... 885 1,697 ------------ ------------ 115,999 122,172 ------------ ------------ OTHER ASSETS: Deferred charges .............................................. 35,584 38,227 ------------ ------------ $ 1,124,782 $ 1,128,042 ============ ============
---------- See accompanying notes. -2- NORTHWEST PIPELINE CORPORATION CONDENSED BALANCE SHEET (Unaudited) LIABILITIES AND STOCKHOLDER'S EQUITY
March 31, December 31, 2002 2001 ------------ ------------ (Thousands of Dollars, Except Share Data) 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 ......................................... 271,954 253,577 ------------ ------------ 534,799 516,422 Long-term debt ................................................ 367,508 367,503 ------------ ------------ 902,307 883,925 ------------ ------------ CURRENT LIABILITIES: Accounts payable - Trade ..................................................... 12,179 15,624 Affiliated companies ...................................... 4,308 30,396 Accrued liabilities - Income taxes due to affiliate ............................. 6,376 9,094 Taxes, other than income taxes ............................ 5,390 2,509 Interest .................................................. 8,040 3,123 Employee costs ............................................ 5,207 8,549 Exchange gas due to others ................................ 14,854 15,236 Other ..................................................... 966 933 ------------ ------------ 57,320 85,464 ------------ ------------ DEFERRED INCOME TAXES ............................................ 158,613 153,801 ------------ ------------ OTHER DEFERRED CREDITS ........................................... 6,542 4,852 ------------ ------------ CONTINGENT LIABILITIES AND COMMITMENTS ........................... ------------ ------------ $ 1,124,782 $ 1,128,042 ============ ============
---------- See accompanying notes. -3- NORTHWEST PIPELINE CORPORATION CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------ 2002 2001 ------------ ------------ (Thousands of Dollars) OPERATING ACTIVITIES: Net income .................................................... $ 18,377 $ 17,532 Adjustments to reconcile to cash provided by operations - Depreciation ............................................... 14,752 14,013 Provision for deferred income taxes ........................ 4,785 2,890 Amortization of deferred charges and credits ............... 190 962 Allowance for equity funds used during construction ........ (575) 14 Reserve for doubtful accounts .............................. 108 -- Changes in: Accounts receivable and exchange gas due from others ................................................ (2,434) 13,153 Materials and supplies ................................... (84) (28) Other current assets ..................................... 2,909 (4,401) Deferred charges ......................................... 1,969 (1,637) Accounts payable and exchange gas due to others .......... (6,586) (13,027) Other accrued liabilities ................................ 1,771 5,749 Other deferred credits ................................... 2,179 (163) ------------ ------------ Net cash provided by operating activities ..................... 37,361 35,057 ------------ ------------ INVESTING ACTIVITIES: Property, plant and equipment - Capital expenditures ....................................... (19,757) (9,102) Proceeds from sales ........................................ 24 -- Asset removal cost ......................................... -- (429) Changes in accounts payable ................................ (23,329) (1,240) Advances to affiliates ........................................ 5,463 (14,119) ------------ ------------ Net cash used by investing activities ......................... (37,599) (24,890) ------------ ------------ FINANCING ACTIVITIES: Principal payments on long-term debt .......................... -- (1,667) Dividends paid ................................................ -- (10,000) ------------ ------------ Net cash used by financing activities ......................... -- (11,667) ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS ................................................... (238) (1,500) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 443 1,890 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 205 $ 390 ============ ============
---------- See accompanying notes. -4- NORTHWEST PIPELINE CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (1) General The accompanying, unaudited interim condensed financial statements of Northwest Pipeline Corporation ("Pipeline"), included herein, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations; however, Pipeline believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of Pipeline, all adjustments, which include only normal operating adjustments, have been made to present fairly the financial position of Pipeline as of March 31, 2002 and December 31, 2001, and the results of operations and cash flows for the three month periods ended March 31, 2002 and 2001. The results of operations for the periods presented are not necessarily indicative of the results for the respective complete years. It is suggested that these condensed financial statements be read in conjunction with the statements, the notes thereto and management's narrative analysis included in Pipeline's 2001 Annual Report on Form 10-K. Pipeline is a wholly-owned subsidiary of Williams Gas Pipeline Company LLC ("WGP"). WGP is a wholly-owned subsidiary of The Williams Companies, Inc. ("Williams"). Adoption of Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 establishes accounting and reporting standards for business combinations and requires all business combinations to be accounted for by the purchase method. The statement is effective for all business combinations initiated after June 30, 2001, and any business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. SFAS No. 142 addresses accounting and reporting standards for goodwill and other intangible assets. Under this statement, goodwill and intangible assets with indefinite useful lives will no longer be amortized, but will be tested annually for impairment. The statement became effective for all fiscal years beginning after December 15, 2001. Pipeline applied the new rules on accounting for goodwill and other intangible assets beginning January 1, 2002. The adoption of these standards did not have a material effect on Pipeline's results of operations and financial position. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies." The statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. The statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The effect of this standard on Pipeline's results of operations and financial position is being evaluated. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and amends Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The statement retains the basic framework of SFAS No. 121, resolves certain implementation issues of SFAS No. 121, extends applicability to discontinued operations, and broadens the presentation of discontinued operations to include a component of an entity. The statement is to be applied prospectively and is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of this statement had no impact on Pipeline's results of operations or financial position. Other Cash payments for interest were $1.2 million and $1.6 million, net of interest capitalized, in the three month periods ended March 31, 2002 and 2001, respectively. -5- NORTHWEST PIPELINE CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Cash payments of $9.1 million and $8.1 million were made to Williams for income taxes in the three month periods ended March 31, 2002 and 2001, respectively. (2) Basis of Presentation Pipeline's 1983 acquisition by Williams has been accounted for using the purchase method of accounting. Accordingly, an allocation of the purchase price was assigned to the assets and liabilities of Pipeline, based on their estimated fair values at the time of the acquisition. Williams has not pushed down the purchase price allocation (amounts in excess of original cost) of $92.4 million, as of March 31, 2002, to Pipeline as current Federal Energy Regulatory Commission ("FERC") policy does not permit Pipeline to recover through its rates amounts in excess of original cost. The accompanying financial statements reflect Pipeline's original basis in its assets and liabilities. (3) Long-Term Debt and Banking Arrangements 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 March 31, 2002. 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 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. (4) Contingent Liabilities and Commitments Pending Rate Cases On April 1, 1993, Pipeline began collecting new rates, subject to refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). Pipeline made refunds to customers in June 1998 totaling $27 million, including interest, reflecting the FERC's resolution of all disputed matters in this case. Pipeline and other parties sought judicial review of the FERC's decision concerning rate of return on equity. One party sought judicial review of the inclusion of unpaid accruals in rate base. In July 1998, the FERC issued orders concerning its rate of return on equity policy in rate proceedings of other pipelines adopting a formula that gives less weight to the long-term growth component. In April 1999, the Court of Appeals for the D.C. Circuit remanded the 1993 Rate Case to the FERC for application of its revised rate of return on equity policy. On July 14, 1999, the FERC issued an order requiring Pipeline to: (a) submit a surcharge plan to the FERC, (b) recalculate rates consistent with the new weighting formula favoring short term growth, and (c) address in a remand hearing the appropriate source for Gross Domestic Product ("GDP") growth data. The new weighting formula generally results in a higher authorized rate of return on equity. Pipeline and its customers resolved by settlement those issues relating to long term GDP growth. In February 2000, the FERC approved the long-term growth settlement and issued an order related to return on equity issues requiring Pipeline to incorporate the effects of the settlement and to calculate its allowed rate of return on equity consistent with the recently announced policy changes in other proceedings. As a part of this recalculation of allowed return on equity, the FERC provided that Pipeline must use the median instead of the midpoint of the various results of Discounted Cash Flow ("DCF") analysis for a proxy group. This resulted in a 13.67 percent return on equity for Pipeline. On April 3, 2000, Pipeline made the necessary compliance filings to implement the FERC's decision including the establishment of surcharges in order to recollect moneys that shippers owe Pipeline for these corrective actions. During the first quarter of 2000, Pipeline recorded surcharges of $11.4 million, of which $7.0 million increased revenues and $4.4 million, representing interest, increased other income. 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 recognizing $3.2 million of additional revenues and $2.6 million of interest income in July 2000. Some of Pipeline's customers sought judicial review concerning the FERC's orders with respect to return on equity issues. On July 13, 2001, the D.C. Circuit issued its decision affirming the FERC's earlier rulings on various rate base, accounting, and risk issues, but remanding the case to the FERC to allow the FERC to set forth more clearly its rationale for allowing Pipeline to utilize the median result of the DCF proxy group analysis. -6- NORTHWEST PIPELINE CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 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 Administrative Law Judge ("ALJ") issued an Initial Decision. The ALJ found that the facts of this case continue to support Pipeline's capital structure of 55 percent equity and 45 percent debt. The ALJ also determined that Pipeline fits within the average risk range for determining pipeline return on equity and allowed a return on equity of 11.2 percent. On June 1, 1999, the FERC issued its order affirming many aspects of the ALJ's initial decision, but finding that the return on equity issue should be resolved by using the FERC's new policy concerning rate of return determinations. This resulted in an allowed return on equity of 12.22 percent. 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. On July 11, 2001, the FERC issued an Order accepting Pipeline's compliance filings, subject to Pipeline making some minor rate related changes relating to billing determinants and cost of service recovery for facilities subject to reimbursement agreements. Some of Pipeline's customers have sought judicial review concerning risk and return on equity issues. On August 31, 2001, Pipeline made refunds to customers totaling $43.1 million, including interest. Significant Litigation In 1998, the United States Department of Justice informed Williams that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against Williams and certain of its wholly-owned subsidiaries including Pipeline. Mr. Grynberg had also filed claims against approximately 300 other energy companies and alleged that the defendants violated the False Claims Act in connection with the measurement and purchase of hydrocarbons. The relief sought was an unspecified amount of royalties allegedly not paid to the federal government, treble damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the United States Department of Justice announced that it was declining to intervene in any of the Grynberg qui tam cases; including the action filed against the Williams entities in the United States District Court for the District of Colorado. On October 21, 1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui tam cases, including those filed against Williams to the United States District Court for the District of Wyoming for pre-trial purposes. Motions to dismiss the complaints filed by various defendants, including Williams, were denied on May 18, 2001. On June 8, 2001, fourteen Williams entities, including Pipeline, were named as defendants in a nationwide class action lawsuit which has been pending against other defendants, generally pipeline and gathering companies, for more than one year. The plaintiffs allege that the defendants, including the Williams defendants, have engaged in mismeasurement techniques that distort the heating content of natural gas, resulting in an alleged underpayment of royalties to the class of producer plaintiffs. In September 2001, plaintiffs' counsel voluntarily dismissed Williams Pipeline Company and Williams Interstate Natural Gas Company. The Williams defendants, along with the coordinating defendants, filed a motion to dismiss under Rules 9b and 12b of the Kansas Rules of Civil Procedure. Oral argument was held in November 2001 and the decision is still pending. Many of the Williams and coordinating defendants filed a motion to dismiss for lack of personal jurisdiction. In the next several months, the Williams entities will join with other defendants in contesting certification of the plaintiff class. Other Legal and Regulatory Matters On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking ("NOPR") proposing to adopt uniform standards of conduct for transmission providers. The proposed rules define transmission providers as interstate natural gas pipelines and public utilities that own, operate or control electric transmission facilities. Significantly, the proposed standards would regulate the conduct of transmission providers with their energy affiliates, not just with their marketing affiliates. The FERC proposes to define energy affiliates very broadly, so as to include any transmission provider affiliate that engages in or is involved in transmission (gas or electric) transactions, or manages or controls transmission capacity, or buys, sells, trades or administers natural gas or electric energy or engages in financial transactions relating to the sale or transmissions of natural -7- NORTHWEST PIPELINE CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) gas or electric energy. Included in the proposed definition would be asset managers, producers, gatherers, and local distribution companies. The NOPR purports to be consistent with the FERC's longstanding goal of preventing affiliate preference. If adopted, the proposed standards could require organizational structure changes and the adoption of new compliance measures. Williams has formed a task force to analyze the potential effects of the proposed rules and to comment upon them. On December 20, 2001, Williams filed its comments with the FERC. In its comments, Williams opposed the proposed rules. Williams also suggested a technical conference to determine if marketing affiliate issues truly existed and, proposed only then, that the FERC should examine amending the current existing separate standards of conduct for the gas and electric industries. The FERC has announced its intention to hold a technical conference to discuss issues raised in the NOPR. 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. -8- Item 2. Management's Narrative Analysis of the Results of Operations This analysis discusses financial results of Pipeline's operations for the quarters ended March 31, 2002 and 2001. Variances due to changes in price and volume have little impact on revenues, because under Pipeline's rate design methodology, the majority of overall cost of service is recovered through firm capacity reservation charges in its transportation rates. This analysis should be read in conjunction with the financial statements, notes and management's narrative analysis of the results of operations contained in Items 7 and 8 of Pipeline's 2001 Annual Report on Form 10-K and with the condensed financial statements and notes contained in this report. RESULTS OF OPERATIONS Quarter Ended March 31, 2002 vs. Quarter Ended March 31, 2001 Pipeline's transportation service accounted for 93 percent of operating revenues for each of the quarters ended March 31, 2002 and 2001. Additionally, 3 percent of operating revenues was represented by gas storage service in each of the quarters ended March 31, 2002 and 2001. Operating revenues were comparable during the quarters ended March 31, 2002 and 2001. Operating expenses increased $0.8 million, or 2 percent, due primarily to higher depreciation expense and higher general and administrative overhead charges from Williams. Other interest expense decreased $1.0 million as a result of the August 31, 2001 refund to customers, totaling $43.1 million, related to the 1995 rate case. The following table summarizes volumes and capacity for the periods indicated:
Quarter Ended March 31, ------------------------- 2002 2001 ---------- ---------- Total Gas Volumes Throughput (TBtu) 198 205 Average Daily Transportation Volumes (TBtu) 2.2 2.3 Average Daily Firm Reserved Capacity (TBtu) 2.8 2.8
FINANCIAL CONDITION AND LIQUIDITY Pipeline anticipates 2002 capital expenditures will total approximately $243.8 million, of which $19.8 million has been expended through March 31, 2002. Funds necessary to complete capital projects are expected to come from several sources, including Pipeline's operations, return of advances to affiliates 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 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 31, 2002, 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. -9- 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 March 31, 2002. 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, through a wholly-owned bankruptcy remote subsidiary, sells certain of its accounts receivable to a special-purpose entity ("SPE") in a securitization structure requiring annual renewal. At March 31, 2002, Pipeline sold $15.0 million of its accounts receivable in exchange for $15.0 million in cash. OTHER Reference is made to Note 4 of Notes to Condensed Financial Statements for information about regulatory, judicial and business developments which cause operating and financial uncertainties. 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. Expansion Projects On August 29, 2001, Pipeline filed an application with the FERC to construct and operate an expansion of its pipeline system that will provide an additional 175,000 dekatherms per day of capacity to its transmission system in Wyoming and Idaho in order to reduce reliance on displacement capacity. The Rockies Expansion Project will include installing 91 miles of pipeline loop and upgrades or modifications to five compressor stations for a total increase of 24,924 horsepower. Pipeline reached a settlement agreement with the majority of its firm shippers to support roll-in of the expansion costs into its existing rates. Pipeline expects the FERC to issue a certificate by September 2002. Pipeline plans to start construction by April 2003. The estimated cost of the expansion project is approximately $154 million and the targeted completion date is October 31, 2003. On October 3, 2001, Pipeline filed an application with the FERC to construct and operate an expansion of its pipeline system that will provide 276 MMcf per day of firm transportation capacity to serve new power generation demand in western Washington. The Evergreen Expansion Project will include installing 28 miles of pipeline loop, upgrading, replacing or modifying five compressor stations and adding a net total of 67,000 horsepower of compression. Pipeline expects the FERC to issue a certificate by July 2002 and plans to start construction by August 2002. The estimated cost of the expansion project is approximately $197 million with a targeted in-service date of June 2003. The customers have agreed to pay for the cost of service of this expansion on an incremental basis. On October 3, 2001, Pipeline filed an application with the FERC to construct and operate an expansion of its pipeline system that will provide an additional 57,000 dekatherms per day of capacity to its transmission system from Stanfield, Oregon to Washougal, Washington. The Columbia Gorge Project will include upgrading, replacing or modifying five existing compressor stations, adding a net total of 24,430 horsepower of compression. The Columbia Gorge Project was filed as part of the Evergreen Expansion Project to reduce reliance on displacement capacity. Pipeline reached a settlement with the majority of its firm shippers to support roll-in of 88 percent of the expansion costs with the remainder to be allocated to the Evergreen Project. Pipeline expects the FERC to issue a certificate by July 2002 and plans to start construction by April 2003. The estimated cost of the expansion project is approximately $43 million with a targeted in-service date of October 31, 2003. On May 11, 2001, Pipeline filed an application with the FERC to construct and operate a lateral pipeline that will provide 161,500 dekatherms per day of firm transportation capacity to serve a new power generation plant. The Grays Harbor Lateral project will include installing 49 miles of 20-inch pipeline, adding 4,700 horsepower at an existing compressor station, and adding a new meter station. On April 24, 2002, Pipeline received the certificate from the FERC authorizing construction and operation of this project. Pipeline plans to start construction by June 2002. The estimated cost of the lateral project is approximately $75 million with a targeted in-service date of November 2002. The customer has agreed to pay for the cost of service of the lateral on an incremental rate basis. -10- PART II. OTHER INFORMATION The information required by items in Part II is omitted because the items are inapplicable, the answer is negative or substantially the same information is included elsewhere in this report or has been previously reported by the Registrant. -11- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHWEST PIPELINE CORPORATION -------------------------------------- Registrant By: /s/ Jeffrey R. Valentine -------------------------------------- Jeffrey R. Valentine Controller (Duly Authorized Officer and Chief Accounting Officer) Date: May 9, 2002 -12-