Quarterly Report For the Period Ended June 30, 2004

-----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, N+6W5bH97WHrwplv7KFoo+Q8dNj5frcLwES8pQXJVGcYS+7qp2AeTwqgL6BcLj/M Q2Fn4th4nitmBjQQzj+2LA== 0001193125-04-139010.txt : 20040812 0001193125-04-139010.hdr.sgml : 20040812 20040812143645 ACCESSION NUMBER: 0001193125-04-139010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAS TRANSMISSION NORTHWEST CORP CENTRAL INDEX KEY: 0000075491 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 941512922 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25842 FILM NUMBER: 04969892 BUSINESS ADDRESS: STREET 1: 1400 SW 5TH AVE, SUITE 900 CITY: PORTLAND STATE: OR ZIP: 97201 BUSINESS PHONE: 5038334000 MAIL ADDRESS: STREET 1: 1400 SW 5TH AVE, SUITE 900 CITY: PORTLAND STATE: OR ZIP: 97201 FORMER COMPANY: FORMER CONFORMED NAME: PG&E GAS TRANSMISSION NORTHWEST CORP DATE OF NAME CHANGE: 19980114 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC GAS TRANSMISSION CO DATE OF NAME CHANGE: 19950411 10-Q 1 d10q.htm QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2004 Quarterly Report For the Period Ended June 30, 2004

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to

COMMISSION FILE NO. 0-25842

Gas Transmission Northwest Corporation

(Exact name of registrant as specified in its charter)


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 12, 2004.

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

TABLE OF CONTENTS


		Page

PART I. Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Statements of Condensed Consolidated Income	1

	Condensed Consolidated Balance Sheets	2

	Statements of Condensed Consolidated Common Stock Equity	4

	Statements of Condensed Consolidated Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

	Note 1: General	6

	Note 2: Related Party Transactions and Activity	7

	Note 3: Commitments and Contingencies	7

	Note 4: North Baja Pipeline, LLC	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	20

PART II. Other Information

Item 1.	Legal Proceedings	21

Item 6.	Exhibits and Reports on Form 8-K	23

Signatures		24

PART I: FINANCIAL INFORMATION

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Gas Transmission Northwest Corporation

Statements of Condensed Consolidated Income

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2004			2003			2004			2003
OPERATING REVENUES:
Gas transportation	$	47,686		$	44,121		$	97,719		$	90,366
Gas transportation for affiliates		14,127			14,231			29,044			29,013
Other		179			431			703			3,270

Total operating revenues		61,992			58,783			127,466			122,649

OPERATING EXPENSES:
Administrative and general		8,071			7,146			16,832			13,995
Operations and maintenance		4,768			4,369			9,310			8,704
Depreciation and amortization		12,261			12,899			24,496			25,782
Property and other taxes		3,672			3,284			7,869			6,562

Total operating expenses		28,772			27,698			58,507			55,043

OPERATING INCOME		33,220			31,085			68,959			67,606

OTHER INCOME AND (INCOME DEDUCTIONS):
Allowance for equity funds used during construction		227			154			418			323
Interest income		268			126			491			260
Other – net		(3,189	)		(143	)		(3,209	)		(130	)

Total other income and (income deductions)		(2,694	)		137			(2,300	)		453

INTEREST EXPENSE:
Interest on long-term debt		9,552			9,941			19,071			19,879
Allowance for borrowed funds used during construction		(127	)		(101	)		(236	)		(206	)
Other interest charges		77			47			199			111

Net interest expense		9,502			9,887			19,034			19,784

INCOME BEFORE INCOME TAXES		21,024			21,335			47,625			48,275
INCOME TAX EXPENSE		8,189			8,445			18,521			18,978

NET INCOME	$	12,835		$	12,890		$	29,104		$	29,297

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

Gas Transmission Northwest Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

ASSETS


(In Thousands)	June 30, 2004			December 31, 2003
PROPERTY, PLANT and EQUIPMENT:
Property, plant and equipment in service	$	1,848,700		$	1,843,640
Accumulated depreciation and amortization		(680,638	)		(656,573	)

Net plant in service		1,168,062			1,187,067
Construction work in progress		22,587			19,170

Total property, plant and equipment – net		1,190,649			1,206,237

CURRENT ASSETS:
Cash and cash equivalents		109,743			55,196
Accounts receivable - gas transportation (net of allowance for doubtful accounts of $1,406 in each period)		18,127			19,258
Accounts receivable - transportation imbalances and fuel		262			1,011
Accounts receivable - affiliated companies		23,788			27,229
Inventories (at average cost)		8,823			9,963
Prepayments and other current assets		1,717			1,241

Total current assets		162,460			113,898

OTHER NON-CURRENT ASSETS:
Income tax related regulatory assets		31,183			31,391
Deferred charge on reacquired debt		5,823			6,425
Unamortized debt expense		2,734			2,991
Other regulatory assets		5,983			5,318
Other		13,616			12,904

Total other non-current assets		59,339			59,029

TOTAL ASSETS	$	1,412,448		$	1,379,164

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

Gas Transmission Northwest Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

CAPITALIZATION AND LIABILITIES


(In Thousands, except shares)	June 30, 2004		December 31, 2003
CAPITALIZATION:
Common stock - no par value, 1,000 shares authorized, issued, and outstanding	$	85,474	$	85,474
Additional paid-in capital		249,837		249,837
Reinvested earnings		225,593		196,489

Total common stock equity		560,904		531,800
Long-term debt		248,170		498,115

Total capitalization		809,074		1,029,915

CURRENT LIABILITIES:
Long-term debt - current portion		250,000		—
Accounts payable		14,743		13,343
Accounts payable to affiliates		10,523		17,918
Accrued interest		4,890		4,825
Accrued and other current liabilities		8,991		10,021
Accrued taxes		2,673		2,946

Total current liabilities		291,820		49,053

NON-CURRENT LIABILITIES:
Deferred income taxes		271,296		261,510
Other		40,258		38,686

Total non-current liabilities		311,554		300,196

COMMITMENTS and CONTINGENCIES (Note 3)		—		—

TOTAL CAPITALIZATION AND LIABILITIES	$	1,412,448	$	1,379,164

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

Gas Transmission Northwest Corporation

Statements of Condensed Consolidated Common Stock Equity

(Unaudited)


	Six Months Ended June 30,
(In Thousands)	2004		2003
BALANCE AT BEGINNING OF PERIOD	$	531,800	$	473,513
Net income		29,104		29,297

BALANCE AT END OF PERIOD	$	560,904	$	502,810

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

Gas Transmission Northwest Corporation

Statements of Condensed Consolidated Cash Flows

(Unaudited)


	Six Months Ended June 30,
(In Thousands)	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	29,104		$	29,297
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		24,496			25,782
Deferred income taxes		9,786			7,714
Allowance for equity funds used during construction		(418	)		(323	)
Changes in operating assets and liabilities:
Accounts receivable – gas transportation and other		1,880			(135	)
Accounts payable and accrued liabilities		435			(11,737	)
Net receivable/payable – affiliates, income taxes and other		(3,954	)		(6,523	)
Accrued taxes, other than income		(273	)		(713	)
Inventory		1,140			1,131
Other working capital		(476	)		(394	)
Regulatory accruals		1,974			3,136
Other – net		(657	)		(1,303	)

Net cash provided by operating activities		63,037			45,932

CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures		(8,254	)		(6,713	)
Allowance for borrowed funds used during construction		(236	)		(206	)

Net cash used in investing activities		(8,490	)		(6,919	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt		—			(31,000	)

Net cash used in financing activities		—			(31,000	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		54,547			8,013
CASH AND CASH EQUIVALENTS AT JANUARY 1		55,196			10,621

CASH AND CASH EQUIVALENTS AT JUNE 30	$	109,743		$	18,634

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest, net of amounts capitalized	$	19,103		$	19,220
Income taxes paid to parent	$	36		$	18,936

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1: GENERAL

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and information disclosed in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” in the Annual Report on Form 10-K filed by Gas Transmission Northwest Corporation (GTNC) for the fiscal year ended December 31, 2003.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present a fair statement of the financial position, results of operations, and cash flows for the interim periods. All material adjustments are of a normal recurring nature unless otherwise disclosed in this Quarterly Report on Form 10-Q. Intercompany accounts and transactions have been eliminated. Prior year amounts in the consolidated financial statements have been reclassified where necessary to conform to the 2004 presentation. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

The accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with interim period reporting requirements, reflect the results for GTNC and its wholly owned subsidiaries which include: North Baja Pipeline, LLC; Pacific Gas Transmission Company; Gas Transmission Service Company, LLC; and a 50 percent interest in a joint venture known as Stanfield Hub Services, LLC.

Organization

GTNC was incorporated in California in 1957 under its former name, Pacific Gas Transmission Company. GTNC and its subsidiaries are collectively referred to herein as the “Company”. GTNC is an indirect wholly owned subsidiary of National Energy & Gas Transmission, Inc. (NEGT). PG&E Corporation is the ultimate corporate parent of NEGT.

On July 8, 2003, NEGT filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Maryland, Greenbelt Division (Bankruptcy Court) (Case No. 03-30459). Certain of NEGT’s indirect wholly owned subsidiaries also filed for bankruptcy protection under Chapter 11. Pursuant to Chapter 11 of the Bankruptcy Code, NEGT and those subsidiaries retained control of their assets and were authorized to operate their businesses as debtors in possession while being subject to the jurisdiction of the Bankruptcy Court.

By order dated May 3, 2004, the Bankruptcy Court confirmed NEGT’s plan of reorganization, and NEGT is in the process of completing the actions necessary to consummate its plan of reorganization.

As discussed in the Company’s Annual Report on Form 10-K for 2003, on February 24, 2004, NEGT and certain of its indirect wholly owned subsidiaries executed a Stock Purchase Agreement with TransCanada American Investments Ltd., TransCanada Corporation and TransCanada PipeLine USA Ltd. (collectively, TransCanada) for the purchase by TransCanada of the common stock of GTNC.

Pursuant to the terms of the Stock Purchase Agreement and as required under the Bankruptcy Code and Rules, an auction was held for the sale of interests in GTNC. The final date for the submission of bids was April 25, 2004. There were no qualifying bids submitted. On April 29, 2004, NEGT announced that it had accepted TransCanada’s bid to acquire GTNC. On May 13, 2004, the United States Bankruptcy Court for the District of Maryland issued an order authorizing and approving the Stock Purchase Agreement and related agreements and authorizing consummation of the transactions contemplated therein. Management anticipates that sale of the Company to TransCanada will be consummated by the end of the third quarter or

early in the fourth quarter of 2004, immediately following the consummation of NEGT’s plan of reorganization.

As a result of changes to the membership of the board of directors for both NEGT and GTNC, PG&E Corporation no longer retains significant influence over the ongoing operations of NEGT or GTNC. Once a plan of reorganization becomes effective for NEGT, PG&E Corporation will no longer have any equity interest in or remain affiliated with NEGT or GTNC.

NOTE 2: RELATED PARTY TRANSACTIONS AND ACTIVITY

Pacific Gas and Electric Company, a wholly owned subsidiary of PG&E Corporation, is GTNC’s largest customer, accounting for approximately 20 percent of its transportation revenues for the past several years. During the second quarter of 2004, GTNC provided transportation services to Pacific Gas and Electric Company, in the normal course of business, which accounted for $14.1 million (23 percent) of GTNC’s transportation revenues. During the second quarter of 2003, $14.2 million (24 percent) of GTNC’s transportation revenues for such quarter were earned from Pacific Gas and Electric Company in the normal course of business. For the six months ended June 30, 2004, GTNC provided transportation services to Pacific Gas and Electric Company, in the normal course of business, which accounted for $29.0 million (23 percent) of GTNC’s transportation revenues. During the first half of 2003, $29.0 million (24 percent) of GTNC’s transportation revenues were earned from Pacific Gas and Electric Company in the normal course of business.

Pacific Gas and Electric Company filed for protection under Chapter 11 of the U.S. Bankruptcy Code on April 6, 2001 and emerged from bankruptcy on April 12, 2004. Upon emergence from bankruptcy, Pacific Gas and Electric Company paid to GTNC $2.9 million, plus interest, due to GTNC for transportation services provided to Pacific Gas and Electric Company prior to its bankruptcy filing. Until March 16, 2004, GTNC held cash collateral from Pacific Gas and Electric Company to support Pacific Gas and Electric Company’s obligations as a shipper on GTN’s system. On that date, Pacific Gas and Electric Company substituted a letter of credit in the amount of $14.2 million in place of the cash collateral held by GTNC, and GTNC returned that amount of cash collateral, plus $0.8 million accrued interest.

The Company is charged by NEGT and other affiliates for services such as legal, tax, treasury, human resources, and other administrative functions, and for other costs incurred on the Company’s behalf, including, but not limited to, employee benefit costs and property and liability insurance costs. Previous to the NEGT bankruptcy filing, certain of these costs were also charged to the Company by PG&E Corporation. Following NEGT’s bankruptcy filing, PG&E Corporation continues to provide certain services on an interim basis which are due to the administration of some employee benefits.

For the three months ended June 30, 2004, GTNC has recognized $2.6 million of charges from affiliates in its operating expenses, bringing the total year to date amount to $5.2 million. During the second quarter of 2003, GTNC recognized $3.6 million of similar charges and an aggregate of $6.3 million for the first two quarters of 2003.

NOTE 3: COMMITMENTS AND CONTINGENCIES

GTNC provided certain guarantees in support of certain tolling agreements of NEGT Energy Trading—Power, LP (ET Power), a subsidiary of NEGT. In particular, the Company provided a secondary guarantee on behalf of Liberty Electric Power, LLC (Liberty) which guaranteed certain obligations of ET Power, related to a tolling agreement (the Liberty Toll) between ET Power and Liberty. The face amount of the guarantee at June 30, 2004 was $140.0 million.

owed between the parties and of the valuation of the rejected portion of the Liberty Toll. The order also provided that the Bankruptcy Court would retain jurisdiction to hear and determine all matters related to the Liberty Toll.

On July 30, 2003, Liberty sent ET Power a letter with an attachment purporting to show that ET Power owed Liberty $176.8 million as a termination payment for the rejection of the Liberty Toll. Liberty also sent the Company demands under the guarantee for $5.4 million (relating to amounts allegedly owed by ET Power pre-petition) and for $140.0 million (the maximum guarantee amount relating to Liberty’s rejection claim against ET Power). The Company responded by letter to Liberty disputing that any amounts are due under the guarantee because (i) the amount due Liberty for the termination payment from ET Power is in dispute and (ii) ET Power’s possible right to setoff pre-petition claims by Liberty against amounts potentially owed by Liberty to ET Power may negate any Liberty pre-petition claims against ET Power. Consequently, the Company had asserted that, at that time, it had no liability under the guarantee to Liberty.

On September 11, 2003, Liberty filed two suits against the Company in United States District Court in Texas. One suit seeks the Company’s payment of $140.0 million to Liberty under the guarantee associated with Liberty’s purported rejection damages. The second suit seeks $5.4 million from the Company under the guarantee related to tolling payments that ET Power allegedly failed to make prior to ET Power’s bankruptcy.

On September 23, 2003, ET Power provided Liberty its termination payment calculation pursuant to the Liberty Toll and the rejection order. That calculation shows ET Power to be owed approximately $108.0 million under the Liberty Toll. On the same date, ET Power, along with NEGT and the Company, filed an adversary proceeding against Liberty in Bankruptcy Court. That lawsuit sought declaratory relief, injunctive relief and damages. Specifically, ET Power seeks damages of over $100.0 million from Liberty resulting from the rejection of the Liberty Toll. The parties to the lawsuit have completed mediation as required by the Bankruptcy Court without reaching a settlement. On or about April 21, 2004 Liberty initiated arbitration before the American Arbitration Association. In its arbitration demand, Liberty seeks approximately $159.1 million, plus interest, costs, and court fees. The arbitration process is ongoing.

It is reasonably possible that the Company could incur a loss in the range of zero to $140.0 million. Management of the Company intends to vigorously defend against any potential claims asserted by Liberty. Pursuant to the closing of the proposed Stock Purchase Agreement for the sale of GTNC to TransCanada, TransCanada will pay a portion of the purchase price into an escrow account, equal to the full face amount of certain then outstanding guarantees issued by GTNC in favor of certain NEGT affiliates, including the Liberty guarantee if outstanding. Amounts in the escrow account would be used to fund any liability of GTNC under such guarantees, and any amounts deposited in respect of a specific guarantee will be paid from the escrow to GTNC’s direct parent, GTN Holdings LLC (GTNH), upon GTNC’s release under such guarantee, net of amounts paid under such guarantee, including amounts paid in connection with such release.

NOTE 4: NORTH BAJA PIPELINE, LLC

As discussed in the Company’s Annual Report on Form 10-K for 2003, on February 24, 2004, NEGT and certain of its indirect wholly owned subsidiaries executed a Stock Purchase Agreement with TransCanada for the purchase by TransCanada of the common stock of GTNC. The Stock Purchase Agreement contemplates the transfer of the ownership of NBP as part of the purchase by TransCanada.

Pursuant to the terms of the Stock Purchase Agreement and as required under the Bankruptcy Code and Rules, an auction was held for the sale of interests in GTNC. Bidders were required to submit a higher or otherwise better bid package for the Company, as compared to the presently contemplated transaction structure with TransCanada. The final date for the submission of bids was April 25, 2004. There were no qualifying bids submitted. On April 29, 2004, NEGT announced that it had accepted TransCanada’s bid to acquire GTNC. On May 13, 2004, the Bankruptcy Court for the District of Maryland issued an order authorizing and approving the Stock Purchase Agreement and related agreements and authorizing the

consummation of the transactions contemplated therein. Management anticipates that sale of the Company to TransCanada will be consummated by the end of the third quarter or early in the fourth quarter of 2004, immediately following the consummation of NEGT’s plan of reorganization.

Also on April 7, 2004, GB filed a complaint (the Complaint, and, collectively with the Arbitration Demand, the Litigation) against North Baja Pipeline, LLC and GTNH in the Superior Court of the State of California for the County of San Diego. Contemporaneously, GB filed with the court a Motion for a Preliminary Injunction to Preserve the Status Quo Pending Arbitration.

On June 25, 2004, GTNH, North Baja Pipeline, LLC, and TransCanada reached a settlement agreement with GB under which GB released all claims of any kind related to the Litigation and agreed to take all necessary actions to dismiss the Litigation with prejudice. The settlement amount was not material to GTNC’s financial condition, results of operations, or cash flows.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The accompanying unaudited condensed consolidated financial statements and information disclosed in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data”, in the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 of Gas Transmission Northwest Corporation (GTNC).

The accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with interim period reporting requirements, reflect all adjustments necessary to present a fair statement of the financial position, results of operations, and cash flows for the interim periods. All material adjustments are of a normal recurring nature unless otherwise disclosed in this Quarterly Report on Form 10-Q. Intercompany accounts and transactions have been eliminated. Prior year amounts in the consolidated financial statements have been reclassified where necessary to conform to the 2004 presentation. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q, including this discussion and analysis, contains forward-looking statements that are necessarily subject to various risks and uncertainties. Use of words like “anticipate,” “estimate,” “intend,” “project,” “plan,” “expect,” “will,” “believe,” “could,” and similar expressions help identify forward-looking statements. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. Although management believes that the expectations reflected in the forward-looking statements are reasonable, future results, events, levels of activity, performance, or achievements cannot be guaranteed. Although management is not able to predict all the factors that may affect future results, some of the more significant factors that could cause future results to differ materially from those expressed or implied by the forward-looking statements, or historical results include: whether, and the terms under which, GTNC is sold to TransCanada American Investments Ltd., TransCanada Corporation and TransCanada PipeLine USA Ltd. (collectively, TransCanada) or another entity as a result of the ongoing bankruptcy process of National Energy & Gas Transmission, Inc. (NEGT); the extent to which GTNC becomes obligated to pay debts for affiliates for whom GTNC has provided credit support; the ability of GTNC’s counterparties to satisfy their financial commitments to GTNC and the impact of counterparties’ nonperformance on GTNC’s liquidity position; the extent to which GTNC’s current or planned development and maintenance projects are completed and the pace and cost of that completion; future transportation capacity contract levels and pricing which are affected by general economic and financial market conditions, changes in interest rates, and regulatory actions, among other factors; and the extent and timing of electric generation, pipeline, and storage expansion and retirement by others.

OVERVIEW

GTNC owns and operates two interstate pipeline systems which provide natural gas transportation services to third party shippers on a nondiscriminatory basis. All services provided by GTNC are regulated by the Federal Energy Regulatory Commission (FERC). GTNC was incorporated in 1957, with operations on its system in the Pacific Northwest, or GTN, beginning in 1961. The North Baja Pipeline system, or NBP, which began service in 2002, is owned and operated by North Baja Pipeline, LLC, a direct, wholly owned subsidiary of GTNC, and serves markets in northern Baja California, Mexico.

Pipeline revenues are primarily derived through the selling of firm rights to pipeline capacity. Therefore, revenues are driven in large part by the amount of capacity under contract and the duration of those contracts. The majority of the pipeline capacity on both GTN and NBP is dedicated to various shippers under long-term firm transportation contracts that provide consistent revenues through monthly

reservation charges. Additional revenues are earned based upon the actual volumes of gas that flow under firm transportation contracts and from interruptible transportation contracts that have no associated capacity rights, but result in revenues based solely on the actual quantities of gas transported.

RECENT EVENTS AND MANAGEMENT FOCUS

Potential Change of Control

GTNC is an indirect wholly owned subsidiary of NEGT. PG&E Corporation is the ultimate corporate parent of NEGT.

By order dated May 3, 2004, the Bankruptcy Court confirmed NEGT’s plan of reorganization, and NEGT is in the process of completing the actions necessary to consummate its plan of reorganization.

As a result of changes to the membership of the boards of directors for both NEGT and GTNC, PG&E Corporation no longer retains significant influence over the ongoing operations of NEGT or GTNC. Once a plan of reorganization becomes effective for NEGT, PG&E Corporation will no longer have any equity interest in or remain affiliated with NEGT or GTNC.

Certain information technology platforms and other support have historically been provided to the Company by NEGT. In connection with the deconsolidation and the subsequent sale of the Company to TransCanada, these services will be transitioned away from NEGT under certain transition service agreements entered into in connection with the Stock Purchase Agreement. Management expects that the impact of the transition on the Company’s business and operations will be minimal (if any) and that services on the pipeline systems will continue in a seamless fashion.

North Baja Pipeline – Right of First Refusal Matter

On April 7, 2004, Gasoducto Bajanorte, S. de R.L. de C.V. (GB) demanded arbitration (the Arbitration Demand) of a dispute with North Baja Pipeline, LLC and GTN Holdings LLC, (GTNH), the direct parent of GTNC, arising with respect to GB’s right of first refusal under a Joint Operations and Development Agreement between GB and North Baja Pipeline, LLC.

California for the County of San Diego. Contemporaneously, GB filed with the court a Motion for a Preliminary Injunction to Preserve the Status Quo Pending Arbitration.

Business Development

NBP is the focus of significant business development efforts, focused primarily on providing gas transportation services to Liquefied Natural Gas (LNG) terminals currently planned to be constructed on the coast of northern Baja California, Mexico. One terminal development group, composed of subsidiaries of Sempra Energy and Shell International, has received many of the required permits and anticipates starting construction of their terminal in the third quarter of 2004, with an anticipated in-service date for the terminal in late 2007. North Baja Pipeline, LLC and its interconnecting pipeline in Mexico, GB, have both signed precedent agreements with one of the developers of this terminal to transport re-gasified LNG from the terminal to Ehrenberg, Arizona. Discussions and negotiations continue with at least two other terminal developers in connection with the development of, and transfer of gas from, new proposed LNG terminals.

The ultimate quantity of transportation capacity that NBP will provide to shippers related to these terminal developments will not be determined until late 2004, which is consistent with options that exist within the currently signed and anticipated precedent agreements. Therefore, the costs and revenues associated with this new business cannot be determined with any certainty at this time. Nonetheless, ability of NBP to serve existing and future LNG terminal developments (or expansions) is expected to provide a significant opportunity for investment and revenue growth for the Company.

Discussions and negotiations continue with prospective shippers for a lateral pipeline originating on the GTN mainline and extending west to the Portland, Oregon or Seattle, Washington markets. Management does not anticipate significant capital spending will be required during 2004 to develop service to either of these markets.

LIQUIDITY AND CAPITAL RESOURCES

Driven by its need to meet ongoing operational needs and to cover the potential contingencies posed by the outstanding guarantees that the Company provided to various third parties on behalf of certain affiliates as credit support for transactions entered into by certain of its affiliates, GTNC has continued to build its cash reserves during 2004. At June 30, 2004, GTNC had $109.7 million in cash and cash equivalents on hand compared to a balance of $55.2 million at December 31, 2003. It is likely that, just prior to the sale to TransCanada, GTNC will dividend the bulk of its excess cash, thereby returning its cash balance to more normal historical levels in the three to ten million dollar range.

Sources of Cash

Cash Available from Financing - The primary sources of cash available to GTNC are cash generated from operations and the ability to draw on its $125.0 million of borrowing capacity available under a three-year credit facility pursuant to a credit agreement dated as of May 2, 2002 (Credit Agreement). The interest rate on the credit facility is based on the London Interbank Offer Rate plus a credit spread of currently 1.45 percent. The credit spread corresponds to a rating issued from time to time by Standard & Poor’s (S&P) or Moody’s Investors Service (Moody’s) on the Company’s senior unsecured long-term debt. At June 30, 2004, there were no outstanding borrowings under the Credit Agreement, and management does not anticipate utilizing this borrowing capacity during the remainder of 2004.

Credit Rating Changes – On April 30, 2004, S&P placed the Company’s “CC” senior unsecured debt rating on CreditWatch with positive implications reflecting NEGT’s announcement that TransCanada won the auction to purchase GTNC. On May 5, 2004, Moody’s upgraded the senior unsecured ratings of GTNC

to “Ba1” from “B2” and kept the ratings under review for further upgrade. Currently, the ratings remain at “CC” with S&P and “Ba1” with Moody’s.

Net Cash Provided by Operating Activities – For the six months ended June 30, 2004 the Company has continued to provide strong, consistent cash flows from operations. The increase in cash flow during the first half of 2004 compared to the same period of 2003 in part reflects the fact that trade accounts payable were elevated at the end of 2002 when the compressor station on NBP was nearing completion. In 2004, income tax payments, rather than being paid to the Company’s parent as in the past, have been retained at GTNC since it has a net income tax receivable from parent, allowing additional cash to be retained while reducing the net receivable. GTNC returned the cash collateral deposit from Pacific Gas and Electric Company in the amount of $15.0 million, including interest, in the first quarter of 2004. The Company also received $3.1 million in the second quarter of 2004 from Pacific Gas and Electric Company for payment of past due receivables as a result of its emergence from bankruptcy.

Uses of Cash

Cash Used in Investing Activities - Currently, GTNC’s uses of cash are primarily planned capital expenditures. During the first half of 2004, capital expenditures for replacement and safety related projects, including the Company’s pipeline integrity management program, have resulted in a slight increase in spending when compared to the corresponding period of 2003. During the first half of 2003, the Company completed expenditures for the compressor station on NBP. GTNC is not planning any significant investment activities in 2004 and expects to spend approximately $20.0 million on replacement and safety projects during the current year.

Net Cash Used in Financing Activities – For the six months ended June 30, 2004, no cash was used in financing activities. No new debt was issued, no dividends were paid, nor were any capital contributions received during the first six months of either 2004 or 2003. For the six months ended June 30, 2003, cash used for financing activities was $31.0 million, reflecting repayment of that portion of the amount borrowed under the Company’s Credit Agreement.

The Credit Agreement and the Note Purchase Agreement for the Company’s 6.62% senior notes due 2012, dated June 6, 2002, each contain a covenant which limits total debt for the Company to no greater than 70.0 percent of total capitalization. In addition, certain covenants and conditions contained in the debt agreements are monitored by the Company on an ongoing basis. At June 30, 2004, the total debt to total capitalization ratio, as defined in the agreements, was 47.0 percent and the Company was in compliance with all terms and conditions of its debt agreements. This calculation includes the current portion of the long term debt in the capitalization structure.

Credit Support for Affiliates

Guarantees for Trading Activities – Guarantees for trading activities at June 30, 2004 with a face value of $90.0 million were outstanding with an overall estimated net exposure of $0.6 million. The estimated net exposure is comprised of the amount of the estimated outstanding obligation that NEGT Energy Trading Holdings Corporation (ET), a subsidiary of NEGT, and certain of its subsidiaries (collectively, the NEGT Energy Trading Entities) have to given counterparties, net of cash and other collateral held by those counterparties. At December 31, 2003, these guarantees in support of former trading activities of the NEGT Energy Trading Entities, with a face value of $185.7 million were outstanding, with an overall estimated net exposure of $12.5 million. The face value of the guarantees and the estimated net exposure amounts declined from December 31, 2003 to June 30, 2004 as a result of the settlement with Morgan Stanley Capital Group Inc. (Morgan Stanley) and the release or termination of certain other previously outstanding guarantees.

In the third quarter of 2003, Morgan Stanley issued a payment demand to the Company under existing guarantees in an aggregate amount of $4.4 million and, during that same quarter, GTNC recorded a reserve for such payment in the amount of $4.1 million. In the first quarter of 2004, Morgan Stanley, GTNC, and the NEGT Energy Trading Entities entered into a settlement agreement (the Morgan Stanley Settlement) under which the Company agreed to pay $4.1 million to Morgan Stanley in return for a full release from any further obligations under certain agreements underlying the guarantees. (Morgan Stanley also received

other compensation from the NEGT Energy Trading Entities). The Bankruptcy Court approved the Morgan Stanley Settlement, and GTNC made payment of the $4.1 million to Morgan Stanley in the first quarter 2004.

On June 24, 2004, GTNC filed a claim in the bankruptcy proceedings of the NEGT Trading Entities to recover the $4.1 million paid by GTNC under the Morgan Stanley Settlement. GTNC is unable to estimate what proportion of this claim it may recover from the NEGT Energy Trading Entities through the bankruptcy proceedings. GTNC has not recorded a receivable for this claim.

Guarantees for Tolling Agreements - In addition to the exposure to the guarantees in support of the former trading activities of the NEGT Energy Trading Entities described above, GTNC provided certain guarantees in support of certain tolling agreements of NEGT Energy Trading—Power, LP (ET Power), a subsidiary of ET. In particular, the Company provided a secondary guarantee on behalf of Liberty Electric Power, LLC (Liberty) which guaranteed certain obligations of ET Power related to a tolling agreement (the Liberty Toll) between ET Power and Liberty. The face amount of the guarantee at June 30, 2004 was $140.0 million.

On July 8, 2003, ET Power filed a motion with the Bankruptcy Court to reject the Liberty Toll. By orders dated August 6 and August 8, 2003, the Bankruptcy Court granted the motion to reject, and provided a process by which ET Power and Liberty would exchange their respective calculations of any amounts owed between the parties and of the valuation of the rejected portion of the Liberty Toll. The order also provided that the Bankruptcy Court would retain jurisdiction to hear and determine all matters related to the Liberty Toll.

On September 23, 2003, ET Power provided Liberty its termination payment calculation pursuant to the Liberty Toll and the rejection order. That calculation shows ET Power to be owed approximately $108.0 million under the Liberty Toll. On the same date, ET Power, along with NEGT and the Company, filed an adversary proceeding against Liberty in Bankruptcy Court. That lawsuit sought declaratory relief, injunctive relief and damages. Specifically, ET Power seeks damages of over $100.0 million from Liberty resulting from the rejection of the Liberty Toll. The parties to the lawsuit have completed mediation as required by the Bankruptcy Court without reaching a settlement. On or about April 21, 2004, Liberty initiated arbitration before the American Arbitration Association. In its arbitration demand, Liberty seeks approximately $159.1 million, plus interest, costs, and court fees. The arbitration process is ongoing.

The litigation is in its early stages, however it is reasonably possible that the Company could incur a loss in the range of zero to $140.0 million. Management of the Company intends to vigorously defend against any potential claims asserted by Liberty. Pursuant to the Stock Purchase Agreement for the sale of GTNC to TransCanada, TransCanada will pay a portion of the purchase price into an escrow account, equal to the full face amount of certain then outstanding guarantees issued by GTNC in favor of certain NEGT affiliates, including the Liberty guarantee if outstanding. Amounts in the escrow account would be used to fund any liability of GTNC under such guarantees, and any amounts deposited in respect of a specific

guarantee will be paid from the escrow to GTNC’s direct parent, GTNH, upon GTNC’s release under such guarantee, net of amounts paid under such guarantee, including amounts paid in connection with such release.

In October 2003, ING Investment Management LLC (ING), on behalf of itself and certain of its affiliates, questioned the adequacy of certain disclosures GTNC made under the Note Purchase Agreement entered into by GTNC and ING regarding these guarantees. Discussions during 2004 concerning the matter concluded in July with a settlement in the form of an Amended Note Purchase Agreement, a copy of which is filed herewith as Exhibit 4.1. The settlement had no material effect on GTNC’s financial condition, results of operations, or cash flows.

RESULTS OF OPERATIONS

Selected operating results and other data are as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004			2003
	(In Millions)					(In Millions)
Operating revenues	$	62.0		$	58.8	$	127.5		$	122.6
Operating expenses		28.8			27.7		58.5			55.0

Operating income		33.2			31.1		69.0			67.6
Other income and (income deductions), net		(2.7	)		0.1		(2.3	)		0.5
Net interest expense		9.5			9.9		19.1			19.8

Income before taxes		21.0			21.3		47.6			48.3
Income tax expense		8.2			8.4		18.5			19.0

Net Income	$	12.8		$	12.9	$	29.1		$	29.3

Net Income

For the six-month period ended June 30, 2004, net income decreased slightly compared to the same period in 2003. Improved revenues in the first six months of 2004 reflect the effect of new long-term firm contracts now in place. Higher operating expenses in the first half of 2004 than in the comparable period of 2003, the effect of a revenue settlement in the first half of 2003, and one time charges to other expense in 2004 were all nearly offset by the improved revenues and the effect of lower net interest expense in the first half of 2004.

Net income for the three-month period ended June 30, 2004 remained nearly flat compared to the same period in 2003. Further detail on the items affecting net income is reflected in the paragraphs that follow. Management expects net income will increase approximately $3 million for the full year 2004 compared to the full year 2003. Much of the improvement in earnings is expected to come from the new contracts which took effect for transportation on GTN in late 2003 and will result in incremental revenues in 2004.

Operating Revenue

Total operating revenues increased 3.9 percent in the first half of 2004 compared to the same period of 2003, and 5.5 percent in the quarter ended June 30, 2004 compared to the same period in the prior year. Other Revenue reflects a decline due to a $2.7 million contract termination settlement fee received by North Baja Pipeline, LLC from an affiliate and recorded as Operating Revenue during the first quarter of 2003 while no comparable revenue was recorded in 2004.

Revenues from gas transportation, which excludes Other Revenue, increased 5.9 percent in the three months ended June 30, 2004 compared to the same period of 2003 and 6.2 percent in the first six months of 2004 compared to the first six months of 2003. Transportation revenues were up as a result of new contracts that are now in place and higher load factors on GTN, which reflect the actual volumes of gas being transported through the pipeline. Transportation revenues also rose as a result of increases in

contracted quantities under existing contracts throughout 2003 and on January 1, 2004 for capacity on NBP.

During the first half of 2003, gas supply from Western Canada (the primary source of gas supply transported on GTN) was often among the most expensive gas supply alternatives serving California, GTN’s primary market. However, Western Canadian prices have since decreased and Rocky Mountain and San Juan gas supply prices increased such that supply from the Western Canadian Sedimentary Basin was, on average, the lowest-priced gas supply basin during the first half of 2004. The beneficial pricing shift supported greater throughput and increased gas transportation revenues.

Operating Expenses

The components of total operating expenses are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
	(In Millions)				(In Millions)
Administrative and general	$	8.1	$	7.1	$	16.8	$	14.0
Operations and maintenance		4.8		4.4		9.3		8.7
Depreciation and amortization		12.2		12.9		24.5		25.8
Property and other taxes		3.7		3.3		7.9		6.5

Total operating expenses	$	28.8	$	27.7	$	58.5	$	55.0

For the six-month period ended June 30, 2004, total operating expenses increased 6.3 percent over the same period in 2003. The increase in administrative and general expense resulted from a combination of factors including increased employee benefit costs, industry fees, insurance expenses, and legal fees. Operations and maintenance expense increased in part due to the implementation of the pipeline integrity management program on GTN. An increase in property tax expense on NBP due to the impact of the system’s first full year of assessments was the primary driver of the higher operating expenses on that system. A decrease in depreciation and amortization associated with full amortization of computer software partially offset the combined increase in the other expense categories.

Other income and (income deductions)

For the six-month period ended June 30, 2004, other income deductions were $2.3 million compared to other income of $0.5 million in the same period in 2003. The deductions, both in the current quarter and year to date, reflect GTNC’s expenses for its portion of the overall settlement reached to resolve the NBP right of first refusal matter in the second quarter 2004 and the settlement of the ING matter, in combination with other miscellaneous items.

Interest Expense

For the six-month period ended June 30, 2004, interest expense was $0.8 million less than during the comparable period of 2003, due to the fact that there have been no amounts outstanding under the Credit Agreement in 2004 while an average of $49.2 million was outstanding under the Credit Agreement during the first half of 2003.

Net interest expense for the three-month period ended June 30, 2004 decreased $0.4 million from interest expense for the same period in 2003. An average of $41.4 million was outstanding under the Credit Agreement during the second quarter of 2003. The table that follows provides a comparison of the average outstanding debt levels and interest rates on borrowed funds:


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In Millions)						(In Millions)
Average outstanding debt	$	500.0		$	541.4		$	500.0		$	549.2
Average interest rate		7.6	%		7.4	%		7.6	%		7.3	%

CREDIT AND MARKET RISK MANAGEMENT ACTIVITIES

Customer Credit Risk

Pacific Gas and Electric Company filed for protection under Chapter 11 of the U.S. Bankruptcy Code on April 6, 2001 and emerged from bankruptcy on April 12, 2004. Upon emergence from bankruptcy, Pacific Gas and Electric Company repaid to GTNC $2.9 million, plus interest, due to GTNC for transportation services provided to Pacific Gas and Electric Company prior to its bankruptcy filing. Until March 16, 2004, GTNC held cash collateral from Pacific Gas and Electric Company to support Pacific Gas and Electric Company’s obligations as a shipper on GTN’s system. On that date, Pacific Gas and Electric Company substituted a letter of credit in the amount of $14.2 million in place of the cash collateral held by GTNC. GTNC returned that amount of cash, plus $0.8 million accrued interest.

On July 14, 2003, Mirant Americas Energy Marketing, LP (MAEM), one of the Company’s shippers, voluntarily filed a petition for relief under the provision of Chapter 11 of the U.S. Bankruptcy Code. Mirant Corporation, an affiliate of MAEM that had guaranteed certain of MAEM’s obligations to GTNC, also filed a voluntary petition for relief under the provision of Chapter 11 of the U.S. Bankruptcy code on that date. MAEM was current on its obligations with the Company at the time of the Chapter 11 filing. The Company continues to hold collateral of $3.1 million, which is the maximum amount allowed by its Tariff.

On April 21, 2004, the Bankruptcy Court approved MAEM’s motion to reject certain contracts between MAEM and GTNC, some of which extended through October 2009. Prior to such rejection, MAEM completed a temporary assignment of a portion of the rejected contracts to an investment-grade replacement shipper through October 31, 2006. This temporary release mitigates the effect on GTNC of MAEM’s contract rejections through the October 31, 2006 time period. GTNC filed a proof of claim with the Bankruptcy Court in the amount of $56.2 million to reflect rejection of the contracts by MAEM. GTNC filed a separate proof of claim with the Bankruptcy Court in the amount of $32.8 million to reflect amounts due to GTNC under the Mirant Corporation guarantee. GTNC is unable to estimate what proportion of this claim it may recover from MAEM through the bankruptcy proceeding or to what extent it will be able to remarket the rejected capacity.

Market Risk

Natural gas demand in GTNC’s primary market of California increased approximately seven percent compared to the same quarter one year ago, driven primarily by the electric generation sector as a result of one-third more cooling degree-days. Although GTNC’s market share in California remained unchanged at 27 percent during the second quarter of 2004 versus the second quarter of 2003, the volume delivered as a percentage of total available firm capacity on GTN rose from 67 percent to 73 percent due to the increase in California’s demand for natural gas as compared to the same period in 2003.

During the second quarter 2004, the mix of customers holding capacity on GTN remained stable and the renewal profile did not change materially. GTNC has 95 percent of its long-term firm capacity

subscribed on GTN, with 139.5 MDth/d of unsubscribed long-term firm capacity available. The average remaining contract term for capacity on GTN is 10.1 years.

The load factor on NBP also increased from 34 percent to 47 percent when comparing the second quarters of 2003 and 2004. The primary driver of this increase was an additional 40 MDth/d of long-term firm contracted capacity that commenced service January 1, 2004. Including an additional 40 MDth/d contractually committed to commence service January 1, 2006, 95 percent of the capacity on NBP is subscribed under long-term firm contracts until 2024. The Company expects to sell the remaining 25 MDth/d as part of a potential expansion to serve LNG developers in northern Baja California, Mexico.

GTNC continues to participate in the California Public Utilities Commission’s (CPUC) Order Initiating Rulemaking process to ensure reliable, long-term natural gas supplies to California. The CPUC is expected to issue a decision regarding Phase I of this proceeding in the third quarter of 2004, which will impact the ability of California utilities to renew and obtain long-term firm contracts for interstate pipeline capacity.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our consolidated financial statements and accompanying notes. Management believes that the judgments, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances as of June 30, 2004.

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Management has identified certain accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company’s consolidated financial statements. For a discussion of those critical accounting policies, see “Critical Accounting Policies” in the Management’s Discussion and Analysis section of the GTNC Annual Report on Form 10-K for the year ended December 31, 2003.

As a result of applying the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation”, and SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, the Company has accumulated $43.0 million of regulatory assets and $31.1 million of regulatory liabilities as of June 30, 2004.

As discussed in the Commitments and Contingencies section, the Company issued, and continues to have outstanding, guarantees to support the obligations of certain affiliates, which are subject to accounting treatment under SFAS No. 5, “Accounting for Contingencies” and FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” To the extent the Company ultimately pays any counterparty as guarantor, the Company will have a claim against those affiliates. See “LIQUIDITY AND CAPITAL RESOURCES – Credit Support for Affiliates” above, for a discussion of a $4.1 million payment made to Morgan Stanley during the first quarter of 2004 and the subsequent claim filed by GTNC in the bankruptcy proceedings of the NEGT Trading Entities. In accordance with SFAS No. 5, the Company would record credit for such claim only when, and to the extent that, income is realized. If any payment to a counterparty as settlement for claims made under the guarantees is disbursed from the escrow account established in conjunction with the Stock Purchase Agreement, GTNC will assign such claim to NEGT.

Amounts that GTNC recognizes as obligations to provide pension benefits under SFAS No. 87, “Employers’ Accounting for Pensions,” and other benefits under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” are based on certain actuarial assumptions. As required by FERC policy, GTNC established irrevocable trusts to fund all benefit payments based upon a prescribed annual test period allowance of $2.1 million. To the extent actual SFAS No. 106 accruals differ from the annual funded amount, a regulatory asset or liability is established to defer the difference pending treatment

in the next general rate case filing. Based upon this treatment, GTNC had over collected $12.2 million at June 30, 2004 and $11.5 million at December 31, 2003.

NEW ACCOUNTING STANDARDS

Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003

On January 12, 2004, the Financial Accounting Standards Board (FASB) released FASB Staff Position No. FAS 106-1 (FSP 106-1), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act) was signed into law on December 8, 2003 and introduces a prescription drug benefit under Medicare and provides a federal subsidy to sponsors of certain retiree health care benefits. Uncertainties exist regarding the effects of the Medicare Act on GTNC’s accumulated postretirement benefit obligation and net postretirement benefit costs and the accounting for those effects, if any. Under FSP 106-1, plan sponsors are allowed to elect a one-time deferral of the accounting for the Medicare Act. Amounts and disclosures related to GTNC’s accumulated postretirement benefit obligation and net postretirement benefit costs in the financial statements and accompanying notes do not reflect the effects of the Medicare Act on the plan. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require GTNC to change previously reported information.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46, as subsequently revised in December 2003 (FIN 46R), is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” (ARB 51), and supersedes Emerging Issues Task Force Issues No. 90-15 and 96-21, which prescribe accounting for lease arrangements with nonsubstantive lessors. FIN 46R clarifies the application of ARB 51 to certain entities, defined as “variable interest entities” (VIEs), in which equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires that a VIE is to be consolidated by a company, if that company is subject to a majority of the risk of loss from the VIE’s activities or is entitled to receive a majority of the VIE’s residual returns, or both.

The consolidation requirements of FIN 46R apply immediately to VIEs created after January 31, 2003. There were no new VIEs created by the Company between February 1, 2003 and June 30, 2004. The Company is a non-public entity as defined by the Standard and, as such, the consolidation requirements related to entities or arrangements existing before February 1, 2003 are effective January 1, 2005.

The Company has not identified any arrangements with potential VIEs. The Company will continue to evaluate its arrangements for potential FIN 46R application effective January 1, 2005. The Company does not expect that implementation of this interpretation will have a significant impact on its consolidated financial statements.

SAFETY AND ENVIRONMENTAL MATTERS

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

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.

CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Based on an evaluation of the Company’s disclosure controls and procedures as of June 30, 2004, the Company’s principal executive and principal financial officers have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II: Other Information

ITEM 1.

LEGAL PROCEEDINGS

Natural Gas Royalties Complaint – This litigation involves the consolidation of approximately 77 False Claims Act cases filed in various federal district courts as more fully described in GTNC’s Annual Report on Form 10-K for 2003. No changes have occurred during the first half of 2004 with respect to this complaint.

Calpine Complaint, Docket No, RP04-217 - On February 3, 2004, one shipper which holds capacity on GTN, Calpine Energy Services, L.P. (Calpine), filed in Docket No. RP03-70 requesting clarification whether GTNC may demand collateral in excess of three months reservation charges for capacity which Calpine holds on GTNC’s 2002 GTN expansion. On March 30, 2004, the FERC issued an Order on Compliance and Petition for Clarification in Docket No. RP03-70 in which the FERC declared itself unable to determine whether GTNC should be permitted to require additional collateral from Calpine, redocketed Calpine’s request for clarification as a complaint at Docket No. RP04-217, and provided Calpine an opportunity to supplement the record with additional information. Calpine filed a formal complaint in Docket No. RP04-217 on April 29, 2004.

This proceeding is likely to clarify whether GTNC may be permitted to increase the amount of collateral that GTNC is entitled to require from Calpine to support Calpine’s obligations under its 2002 expansion capacity contract. The Company does not expect that the ultimate outcome of these matters will have a material adverse effect on its financial condition, results of operations, or cash flows.

County of Imperial and City of El Centro v. California State Lands Commission (North Baja Pipeline LLC, Intergen Services, Inc. and Sempra Energy, Real Parties in Interest), California Court of Appeal, Third Appellate District, Civil No. C043219 (“North Baja Pipeline Litigation”) – A Superior Court hearing on the merits of the case was held on September 13, 2002. On November 27, 2002, Judge Gail D. Ohanesian of the Sacramento County Superior Court entered a Judgment Denying the Petition for Writ of Mandate and Denying Request for Declaratory and Injunctive Relief and granted judgment in favor of the California State Lands Commission and North Baja Pipeline, LLC and against Petitioners. On January 31, 2003, Petitioners filed a Notice of Appeal appealing the Superior Court’s judgment to the California Court of Appeal, Third Appellate District. On July 27, 2004, the Court of Appeals dismissed petitioner’s suit as moot. It is possible that an appeal will be filed to the California Supreme Court by Petitioners.

Liberty Matter - In re PG&E National Energy Group, Inc., et al., Case Nos. 03-30459 (PM) and 03-30461 through 03-30464 (PM) (Jointly Administered) (Bankr. D. Md.), PG&E National Energy Group, et al. v. Liberty Electric Power, LLC, Adv. Proc. No. 03-03104 (the “Adversary Proceeding”); Liberty Electric Power, LLC v. PG&E Gas Transmission, Northwest Corporation, H-03-3649 (S.D. Tex.) (“Liberty I”); Liberty Electric Power, LLC v. PG&E Gas Transmission, Northwest Corporation, H-03-3646 (S.D. Tex.) (“Liberty II”) – This litigation is the result of two lawsuits filed against the Company in Federal District Court relating to a guarantee issued by the Company in support of an affiliate’s obligations under an agreement with Liberty Electric Power, LLC (Liberty). The Company provided a guarantee to Liberty which guaranteed certain obligations of NEGT Energy Trading—Power, LP (ET Power), a subsidiary of NEGT Energy Trading Holdings Corporation (ET), a subsidiary of NEGT, related to a tolling agreement (the Liberty Toll) between ET Power and Liberty.

On September 23, 2003, ET Power provided Liberty its termination payment calculation pursuant to the Liberty Toll and the rejection order. That calculation shows ET Power to be owed approximately $108.0 million under the Liberty Toll. On the same date, ET Power, along with NEGT and the Company, filed an adversary proceeding against Liberty in Bankruptcy Court. That lawsuit sought declaratory relief, injunctive relief and damages. Specifically, ET Power seeks damages of over $100.0 million from Liberty resulting from the rejection of the Liberty Toll. The parties to the lawsuit have completed mediation as required by the bankruptcy court without reaching a settlement. On or about April 21, 2004, Liberty initiated arbitration before the American Arbitration Association. In its arbitration demand, Liberty seeks approximately $159.1 million, plus interest, costs, and court fees. The arbitration process is ongoing.

The litigation is in early stages, however, it is reasonably possible that the Company could incur a loss in the range of zero to $140.0 million. Management of the Company intends to vigorously defend against any potential claims asserted by Liberty.

Pursuant to the Stock Purchase Agreement for the sale of GTNC to TransCanada, TransCanada will pay a portion of the purchase price into an escrow account, equal to the full face amount of certain then outstanding guarantees issued by GTNC in favor of certain NEGT affiliates, including the Liberty guarantee if outstanding. Amounts in the escrow account would be used to fund any liability of GTNC under such guarantees, and any amounts deposited in respect of a specific guarantee will be paid from the escrow to GTNC’s direct parent, GTNH, upon GTNC’s release under such guarantee, net of amounts paid under such guarantee, including amounts paid in connection with such release.

North Baja Pipeline, LLC Right of First Refusal Matter -As discussed in the Company’s Annual Report on Form 10-K for 2003, on February 24, 2004, NEGT and certain of its indirect wholly owned subsidiaries executed a Stock Purchase Agreement with TransCanada American Investments Ltd., TransCanada Corporation and TransCanada PipeLine USA Ltd. (collectively, TransCanada) for the purchase by TransCanada of the common stock of GTNC.

On April 7, 2004, Gasoducto Bajanorte, S. de R. L. de C.V. (GB) demanded arbitration (the Arbitration Demand) of a dispute with North Baja Pipeline, LLC, a subsidiary of GTNC, and GTNH arising with respect to GB’s right of first refusal under a Joint Operations and Development Agreement (JODA) between GB and North Baja Pipeline, LLC. The Arbitration Demand alleged that this planned sale violates GB’s right of first refusal under the JODA with respect to North Baja Pipeline, LLC’s North Baja pipeline system (NBP). The parties subsequently appointed an arbitrator.

Also on April 7, 2004, GB filed a complaint against North Baja Pipeline, LLC and GTNH in the Superior Court of the State of California for the County of San Diego. The complaint sought relief similar to that sought in the Arbitration Demand.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit 3.1 - Restated Articles of Incorporation of Gas Transmission Northwest Corporation effective October 6, 2003 (incorporated by reference to GTNC’s Quarterly Report on Form 10-Q dated November 7, 2003 (File No. 0-25842), Exhibit 3.1).

Exhibit 3.2 - By-Laws of PG&E Gas Transmission, Northwest Corporation as amended June 1, 1999 (incorporated by reference to PG&E GTN’s Current Report on Form 8-K dated August 13, 1999 (File No. 0-25842), Exhibit 3).

Exhibit 4.1 - Amendment to Note Purchase Agreement, dated as of July 12, 2004, filed herewith.

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

Exhibit 31.1 – Certification of Principal Executive Officer pursuant to Securities and Exchange Commission Rule 13a – 14(a).

Exhibit 31.2 – Certification of Principal Financial Officer pursuant to Securities and Exchange Commission Rule 13a –14(a).

Exhibit 32.1 – Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

Exhibit 32.2 – Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

(b) Reports on Form 8-K were issued during the quarter ended June 30, 2004, and through the date hereof:

May 13, 2004

Item 5. Other Events.

June 29, 2004

Item 5. Other Events.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GAS TRANSMISSION NORTHWEST CORPORATION
	(Registrant)

August 12, 2004	By:	/s/ P. CHRISMAN IRIBE
	Name:	P. Chrisman Iribe
	Title:	President

August 12, 2004	By:	/s/ WILLIAM H. RUNGE III
	Name:	William H. Runge III
	Title:	Chief Financial Officer

EXHIBIT INDEX


Exhibit No.:		Description of Exhibit

4.1		Amendment to Note Purchase Agreement

12		Computation of Ratio of Earnings to Fixed Charges

31.1		Certification of Principal Executive Officer pursuant to Securities and Exchange Commission Rule 13a - 14(a)

31.2		Certification of Principal Financial Officer pursuant to Securities and Exchange Commission Rule 13a - 14(a)

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350

EX-4.1 2 dex41.htm AMENDMENT TO NOTE PURCHASE AGREEMENT Amendment to Note Purchase Agreement

EXHIBIT 4.1

GAS TRANSMISSION NORTHWEST CORPORATION

AMENDMENT TO

NOTE PURCHASE AGREEMENT

DATED AS OF JULY 12, 2004

$100,000,000 6.62% SENIOR NOTES DUE JUNE 6, 2012

GAS TRANSMISSION NORTHWEST CORPORATION

$100,000,000 6.62% SENIOR NOTES DUE JUNE 6, 2012

AMENDMENT TO

NOTE PURCHASE AGREEMENT

As of July 12, 2004

To Each of the Holders on the

Attached Distribution List:

Ladies and Gentlemen:

GAS TRANSMISSION NORTHWEST CORPORATION, a California corporation (together with its successors and assigns, the “Company”), agrees with each of the Persons identified as a Holder on the signature pages hereof (collectively, the “Holders”).

RECITALS:

A. The Company has entered into separate Note Purchase Agreements, each dated as of June 6, 2002 (collectively, as amended and as in effect immediately prior to the effectiveness of the amendments provided for by this Agreement, the “Existing Note Purchase Agreement,” and, as amended by this Agreement, the “Amended Note Purchase Agreement”), with each of the purchasers listed on Schedule A to each such Note Purchase Agreement, pursuant to which the Company issued and sold an aggregate principal amount of $100,000,000 of the Company’s 6.62% Senior Notes due June 6, 2012 (collectively, as amended from time to time, the “Notes”; the Notes as amended hereby, taken together with the Amended Note Purchase Agreement, are herein referred to as the “Amended Financing Documents”). All of the Notes are outstanding as of the date of this Agreement. The Holders, taken together, hold all of the outstanding Notes.

B. Capitalized terms used herein and not defined herein shall have the meanings assigned to them in the Amended Note Purchase Agreement.

C. The Company has requested that the Holders agree to, among other things, (i) amend certain provisions of the Existing Note Purchase Agreement, (ii) provide a waiver of compliance with respect to certain terms of the Existing Note Purchase Agreement and (iii) release certain claims or potential claims that are or may be held by the Holders.

D. Subject to the terms and conditions set forth in this Agreement, the Company and the Holders are willing to agree to amend the Existing Note Purchase Agreement, to provide for the waiver of compliance with respect to certain terms of the Existing Note Purchase Agreement, and to agree to release certain claims or potential claims that are or may be held by the Holders, all in the manner specified on certain Exhibits hereto and as more particularly set forth herein.

AGREEMENT:

NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holders agree as follows:

1.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

To induce the Holders to enter into this Agreement and to consent to the Amendments, Waivers and Releases, the Company represents and warrants, as of the date hereof and as of the Effective Date (defined below), as follows:

1.1 Organization, Existence and Authority. Each of the Company and the Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation or formation. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations under the Amended Financing Documents.

1.2 Litigation. There are no proceedings pending against, or, to the knowledge of the Company, threatened against, or affecting, the Company, any Subsidiary or any of their respective Properties in any court or before any governmental authority or arbitration board or tribunal that, either individually or in the aggregate, materially conflict with or materially interfere with the ability of the Company to execute and deliver this Agreement and to perform its obligations under each of the Amended Financing Documents.

1.3 Authorization, Execution and Enforceability. The execution and delivery by the Company of this Agreement and the performance of its obligations under the Amended Financing Documents have been duly authorized by all necessary action on the part of the Company. Each of the Amended Financing Documents constitutes a valid and binding obligation of the Company, enforceable in accordance with its respective terms, except that the enforceability thereof may be:

(a) limited by bankruptcy, insolvency or other similar laws affecting the enforceability of creditors’ rights generally; and

(b) subject to the availability of equitable remedies.

1.4 No Conflicts, etc. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations under each of the Amended Financing Documents do not conflict with, result in any breach of any of the provisions of, constitute a default under, or violate or result in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of:

(a) any charter document, agreement with shareholders, or bylaws of the Company or any Subsidiary;

(b) any agreement, instrument, or conveyance by which the Company or any Subsidiary or any of their respective Properties may be bound or affected; or

(c) any statute, rule or regulation or any order, judgment or award of any court, tribunal or arbitrator by which the Company or any Subsidiary or any of their respective Properties may be bound or affected.

1.5 Governmental Consent. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations under each of the Amended Financing Documents do not require any consents, approvals, or authorizations of, or filings, registrations, or qualifications with, any governmental authority on the part of the Company or any Subsidiary under the circumstances and conditions contemplated by this Agreement or each of the Amended Financing Documents.

1.6 Compliance with Law. Neither the Company nor any Subsidiary:

(a) is in violation of any law, ordinance, governmental rule or regulation to which it is subject; or

(b) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business;

which violation or failure to obtain might have, either individually or in the aggregate, a material adverse effect on the ability of the Company to perform any of its obligations set forth in the Amended Financing Documents.

1.7 Existence of Defaults. After giving effect to the waivers represented by the Amendments, Waivers, and Releases, no condition exists that would

constitute a Default or an Event of Default under the Amended Note Purchase Agreement.

1.8 Disclosure. Neither this Agreement nor any written statement furnished by the Company to the Holders in connection herewith contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or herein not misleading. There is no fact that the Company has not disclosed to each Holder in writing that has had or, so far as the Company can now reasonably foresee, could reasonably be expected to have a material adverse effect on the ability of the Company to perform any of its obligations set forth in the Amended Financing Documents.

1.9 Guaranties and Other Debt. Annex 2 sets forth an accurate, complete and correct list of all outstanding Guaranties issued by the Company or as to which the Company is obligated, and includes the face amount of all Guaranties and similar obligations, of the Company and its Subsidiaries as of the date hereof. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary the outstanding principal amount of which exceeds $5,000,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

2.	AMENDMENTS AND WAIVERS WITH RESPECT TO EXISTING NOTE PURCHASE AGREEMENT AND RELEASES; AFFIRMATION.

2.1 Amendments, Waivers, and Releases with respect to Existing Note Purchase Agreement. The Company and, subject to the satisfaction of the conditions set forth in Section 3 hereof, the Holders, each hereby consent and agree that:

(a) the Existing Note Purchase Agreement is hereby amended in the manner specified in Exhibit Al to this Agreement;

(b) compliance with certain provisions of the Existing Note Purchase Agreement and the Amended Note Purchase Agreement is hereby waived to the extent specified in Exhibit A2 to this Agreement; and

(collectively, such amendments, waivers and releases provided for in such Exhibits are herein referred to as the “Amendments, Waivers, and Releases”).

2.2 Affirmation of Obligations under Amended Note Purchase Agreements and Notes. The Company hereby acknowledges and affirms all of its obligations under the terms of the Amended Note Purchase Agreement and the Notes.

3.	CONDITIONS TO EFFECTIVENESS OF AMENDMENTS, WAIVERS AND RELEASES.

The Amendments, Waivers, and Releases shall not become effective unless all of the following conditions precedent shall have been satisfied in full on or before 5:00 p.m. (Atlanta, Georgia time) on July 16, 2004 (the date of such satisfaction being herein referred to as the “Effective Date”):

3.1 Execution and Delivery of this Agreement. The Company shall have executed and delivered to each of the Holders an original counterpart of this Agreement, and each of the Holders shall have executed and delivered to the Company an original counterpart of this Agreement.

3.2 No Defaults; Warranties and Representations True. After giving effect to the Amendments, Waivers, and Releases, no Default or Event of Default shall exist, the warranties and representations set forth in Section 1 hereof shall be true and correct on the Effective Date, and the Holders shall have received a certificate, dated as of the Effective Date and signed by a Responsible Officer of the Company, to such effect and certifying that all of the conditions specified in this Section 3 have been satisfied.

3.3 Authorization of Transactions. The Company shall have authorized, by all necessary corporate action, the Company’s execution and delivery of this Agreement and the performance of all obligations, satisfaction of all conditions pursuant to this Section 3, and the consummation of all transactions contemplated by this Agreement and the Amended Financing Documents.

3.4 Expenses. The Company shall have paid all reasonable costs and expenses of the Holders invoiced to the Company prior to such date relating to this Agreement subject to and in accordance with Section 4.1 hereof.

3.5 Initial Restructuring Fee. The Company shall have paid the Initial Restructuring Fee ratably to the Holders in accordance with Section 4.2 hereof.

4.	CERTAIN EXPENSE OBLIGATIONS AND FEES PAYABLE BY THE COMPANY.

4.1 Legal Fees and Expenses. The Company will pay, promptly upon receipt (and in any event within 14 days), the statement or statements of Bingham McCutchen LLP, counsel to certain of the Holders, for the reasonable fees, expenses and costs relating to the analysis, negotiation and documentation of the matters addressed hereby, up to a maximum of $175,000.

4.2 Initial Restructuring Fee. In consideration of the Holders’ agreements with respect to the Amendments, Waivers and Releasees as contained herein, the Company agrees to pay to the Holders a restructuring fee in the aggregate amount of $1,000,000, payable ratably based on the principal amount of the Notes held by each Holder on the date hereof (the “Initial Restructuring Fee”). Such payment shall be made in immediately available funds via federal funds wire transfer to the account set forth for each Holder on Annex 1 hereto. For the avoidance of doubt, the payment of such fee shall not be deemed to be payment of principal or interest with respect to the Notes.

4.3 Supplemental Restructuring Fee. Unless an Acceptable Transaction shall have contemporaneously or previously occurred, then on the earliest date on which any of the following occurs (the “Event Date”):

(a) an Event of Default occurs after the date hereof, which Event of Default is either not capable of cure, or is capable of cure but is not cured within 30 days of the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving a written notice of such default from any holder of a Note;

(b) a material breach by the Company or a Subsidiary of the terms of this Agreement or the Amendments, including without limitation the failure of the Company to pay the amounts set forth in Section 4.1 and Section 4.2 hereof;

(c) other than pursuant to an Acceptable Transaction, the sale or transfer of all or substantially all of the common stock or assets of the Company, or a merger or other business combination with respect thereto (including a binding written commitment with respect to such sale or combination, or approval of such sale or combination by the United States Bankruptcy Court for the District of Maryland or by another court of competent jurisdiction); and

(d) January 1, 2005,

the Company shall become obligated to pay to the Persons holding Notes on the Event Date a restructuring fee in the aggregate amount of $2,000,000, payable ratably based on the principal amount of Notes held by each such holder on the Event Date. Such payment shall be made no later than 15 days after the Event Date, in immediately available funds via federal funds wire transfer to the account of each such holder provided by such holder to the Company. On or within 3 Business Days of the Event Date, the Company shall provide to each holder of Notes written notice of the event giving rise to such Event Date and the date of such Event Date, together with the date set for payment of the fee provided hereby with respect to such Event Date. For the avoidance of doubt, the payment of such fee shall not be deemed to be payment of principal or interest with respect to the Notes.

As used herein, the term “Acceptable Transaction” means the sale or transfer of all or substantially all of the common stock or assets of the Company, or a merger or other business combination with respect thereto, as to which any Relevant Credit Party has (i) a long-term senior unsecured debt rating of at least “BBB+” provided by Standard & Poor’s Corporation or at least “Baal” provided by Moody’s Investors Services, or (ii) is judged by the Required Holders, in their reasonable discretion, to have a creditworthiness equal to or in excess of the level that would be indicated by such a debt rating. For the avoidance of doubt, the entry into a binding written commitment with respect to any such sale or combination that would otherwise constitute an Acceptable Transaction, or the approval of any such sale or combination that would otherwise constitute an Acceptable Transaction by the United States Bankruptcy Court for the District of Maryland or by another court of competent jurisdiction, in either case shall be deemed to constitute an Acceptable Transaction if such sale or combination shall ultimately be consummated and closed on or before December 31, 2004, and otherwise an Event Date shall be deemed to have occurred on December 31, 2004. For the further avoidance of doubt, the consummation of either (i) the transactions contemplated by the Stock Purchase Agreement by and among National Energy & Gas Transmission, Inc., Gas Transmission Corporation, GTN Holdings LLC and TransCanada Corporation, TransCanada Pipeline USA Ltd. and TransCanada American Investments Ltd. dated as of February 24, 2004 (as amended up to and including the date hereof, the “SPA”) or (ii) the transactions contemplated by the SPA as amended by Exhibit 7.17(c) to the SPA, shall be deemed to constitute an Acceptable Transaction.

As used herein, the term “Relevant Credit Party” means, with respect to any sale, merger or combination transaction or prospective transaction, (x) the purchaser or merger party surviving such transaction, (y) the ultimate parent company that owns and controls the purchaser or merger party surviving such transaction, or (z) the Company.

5.	MISCELLANEOUS.

5.1 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTION 5.-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK BUT EXCLUDING CHOICE OF LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE).

5.2 Duplicate Originals. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together

shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original.

5.3 Waivers and Amendments. Neither this Agreement nor any term hereof may be changed, waived, discharged, or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge, or termination is sought.

5.4 Section Headings. The titles of the Sections hereof appear as a matter of convenience only, do not constitute a part of this Agreement, and shall not affect the construction hereof.

5.5 Survival. All warranties, representations, certifications, and covenants made by the Company in this Agreement and in each of the Amended Financing Documents or in any certificate or other instrument delivered pursuant to this Agreement or any of the Amended Financing Documents shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of this Agreement, regardless of any investigation made by or on behalf of the Holders. All statements in any such certificate or other instrument shall constitute warranties and representations of the Company under this Agreement or such Amended Financing Document.

5.6 Time of Essence. Time is and shall be of the essence in the satisfaction of all the conditions set forth in Section 3 of this Agreement.

[Remainder of page intentionally left blank; next page is signature page.]


Holder:

[NAME OF HOLDER]

By

Name:

Title:

Holder:

[NAME OF HOLDER]

By

Name:

Title:

ANNEX 1 - PAYMENT INSTRUCTIONS FOR

INITIAL RESTRUCTURING FEE

To each Holder in the following amounts:


Noteholder	Note	Ratable Portion of Fee
ING Life Insurance and Annuity Company	R-l	$	400,000.00

Golden American Life Insurance Company	R-2	$	150,000.00

ReliaStar Life Insurance Company	R-3	$	140,000.00

ReliaStar Life Insurance Company	R-4	$	10,000.00

MONY Life Insurance Company	R-5	$	200,000.00

American United Life Insurance Company	R-6	$	40,000.00

Pioneer Mutual Life Insurance Company	R-7	$	5,000.00

The State Life Insurance Company	R-8	$	5,000.00

Modern Woodmen of America	R-9	$	50,000.00

Total:		$	1,000,000.00

in each case using the account information most recently provided to the Company for the receipt of payments of interest with respect to the Notes, with such payment to be identified as payment of the Initial Restructuring Fee.

ANNEX 2 - DISCLOSURES

1. Guarantee by PG&E Energy Trading Holdings Corporation, PG&E National Energy Group, Inc., and the Company, in favor of BP Energy Company, BP Amoco Corporation, BP Canada Energy Marketing Corporation and BP Canada Energy Company, dated March 26, 2001 and amended by the First Amendment dated July 22, 2002. Full Face Amount of Guarantee $40,000,000.

2. Guarantee by PG&E Corporation, in favor of El Paso Natural Gas Company, Tennessee Gas Pipeline Company, Midwestern Gas Transmission Company, Mohave Pipeline Company, El Paso Field Services, dated April 26, 1999, as amended by the First Amendment to the Guarantee, dated August 19, 2002. Assigned to the Company in the Assignment and Assumption Agreement between the Company and PG&E Corporation, dated December 28, 2000. Full Face Amount of Guarantee $12,000,000.

3. Guarantee by PG&E Corporation, in favor of Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, dated August 31, 2000, as amended by the Second Amendment, dated March 1, 2002. Assigned to the Company in the Assignment and Assumption Agreement, between the Company and PG&E Corporation, dated January 19, 2001. Full Face Amount of Guarantee $5,000,000.

4. Guarantee by PG&E Corporation in favor of J. Aron & Company, dated November 7, 1998, as amended by the First Amendment, dated August 1, 2000, and the Second Amendment, dated September 8, 2000. Assigned to the Company in the Assignment and Assumption Agreement, between the Company and PG&E Corporation, dated January 3, 2001. Full Face Amount of Guarantee $25,000,000.

5. Guarantee by the Company in favor of Liberty Electric Power, LLC, dated February 6, 2001. Consent and Agreement between the Company, Liberty Electric Power, LLC and The Chase Manhattan Bank, dated February 6, 2001. Full Face Amount of Guarantee $140,000,000.

6. Guarantee by the Company, in favor of RAMCO, Inc., dated April 5, 2002. (Escondido). Full Face Amount of Guarantee $4,857,600.

7. Guarantee by PG&E Corporation, in favor of Southern Company Energy Marketing L.P. (name change to: Mirant Americas Energy Marketing LP), dated January 23, 1999, as amended by the First Amendment, dated January 5, 2001. Assigned to the Company in the Assignment and Assumption Agreement, between PG&E Corporation and the Company, dated December 28, 2000. Full Face Amount of Guarantee $20,000,000.

EXHIBIT A1

AMENDMENTS TO THE

EXISTING NOTE PURCHASE AGREEMENT

1.	Section 9 of the Existing Note Purchase Agreement is hereby amended by adding the following new Section 9.6:

“9.6 Most Favored Lender.

If, prior to or simultaneous with the consummation of an Acceptable Sale Transaction, the Company enters into, assumes or otherwise is or becomes bound or obligated under, or agrees to the modification of, one or more negative covenants, financial covenants, or events of default, or provides a more favorable or more stringent representation or warranty, in any agreement or instrument of the Company providing for the incurrence of or otherwise governing indebtedness in an amount in excess of $5,000,000 (each herein referred to as a “Material Debt Document”) that is more favorable to the creditors in respect of such Material Debt Document than are the negative covenants, financial covenants, events of default, representations, or warranties in this Agreement, this Agreement shall, without any further action on the part of the Company or any holder of a Note, be deemed to be amended automatically to include each such more favorable or more stringent provision. No modification or amendment of, or inclusion within, any Material Debt Document that results in any negative or financial covenant or event of default becoming less restrictive or less stringent shall be effective as a modification, amendment, or waiver under this Agreement. The Company further covenants and agrees to promptly execute and deliver at its expense an amendment to this Agreement in form and substance satisfactory to you to reflect such amendment, provided that the execution and delivery of such amendment shall not be a precondition to the effectiveness of such amendment as provided for in this Section. For the avoidance of doubt, other than in respect of Material Debt Documents entered into prior to or simultaneous with the consummation of an Acceptable Sale Transaction, this Section 9.6 shall terminate and cease to be effective from and after the consummation of an Acceptable Sale Transaction.”

2.	Section 10 of the Existing Note Purchase Agreement is hereby amended by adding the following new Section 10.5:

“10.5 Restrictions on Transfers.

Until the earlier of: (a) the consummation of an Acceptable Sale Transaction and (b) the date on which the Liberty Claims are fully and finally resolved (whether by payment in part or in full, or by compromise or release, in any event accompanied by a written agreement releasing the Company from any further obligation or liability with respect to the Liberty Claims), the Company shall not make any Prohibited Transfer; provided, however, that such restriction shall not apply to a Transfer of equity interests or non-cash assets of North Baja Pipeline, LLC.; provided, further, however, that in connection with the consummation of an Acceptable Sale Transaction, immediately prior to such consummation the Company shall be entitled to dividend such amount of cash as is (i) requested in writing by the purchaser in connection with such Acceptable Sale Transaction; and (ii) permitted by law.

3.	Schedule B of the Existing Note Purchase Agreement is hereby amended by adding the following definitions to read in their entirety as follows:

“Acceptable Sale Transaction” means the sale or transfer of all or substantially all of the common stock or assets of the Company, or a merger or other business combination with respect thereto, as to which any Relevant Credit Party has (i) a long-term senior unsecured debt rating of at least “BBB+” provided by Standard & Poor’s Corporation or at least “Baal” provided by Moody’s Investors Services, or (ii) is judged by the Required Holders, in their sole discretion, to have a creditworthiness equal to or in excess of the level that would be indicated by such a debt rating. For the avoidance of doubt, the consummation of either (i) the transactions contemplated by the Stock Purchase Agreement by and among National Energy & Gas Transmission, Inc., Gas Transmission Corporation, GTN Holdings LLC and TransCanada Corporation, TransCanada Pipeline USA Ltd. and TransCanada American Investments Ltd. dated as of February 24, 2004 (as amended up to and including the date hereof, the “SPA”) or (ii) the transactions contemplated by the SPA as amended by Exhibit 7.17(c) to the SPA, shall be deemed to constitute an Acceptable Sale Transaction.

“Guaranty” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including, without limitation, obligations incurred through an agreement, contingent or otherwise, by such Person:

(a) to purchase such indebtedness or obligation or any property constituting security therefor;

(b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation;

(c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or

(d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof.

“Liberty Claims” means any claim held by or on behalf of Liberty Electric Power, LLC against the Company pursuant to or in connection with that certain Guaranty Agreement, dated February 6, 2001.

“Material Debt Document” is defined in Section 9.6.”

“Prohibited Transfer” means:

(a) the payment by the Company of any dividend, either cash or non-cash;

(b) the payment or other Transfer of cash or cash equivalents by the Company to any Affiliate that is not a wholly-owned Subsidiary of the Company other than by way of a dividend, including, without limitation, by way of investment in or loan to such Affiliate, provided that the Company may make payments or other Transfers of cash to Affiliates in the ordinary course of the Company’s business to satisfy the Company’s obligation, in accordance with the Company’s established historical practices consistently adhered to, to share overhead costs with such Affiliate;

(c) the Transfer by the Company of any non-cash asset to or for the direct or indirect benefit of any Affiliate that is not a wholly-owned Subsidiary of the Company;

(d) the execution and delivery of any Guaranty by the Company to or for the direct or indirect benefit of any Affiliate that is not a wholly-owned Subsidiary of the Company;

(e) the granting of any Lien on the property of the Company to or for the direct or indirect benefit of any Affiliate that is not a wholly-owned Subsidiary of the Company;

(f) the provision of any other form of credit support by the Company for the direct or indirect benefit of any Affiliate that is not a wholly-owned Subsidiary of the Company; or

(g) the entrance by the Company, either directly or indirectly, into any transaction with any Affiliate that is not a wholly-owned Subsidiary of the Company except in the ordinary course and pursuant to the reasonable requirements of the Company’s business and upon fair and reasonable terms no less favorable to the Company than would be obtainable in a comparable arm’s-length transaction with a Person not an Affiliate.

“Relevant Credit Party” means, with respect to any sale, merger or combination transaction or prospective transaction, (x) the purchaser or merger party surviving such transaction, (y) the ultimate parent company that owns and controls the purchaser or merger party surviving such transaction, or (z) the Company.

EXHIBIT A2

WAIVERS

Section 5.3, Section 5.5 and Section 5.15, in each case with respect to the adequacy of disclosure with respect to the Guaranty Agreement dated February 6, 2001 relating to Liberty Electric Power, LLC.

EXHIBIT A3

RELEASES

1.	RELEASE OF THE NOTEHOLDERS

GAS TRANSMISSION NORTHWEST CORPORATION, for itself and all of its predecessors, successors and assigns, together with each of its subsidiaries and affiliates (collectively, the “Releasor”), does hereby, forever release, remise, and discharge each of ING LIFE INSURANCE AND ANNUITY COMPANY, GOLDEN AMERICAN LIFE INSURANCE COMPANY, RELIASTAR LIFE INSURANCE COMPANY, MONY LIFE INSURANCE COMPANY, AMERICAN UNITED LIFE INSURANCE COMPANY, PIONEER MUTUAL LIFE INSURANCE COMPANY, THE STATE LIFE INSURANCE COMPANY, and MODERN WOODMEN OF AMERICA and all of their respective personal representatives, predecessors, successors, assigns, officers, managers, directors, partners, trustees, shareholders, employees, agents, attorneys, representatives, parent corporations, subsidiaries, and affiliates (collectively, the “Releasees”) from any and all claims, counterclaims, demands, damages, debts, agreements, covenants, suits, contracts, obligations, liabilities, accounts, offsets, rights of recoupment, rights, actions and causes of action of any nature whatsoever, including without limitation, all claims, demands, and causes of action for so called “lender liability”, whether arising at law or in equity (including, without limitation, claims of fraud, duress, mistake, tortious interference, usury, negligence or fraud in rates and methods used to compute interest), whether presently possessed or possessed in the future, whether known or unknown, suspected or unsuspected, whether in contract or in tort, whether liability be direct or indirect, liquidated or unliquidated, whether presently accrued or to accrue hereafter, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, for or because of or as a result of any act, omission, communication, transaction, occurrence, representation, promise, damage, breach of contract, fraud, violation of any statute or law, commission of any tort, or any other matter whatsoever or thing done, omitted or suffered to be done by the Releasees, which has occurred in whole or in part, or was initiated at any time from the beginning of time up to and immediately preceding the moment of the execution of this release arising out of or related in any way to: (a) that Note Purchase Agreement dated June 6, 2002 among the Releasors and the Releasees and all documents relating thereto or executed in connection therewith (collectively, the “Transaction Documents”), (b) any action, inaction or omission by any of the Releasees in connection with the Transaction

Documents or the administration thereof and (c) the bankruptcy or insolvency of any affiliate of the Releasor. In addition, the Releasor agrees and covenants not to commence, join in, assist, prosecute or participate in any suit or other proceeding against any Releasee relating directly or indirectly to any of the foregoing matters or otherwise contrary to the provisions set forth above.

2.	RELEASE OF GTN

Each of ING LIFE INSURANCE AND ANNUITY COMPANY, GOLDEN AMERICAN LIFE INSURANCE COMPANY, RELIASTAR LIFE INSURANCE COMPANY, MONY LIFE INSURANCE COMPANY, AMERICAN UNITED LIFE INSURANCE COMPANY, PIONEER MUTUAL LIFE INSURANCE COMPANY, THE STATE LIFE INSURANCE COMPANY, and MODERN WOODMEN OF AMERICA, for itself and all of its predecessors, successors and assigns, (collectively, the “Releasors”), do hereby, forever release, remise, and discharge GAS TRANSMISSION NORTHWEST CORPORATION (“GTN”), and all of its personal representatives, predecessors, successors, assigns, officers, managers, directors, partners, trustees, shareholders, employees, agents, attorneys, representatives, parent corporations, subsidiaries, and affiliates (collectively, the “Releasees”) from any and all claims, counterclaims, demands, damages, debts, agreements, covenants, suits, contracts, obligations, liabilities, accounts, offsets, rights of recoupment, rights, actions and causes of action of any nature whatsoever, whether presently possessed or possessed in the future, whether known or unknown, suspected or unsuspected, whether in contract or in tort, whether liability be direct or indirect, liquidated or unliquidated, whether presently accrued or to accrue hereafter, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, for or because of or as a result of any act, omission, communication, transaction, occurrence, representation, promise, damage, breach of contract, fraud, violation of any statute or law, commission of any tort, or any other matter whatsoever or thing done, omitted or suffered to be done by the Releasees, which has occurred in whole or in part, or was initiated at any time from the beginning of time up to and immediately preceding the moment of the execution of this release arising out of or related in any way to (a) the disclosure or non-disclosure of the guarantee by GTN of the obligations of PG&E Energy Trading-Power, L.P. in favor of Liberty Electric Power, LLC as provided in the Guaranty Agreement dated as of February 6, 2001, and the disclosure or non-disclosure of the guarantee by GTN of the obligations of any other Person, to the extent such guarantee was required to be and was not disclosed by GTN in connection with GTN’s entry into those certain Note Purchase Agreements (the “Note Purchase Agreements”), each dated as of June 6, 2002, between GTN and each of the Releasors, and (b) the rights of the Releasors against GTN that might arise under such Note Purchase Agreements solely due to and related to bankruptcy filings by any affiliates of GTN. For the avoidance of doubt, the release, remise and discharge provided hereby shall not release GTN from any other obligation or liability under or with respect to the Note Purchase Agreements or any notes issued thereunder, all of which shall continue in full force and effect.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by a duly authorized officer or agent thereof.

Company:


GAS TRANSMISSION NORTHWEST CORPORATION

By
Name:
Title:

EX-12 3 dex12.htm CONPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Conputation of Ratio of Earnings to Fixed Charges

EXHIBIT 12

GAS TRANSMISSION NORTHWEST CORPORATION

EXHIBIT 12 - RATIO OF EARNINGS TO FIXED CHARGES

($ in millions)


	For the Six Months Ended
Ratio of Earnings to Fixed Charges	June 30, 2004		June 30, 2003
Earnings
Net income	$	29.1	$	29.3
Adjustments:
Income taxes		18.5		19.0
Fixed charges (as below)		19.4		20.2

Total adjusted earnings	$	67.0	$	68.5

Fixed charges:
Net interest expense	$	19.0	$	19.8
Adjustments:
Interest component of rents		0.1		0.2
AFUDC debt		0.2		0.2

Total fixed charges	$	19.4	$	20.2

Ratio of earnings to fixed charges		3.5		3.4

EX-31.1 4 dex311.htm PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302 Principal Executive Officer Certification Pursuant to Section 302

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 13a-14(a)

I, P. Chrisman Iribe, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Gas Transmission Northwest Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

•

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

•

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

•

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

•

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

•

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2004

/s/ P. CHRISMAN IRIBE

P. Chrisman Iribe

President

Gas Transmission Northwest Corporation

EX-31.2 5 dex312.htm PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302 Principal Financial Officer Certification Pursuant to Section 302

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 13a-14(a)

I, William H. Runge III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Gas Transmission Northwest Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

•

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

•

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2004

/s/ WILLIAM H. RUNGE III

William H. Runge III

Chief Financial Officer

Gas Transmission Northwest Corporation

EX-32.1 6 dex321.htm PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 906 Principal Executive Officer Certification Pursuant to Section 906

Exhibit 32.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Gas Transmission Northwest Corporation for the quarter ended June 30, 2004, I, P. Chrisman Iribe, President of Gas Transmission Northwest Corporation, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)

such Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in such Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, fairly presents, in all material respects, the financial condition and results of operations of Gas Transmission Northwest Corporation.



August 12, 2004				/s/ P. CHRISMAN IRIBE
				P. Chrisman Iribe
				President

A signed original of this written statement required by Section 906 has been provided to Gas Transmission Northwest Corporation and will be retained by Gas Transmission Northwest Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 7 dex322.htm PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 906 Principal Financial Officer Certification Pursuant to Section 906

Exhibit 32.2

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Gas Transmission Northwest Corporation for the quarter ended June 30, 2004, I, William H. Runge III, Chief Financial Officer of Gas Transmission Northwest Corporation, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)

such Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)



August 12, 2004				/s/ WILLIAM H. RUNGE III
				William H. Runge III
				Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

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