<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-7414
NORTHWEST PIPELINE CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0269236
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
295 Chipeta Way
Salt Lake City, Utah 84108
------------------------------------------------------
(Address of principal executive offices and Zip Code)
(801) 583-8800
------------------------------------------------------
(Registrant's telephone number, including area code)
No Change
------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 13, 2000
-------------------------- --------------------------------
Common stock, $1 par value 1,000 shares
The registrant meets the conditions set forth in General Instruction (H)(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
<PAGE> 2
NORTHWEST PIPELINE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements --
Condensed Consolidated Statement of Income, three and nine months
ended September 30, 2000 and 1999 .................................................... 1
Condensed Consolidated Balance Sheet as of September 30, 2000 and
December 31, 1999 .................................................................... 2
Condensed Consolidated Statement of Cash Flows, nine
months ended September 30, 2000 and 1999 ............................................. 4
Notes to Condensed Consolidated Financial Statements ...................................... 5
Item 2. Management's Narrative Analysis of the Results of Operations............................ 9
PART II. OTHER INFORMATION ........................................................................ 11
</TABLE>
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Northwest Pipeline Corporation
believes such forward-looking statements are based on reasonable assumptions, no
assurance can be given that every objective will be reached. Such statements are
made in reliance on the "safe harbor" protections provided under the Private
Securities Reform Act of 1995. Additional information about issues that could
lead to material changes in performance is contained in Northwest Pipeline
Corporation's annual report on Form 10-K and 2000 first and second quarter
reports on Form 10-Q.
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES ............................... $ 73,819 $ 68,642 $ 222,693 $ 216,059
--------- --------- --------- ---------
OPERATING EXPENSES:
General and administrative .................... 8,810 11,490 29,192 35,141
Operation and maintenance ..................... 8,174 9,179 25,987 27,614
Depreciation .................................. 15,047 13,371 42,679 37,874
Taxes, other than income taxes ................ 2,761 2,093 10,216 10,470
--------- --------- --------- ---------
34,792 36,133 108,074 111,099
--------- --------- --------- ---------
Operating income ........................... 39,027 32,509 114,619 104,960
--------- --------- --------- ---------
OTHER INCOME -- net .............................. 3,400 657 10,166 1,954
--------- --------- --------- ---------
INTEREST CHARGES:
Interest on long-term debt .................... 6,469 6,506 19,445 19,557
Other interest ................................ 1,618 1,498 4,743 2,902
Allowance for borrowed funds used
during construction ......................... 29 (202) (175) (562)
--------- --------- --------- ---------
8,116 7,802 24,013 21,897
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ....................... 34,311 25,364 100,772 85,017
PROVISION FOR INCOME TAXES ....................... 13,020 9,485 38,230 31,945
--------- --------- --------- ---------
NET INCOME ....................................... $ 21,291 $ 15,879 $ 62,542 $ 53,072
========= ========= ========= =========
CASH DIVIDENDS ON COMMON STOCK ................... $ 20,000 $ -- $ 60,000 $ 36,000
========= ========= ========= =========
</TABLE>
----------
See accompanying notes.
- 1 -
<PAGE> 4
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, at cost .................................... $ 1,616,616 $ 1,616,904
Less -- Accumulated depreciation ...................................... 744,831 701,127
----------- -----------
871,785 915,777
Construction work in progress ......................................... 58,274 26,900
----------- -----------
930,059 942,677
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ............................................. 695 342
Advances to affiliates ................................................ 51,120 30,842
Accounts receivable --
Trade .............................................................. 15,370 17,748
Affiliated companies ............................................... 3,231 2,027
Materials and supplies (principally at lower of average cost or
market) ............................................................ 10,727 10,734
Exchange gas due from others .......................................... 7,642 1,389
Deferred income taxes ................................................. 5,760 19,741
Prepayments and other ................................................. 14,523 1,139
----------- -----------
109,068 83,962
----------- -----------
OTHER ASSETS:
Deferred charges ...................................................... 47,939 47,594
----------- -----------
$ 1,087,066 $ 1,074,233
=========== ===========
</TABLE>
----------
See accompanying notes.
- 2 -
<PAGE> 5
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands)
<S> <C> <C>
CAPITALIZATION:
Common stockholder's equity --
Common stock, par value $1 per share;
authorized and outstanding, 1,000 shares .......... $ 1 $ 1
Additional paid-in capital .......................... 262,844 262,844
Retained earnings ................................... 209,336 206,794
----------- -----------
472,181 469,639
Long-term debt, less current maturities ................ 369,141 370,793
----------- -----------
841,322 840,432
----------- -----------
CURRENT LIABILITIES:
Current maturities of long-term debt ................... 1,667 1,667
Accounts payable --
Trade ............................................... 8,769 10,289
Affiliated companies ................................ 3,673 10,784
Accrued liabilities --
Income taxes ........................................ 3,677 --
Taxes, other than income taxes ...................... 6,146 2,400
Interest ............................................ 19,350 12,030
Employee costs ...................................... 8,409 11,413
Exchange gas due to others .......................... 8,331 2,078
Reserves for estimated rate refunds ................. 28,312 29,059
Other ............................................... 2,012 2,001
----------- -----------
90,346 81,721
----------- -----------
DEFERRED INCOME TAXES ...................................... 149,223 143,519
----------- -----------
OTHER DEFERRED CREDITS ..................................... 6,175 8,561
----------- -----------
CONTINGENT LIABILITIES AND COMMITMENTS .....................
----------- -----------
$ 1,087,066 $ 1,074,233
=========== ===========
</TABLE>
----------
See accompanying notes.
- 3 -
<PAGE> 6
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
2000 1999
--------- ---------
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ...................................................................... $ 62,542 $ 53,072
Adjustments to reconcile to cash provided by operations --
Depreciation ................................................................ 42,679 37,874
Provision for deferred income taxes ......................................... 19,685 5,474
Amortization of deferred charges and credits ................................ 505 1,603
Allowance for equity funds used during construction ......................... (328) (998)
Increase (decrease) from changes in:
Accounts receivable, exchange gas due from others ......................... (5,079) 19,489
Materials and supplies .................................................... 7 (79)
Other current assets ...................................................... (13,384) 396
Other assets and deferred charges ......................................... (2,614) (4,973)
Accounts and income taxes payable and exchange gas due to others .......... 242 (18,175)
Other accrued liabilities ................................................. 11,003 (654)
Other deferred credits .................................................... (607) (682)
Other ....................................................................... -- 1
--------- ---------
Net cash provided by operating activities ....................................... 114,651 92,348
--------- ---------
INVESTING ACTIVITIES:
Property, plant and equipment --
Capital expenditures ........................................................ (31,056) (47,036)
Proceeds from sales ......................................................... 1,323 233
Changes in accounts payable ................................................. (2,620) 3,346
Advances to affiliates .......................................................... (20,278) (12,086)
--------- ---------
Net cash used by investing activities ........................................... (52,631) (55,543)
--------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term debt ............................................ (1,667) (1,667)
Dividends paid .................................................................. (60,000) (36,000)
--------- ---------
Net cash used by financing activities ........................................... (61,667) (37,667)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 353 (862)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ......................................................................... 342 1,164
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 695 $ 302
========= =========
</TABLE>
----------
See accompanying notes.
- 4 -
<PAGE> 7
NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The accompanying, unaudited interim condensed consolidated financial
statements of Northwest Pipeline Corporation ("Pipeline") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations; however,
Pipeline believes that the disclosures made are adequate to make the information
presented not misleading. In the opinion of Pipeline, all adjustments, which
include only normal operating adjustments, have been made to present fairly the
financial position of Pipeline as of September 30, 2000, the results of
operations for the three and nine month periods ended September 30, 2000 and
1999, and cash flows for the nine month periods ended September 30, 2000 and
1999. The results of operations for the periods presented are not necessarily
indicative of the results for the respective complete years. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the statements, the notes thereto and management's narrative analysis
included in Pipeline's 1999 Annual Report on Form 10-K and 2000 first and second
quarter reports on Form 10-Q.
Pipeline is a wholly-owned subsidiary of Williams Gas Pipeline Company
("WGP"). WGP is a wholly-owned subsidiary of The Williams Companies, Inc.
("Williams").
Adoption of Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS 137, which deferred the effective date of SFAS 133. This was followed in
June 2000 by the issuance of SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which amends SFAS 133. SFAS 133 and
138 establish accounting and reporting standards for derivative financial
instruments. The standards require that all derivative financial instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives will be recorded each period in earnings if the derivative is not a
hedge. If a derivative is a hedge, changes in the fair value of the derivative
will either be recognized in earnings along with the change in the fair value of
the hedged asset, liability or firm commitment also recognized in earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. For a derivative recognized in other comprehensive income, the
ineffective portion of the derivative's change in fair value will be recognized
immediately in earnings. Pipeline will adopt these standards effective January
1, 2001.
Based on Pipeline's implementation efforts at September 30, 2000,
Pipeline does not expect that the impact of adopting the standards will be
material to its financial position or results of operations. However, the
possibility of entering into new derivative positions in the fourth quarter of
2000 and the fact that Pipeline continues to pursue its implementation efforts,
causes the impact to Pipeline's financial position or results of operations to
remain uncertain.
(2) BASIS OF PRESENTATION
The condensed consolidated financial statements include the operating
results of NWP Enterprises ("Enterprises"), a wholly owned subsidiary of
Pipeline.
(3) LONG-TERM DEBT AND BANKING ARRANGEMENTS
Pipeline is a participant in a $700 million Revolving Credit Facility
with Williams and certain affiliated companies. Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, is $400
million, none of which was used by Pipeline at September 30, 2000. Interest
rates vary with current market conditions based on the base rate of Citibank
N.A., federal funds rate or the London Interbank Offered Rate ("LIBOR"). The
Facility contains restrictions, which limit, under certain circumstances, the
issuance of additional debt, the attachment of liens on any assets and any
change of ownership of Pipeline. Any borrowings by Pipeline under this Facility
are not guaranteed by Williams and are based on Pipeline's financial need and
credit worthiness.
- 5 -
<PAGE> 8
NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pipeline has also arranged various uncommitted lines-of-credit at market
interest rates that were unused by Pipeline at September 30, 2000. Pipeline's
credit facilities are subject to Pipeline's continued credit worthiness.
(4) CONTINGENT LIABILITIES AND COMMITMENTS
Pending Rate Cases
On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). On May 31,
1995, Pipeline received an order from the Federal Energy Regulatory Commission
("FERC") on this rate case, which, among other issues supported an equity rate
of return of 13.2 percent. In a further order issued on July 19, 1996, the FERC
required an Administrative Law Judge ("ALJ") to reconsider the long-term growth
component of the equity rate of return formula, and upheld its May 31, 1995
decision on all other issues. On October 22, 1996, the ALJ issued an initial
decision, which recommended an equity rate of return of 11.62 percent. Pipeline
took exception to this decision before the FERC. On June 11, 1997, the FERC
issued an order revising its approved equity rate of return to 12.59 percent
based on a new policy for industry-wide application that requires the use of
forecasts of growth in the gross domestic product as the long-term growth
component of the rate of return formula. On July 11, 1997, Pipeline and several
parties in the case sought rehearing of the June 11 rate of return on equity
decision, seeking to have the FERC reconsider various aspects of its new rate of
return on equity policy. On October 16, 1997, the FERC issued an opinion denying
rehearing and reaffirming its previous policy pronouncements concerning rate of
return on equity, but convened a conference on January 30, 1998 to consider, on
an industry-wide basis, issues with respect to pipeline rates of return.
Pipeline made refunds to customers in June 1998 totaling $27 million, including
interest, reflecting the FERC's resolution of all disputed matters in this case.
Pipeline and other parties sought judicial review of the FERC's decision
concerning rate of return on equity. One party sought judicial review of the
inclusion of unpaid accruals in rate base. In July 1998, the FERC issued orders
concerning its rate of return on equity policy in rate proceedings of other
pipelines adopting a formula that gives less weight to the long-term growth
component. In April 1999, the Court of Appeals for the D.C. Circuit remanded the
1993 Rate Case to the FERC for application of its revised rate of return on
equity policy. On July 14, 1999, the FERC issued an order requiring Pipeline to:
(a) submit a surcharge plan to the FERC, (b) recalculate rates consistent with
the new weighting formula favoring short term growth, and (c) address in a
remand hearing the appropriate source for Gross Domestic Product ("GDP") growth
data. The new weighting formula generally results in a higher authorized rate of
return on equity. Pipeline and its customers resolved by settlement those issues
relating to long term GDP growth. In February 2000, the FERC approved the
long-term growth settlement and issued an order related to return on equity
issues requiring Pipeline to incorporate the effects of the settlement and to
calculate its allowed rate of return on equity consistent with the recently
announced policy changes in other proceedings. As a part of this recalculation
of allowed return on equity, the FERC provided that Pipeline must use the median
instead of the midpoint of the various results of Discounted Cash Flow ("DCF")
analysis for a proxy group. This results in a 13.67 percent return on equity for
Pipeline. On April 3, 2000, Pipeline made the necessary compliance filings to
implement the FERC's decision including the establishment of surcharges in order
to recollect moneys that shippers owe Pipeline for these corrective actions.
During the first quarter of 2000, Pipeline recorded surcharges of $11.4 million,
of which $7 million increased revenues and $4.4 million, representing interest,
increased other income. The results of these adjustments are reflected in the
accompanying statements. On July 14, 2000, the FERC issued an order denying
customer rehearing requests and approving Pipeline's compliance filing. The
order reaffirmed Pipeline's right to use the median result from the DCF proxy
group analysis. The FERC's action resulted in Pipeline's booking $3.2 million of
additional revenues and $2.6 million of interest income in July 2000. Some of
Pipeline's customers have sought judicial review concerning the FERC's orders
with respect to return on equity issues.
On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate
Case"). On October 18, 1996, the Commission issued an order approving a
settlement concerning certain liquid revenue credit issues relating to
Pipeline's agreement with an affiliate to have liquid hydrocarbon products
extracted from Pipeline's transportation stream at Ignacio, Colorado. The
litigation of all remaining issues took place in late 1996. Pipeline's rate
application sought a revenue increase for increases in rate base related
primarily to the Northwest Natural and Expansion II facilities placed into
service December 1, 1995 and increased operating costs primarily associated with
an
- 6 -
<PAGE> 9
NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
increase in headquarters office rent. During the first quarter of 1998, the ALJ
issued an Initial Decision. The ALJ found that the facts of this case continue
to support Pipeline's capital structure of 55% equity and 45% debt. The ALJ also
determined that Pipeline fits within the average risk range for determining
pipeline return on equity and allowed a return on equity of 11.2 percent. On
June 1, 1999, the FERC issued its order affirming many aspects of the ALJ's
initial decision, but finding that the return on equity issue should be resolved
by using the FERC's new policy concerning rate of return determinations. This
resulted in an allowed return on equity of 12.22 percent. During the second
quarter of 1999, Pipeline reduced its rate refund liabilities $9.9 million, of
which $7.7 million increased revenues and $2.2 million reduced interest expense,
to reflect the FERC's action in this proceeding. On September 29, 2000, the FERC
issued its Order on Rehearing, which, for the most part, reaffirmed the FERC's
earlier June 1, 1999 decision. Pipeline made a compliance filing on October 16,
2000. Upon approval, Pipeline will issue appropriate refunds to its customers.
No change to current rate refund liabilities is necessary.
On March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996 ("1996 Rate
Case"). The application sought an increase in rates due to a proposed use of a
higher depreciation rate which also considers a net negative salvage value for
Pipeline's facilities, higher operating costs and a redesign of Pipeline's rates
because of impacts relating to the sale of Pipeline's south-end facilities in
the third quarter of 1996. On July 22, 1997, Pipeline filed a settlement to
resolve all issues in this rate case. On November 25, 1997, the FERC, over the
objection of one dissenting party, issued an order approving all aspects of the
settlement. The one dissenting party sought and was denied rehearing of the
FERC's order. That party sought judicial review of certain aspects of the FERC's
decision. Pipeline made refunds to customers in August 1998 totaling $16.7
million, including interest, in this rate case. A settlement in principle has
been reached with the one dissenting party on issues pending review in the
proceeding and on other business related issues. All remaining judicial
challenges in this matter were withdrawn in the third quarter of 2000.
Significant Litigation
In 1998, the United States Department of Justice informed Williams that
Jack Grynberg, an individual, had filed claims in the United States District
Court for the District of Colorado under the False Claims Act against Williams
and certain of its wholly-owned subsidiaries including Pipeline. Mr. Grynberg
had also filed claims against approximately 300 other energy companies and
alleged that the defendants violated the False Claims Act in connection with the
measurement and purchase of hydrocarbons. The relief sought was an unspecified
amount of royalties allegedly not paid to the Federal government, treble
damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the
United States Department of Justice announced that it was declining to intervene
in any of the Grynberg qui tam cases; including the action filed against the
Williams entities in the United States District Court for the District of
Colorado. On October 21, 1999, the Panel on Multi-District Litigation
transferred all of the Grynberg qui tam cases, including the ones filed against
Williams to the United States District Court for the District of Wyoming for
pre-trial purposes. Motions to dismiss the complaint, filed by various
defendants including Williams, are pending.
Other Legal and Regulatory Matters
On February 9, 2000, the FERC issued a final rule, Order No. 637, in
response to the comments received on the Notice of Proposed Rulemaking ("NOPR")
and Notice of Inquiry ("NOI"). The FERC adopted in Order No. 637 certain
policies that it found are necessary to adjust its current regulatory model to
the needs of the evolving markets, but determined that any fundamental changes
to its regulatory policy, which changes were raised and commented on in the NOPR
and NOI, would be considered after further study and evaluation of the evolving
marketplace. Most significantly, in Order No. 637, the FERC (i) revised its
pricing policy to waive, for a two-year period, the maximum price ceilings for
short-term releases of capacity of less than one year, and (ii) permitted
pipelines to file proposals to implement seasonal rates for short-term services
and term-differentiated rates, subject to certain requirements including the
requirement that a pipeline be limited to recovering its annual revenue
requirement under those rates.
In addition to the foregoing, various other proceedings are pending
against Pipeline incidental to its operations.
- 7 -
<PAGE> 10
NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summary of Contingent Liabilities
Management believes that the ultimate resolution of the foregoing
matters, after consideration of amounts accrued, insurance coverage or other
indemnification arrangements, will not have a materially adverse effect upon
Pipeline's future financial position, results of operations, and cash flow
requirements.
Other Matters
Enterprises participates in an agreement for the sale, with limited
recourse, of certain receivables of Pipeline. Net proceeds to Enterprises are
limited to $15 million of which $10 million was utilized at September 30, 2000.
- 8 -
<PAGE> 11
Item 2. Management's Narrative
Analysis of the
Results of Operations
This analysis discusses financial results of Pipeline's operations for
the nine-month periods ended September 30, 2000 and 1999. Variances due to
changes in price and volume have little impact on revenues, because under
Pipeline's rate design methodology, the majority of overall cost of service is
recovered through firm capacity reservation charges in its transportation rates.
This analysis should be read in conjunction with the consolidated
financial statements, notes and management's narrative analysis of the results
of operations contained in Items 7 and 8 of Pipeline's 1999 Annual Report on
Form 10-K and in Pipeline's 2000 First and Second Quarter Reports on Form 10-Q
and with the condensed consolidated financial statements and notes contained in
this report.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 vs. Nine Months Ended September 30, 1999
Operating revenues increased $6.6 million, or 3%, due primarily to the
recognition of a $10.2 million surcharge resulting from a favorable FERC
decision on return on equity related to the 1993 rate case and a $3.2 million
increase in other revenues associated with the completion of the Columbia Gorge
Project in November 1999, partially offset by a 1999 reduction to rate refund
liabilities of $8.3 million associated with the 1995 rate case.
Pipeline's transportation service accounted for 94% and 96% of operating
revenues for the nine-month periods ended September 30, 2000 and 1999,
respectively. Additionally, 3% and 2% of operating revenues represented gas
storage service for the nine-month periods ended September 30, 2000 and 1999,
respectively.
Operating expenses decreased $3 million, or 3%, due primarily to the
receipt of a $1.5 million environmental liability insurance settlement in 2000
and a 1999 adjustment to expense $1.2 million of software reengineering,
training and other costs previously capitalized.
Operating income increased $9.6 million, or 9%, due to the favorable
revenue and expense impacts identified above.
Other income increased $8.2 million primarily resulting from $7 million
of interest on the 1993 rate case surcharge revenues discussed above in
operating revenues.
Other interest expense increased $1.8 million due to the 1999 reduction
to accrued interest liabilities of $2.2 million associated with the 1995 rate
case, partially offset by lower interest on revenues subject to refund as a
result of reductions to related rate refund liabilities as discussed above in
operating revenues.
The following table summarizes volumes and capacity for the periods
indicated:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Total Gas Volumes Throughput (TBtu) 536 511
Average Daily Transportation Volumes (TBtu) 1.9 1.9
Average Daily Firm Reserved Capacity (TBtu) 2.6 2.5
</TABLE>
- 9 -
<PAGE> 12
FINANCIAL CONDITION AND LIQUIDITY
Pipeline anticipates 2000 capital expenditures will total approximately
$53.8 million, of which $31.1 million has been expended through September 30,
2000. Funds necessary to complete capital projects are expected to come from
several sources, including Pipeline's operations and available cash. In
addition, Pipeline expects to be able to obtain financing, when necessary, on
reasonable terms. To allow flexibility in the timing of issuance of long-term
securities, financing may be provided on an interim basis with bank debt and
from sources discussed below.
Pipeline is a participant in WGP's cash management program. The advances
due Pipeline by WGP are represented by demand notes. The interest rate on
intercompany demand notes is the London Interbank Offered Rate ("LIBOR") on the
first day of the month plus an applicable margin based on the current Standard
and Poor's Rating of the Borrower.
Pipeline has an outstanding registration statement filed with the
Securities and Exchange Commission. At September 30, 2000, approximately $150
million of shelf availability remains under this outstanding registration
statement and may be used to issue debt securities. Interest rates and market
conditions will affect amounts borrowed, if any, under this arrangement.
Pipeline is a participant in a $700 million Revolving Credit Facility
with Williams and certain affiliated companies. Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, is $400
million, none of which was used by Pipeline at September 30, 2000. Interest
rates vary with current market conditions based on the base rate of Citibank
N.A., federal funds rate or the London Interbank Offered Rate ("LIBOR"). The
Facility contains restrictions, which limit, under certain circumstances, the
issuance of additional debt, the attachment of liens on any assets and any
change of ownership of Pipeline. Any borrowings by Pipeline under this Facility
are not guaranteed by Williams and are based on Pipeline's financial need and
credit worthiness.
NWP Enterprises ("Enterprises"), a wholly-owned subsidiary of Pipeline,
participates in an agreement for the sale, with limited recourse, of certain
receivables of Pipeline. Net proceeds to Enterprises are limited to $15 million
of which $10 million was utilized at September 30, 2000.
Pipeline has also arranged various uncommitted lines-of-credit at market
interest rates. Pipeline's credit facilities are subject to Pipeline's continued
credit worthiness.
OTHER
Pipeline believes that strong economies in the Pacific Northwest and the
growing preference for natural gas in response to environmental concerns support
future expansions of its mainline capacity.
Reference is made to Note 4 of Notes to Consolidated Financial
Statements for information about regulatory, judicial and business developments
which cause operating and financial uncertainties.
- 10 -
<PAGE> 13
PART II. OTHER INFORMATION
The information required by items in Part II is omitted because the
items are inapplicable, the answer is negative or substantially the same
information is included elsewhere in this report or has been previously reported
by the Registrant.
- 11 -
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTHWEST PIPELINE CORPORATION
----------------------------------------
Registrant
By: /s/ Jeffrey R. Valentine
----------------------------------------
Jeffrey R. Valentine
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
Date: November 13, 2000
<PAGE> 15
EXHIBIT TO INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
