ANR PIPELINE CO, 10-K, 1999-03-26

ANR PIPELINE CO
10-K, 1999-03-26
NATURAL GAS TRANSMISSION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended December 31, 1998 or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ______________ to ______________

Commission file number 1-7320

ANR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)

Delaware 38-1281775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Renaissance Center,
Detroit, Michigan 48243-1902
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (313) 496-0200

---------------------------

Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------

9-5/8% Debentures, due 2021
7-3/8% Debentures, due 2024 } New York Stock Exchange
7% Debentures, due 2025

Securities registered pursuant to Section 12(g) of the Act: None

---------------------------

Registrant meets the conditions set forth in General Instructions (I)(1)(a)
and (b) of Form 10-K and is therefore filing this Report with reduced disclosure
format.

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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 10, 1999, there were outstanding 1,000 shares of common stock
of the Registrant, $100 par value per share, its only class of common stock.
None of the voting stock of the Registrant is held by nonaffiliates.

Documents incorporated by reference: None

================================================================================

<PAGE>

TABLE OF CONTENTS

Item No. Page

Glossary........................................................ (ii)

PART I

1. Business........................................................ 1
Introduction................................................. 1
Natural Gas System........................................... 1
Operations................................................ 1
General................................................ 1
Transportation Services................................ 1
Gas Storage............................................ 3
Competition............................................ 3
Access to Gas Supply..................................... 3
Regulations Affecting Gas System......................... 4
General............................................... 4
Rate Matters.......................................... 4
Environmental............................................ 4
2. Properties...................................................... 5
3. Legal Proceedings............................................... 5
4. Submission of Matters to a Vote of Security Holders............. 6

PART II

5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................. 7
6. Selected Financial Data......................................... 7
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 7
7A. Quantitative and Qualitative Disclosures About Market Risk...... 7
8. Financial Statements and Supplementary Data..................... 7
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 8

PART III

10. Directors and Executive Officers of the Registrant............... 9
11. Executive Compensation........................................... 10
12. Security Ownership of Certain Beneficial Owners and Management... 10
13. Certain Relationships and Related Transactions................... 10

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 11

(i)

<PAGE>

GLOSSARY

"ANR" means American Natural Resources Company
"ANR Pipeline" or the "Company" means ANR Pipeline Company
"ANR Storage" means ANR Storage Company and its subsidiaries
"Bcf" means billion cubic feet
"Blue Lake" means Blue Lake Gas Storage Company in which an affiliate
of the Company has a 75% ownership interest.
"Coastal" means The Coastal Corporation
"Coastal Natural Gas" means Coastal Natural Gas Company
"Colorado" means Colorado Interstate Gas Company and its subsidiaries
"Empire" means Empire State Pipeline
"EPA" means Environmental Protection Agency
"FAS" means Statement of Financial Accounting Standards
"FAS No. 71" means Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation"
"FASB" means Financial Accounting Standards Board
"FERC" means Federal Energy Regulatory Commission
"Great Lakes" means Great Lakes Gas Transmission Limited Partnership in
which affiliates of the Company have a 50% ownership interest.
"HIOS" means High Island Offshore System, L.L.C.
"JolietMarket Hub" means a gas trading area near Chicago, Illinois,
interconnected with numerous pipelines, where parking, lending and
other services are sold.
"MMcf" means million cubic feet
"NGA" means Natural Gas Act of 1938, as amended
"Order 636" means FERC Order No. 636 which required significant changes
in services provided by interstate natural gas pipelines, including
the unbundling of services.
"UTOS" means U-T Offshore System
"working gas" means that volume of gas available for withdrawal from natural
gas storage fields and for use by the Company's customers

NOTES:

This Annual Report includes certain forward-looking statements. The forward-
looking statements reflect the Company's expectations, objectives and goals
with respect to future events and financial performance and are based on
assumptions and estimates which the Company believes are reasonable. However,
actual results could differ materially from anticipated results. Important
factors which may affect the actual results include, but are not limited to,
commodity prices, political developments, market and economic conditions,
industry competition, the weather, changes in financial markets, changing
legislation and regulations, and the impact of the Year 2000 Issue. The
forward-looking statements contained in this Report are intended to qualify for
the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended.

Unless otherwise noted, all natural gas volumes presented in this Annual Report
are stated at a pressure base of 14.73 pounds per square inch absolute and 60
degrees Fahrenheit.

(ii)

<PAGE>

PART I

Item 1. Business.

INTRODUCTION

ANR Pipeline is a Delaware corporation organized in 1945. All of ANR
Pipeline's outstanding common stock is owned by ANR. ANR is a direct, wholly
owned subsidiary of Coastal Natural Gas, and an indirect subsidiary of Coastal.
ANR Pipeline owns and operates an interstate natural gas pipeline system. At
December 31, 1998, the Company had 1,762 employees engaged in the operation of
ANR Pipeline and 201 employees engaged in the operation of HIOS, ANR Storage,
UTOS and Empire.

NATURAL GAS SYSTEM

OPERATIONS

General

The Company is involved in the transportation, storage, gathering and
balancing of natural gas. ANR Pipeline provides these services for various
customers through its facilities located in Arkansas, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, Ohio,
Oklahoma, Tennessee, Texas, Wisconsin and offshore in federal waters. The
Company operates two offshore gas pipeline systems in the Gulf of Mexico which
are owned by HIOS, a limited liability company, and UTOS, a general partnership,
both of which are composed of ANR Pipeline subsidiaries and subsidiaries of
other companies. The Company operates wholly owned and partially owned storage
fields of ANR Storage in Michigan. The Company also operates Empire, an
intrastate pipeline extending from Niagara Falls to Syracuse, New York, in which
an affiliate of the Company has a 50% interest.

The Company's two interconnected, large-diameter multiple pipeline systems
transport gas to the Midwest and the Northeast from (a) the Hugoton Field and
other fields in the Anadarko Basin in Texas and Oklahoma, (b) the Louisiana
onshore and the Louisiana and Texas offshore areas and (c) gas originating in
other basins received through interconnections located throughout its system.

The Company's principal pipeline facilities at December 31, 1998 consisted
of 10,600 miles of pipeline and 74 compressor stations with 1,022,031 installed
horsepower. At December 31, 1998, the design peak day delivery capacity of the
transmission system, considering supply sources, storage, markets and
transportation for others, was approximately 5.9 Bcf per day.

Transportation Services

The Company offers an array of transportation, storage and balancing
service options under Order 636. Additional information concerning Order 636 is
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein.

ANR Pipeline transports gas to markets on its system and also transports
gas to other markets off its system under transportation agreements with other
companies, including distributors, intrastate and interstate pipelines,
producers, brokers, marketers and end users. Transportation service revenues
amounted to $481 million for 1998 compared to $497 million for 1997 and $510
million for 1996. During 1998, approximately 23% of the Company's transportation
service revenues were from its three largest customers: Wisconsin Gas Company,
Wisconsin Electric Power Company Inc. and Michigan Consolidated Gas Company.
Wisconsin Gas Company serves the Milwaukee metropolitan area and numerous other
communities in Wisconsin. Wisconsin Electric Power Company Inc. serves the
cities of Racine, Kenosha, Appleton and their surrounding areas in Wisconsin.
Michigan Consolidated Gas Company serves the city of Detroit and certain
surrounding areas, the cities of Grand Rapids and Muskegon, the communities of
Ann Arbor and Ypsilanti and numerous

<PAGE>

other communities in Michigan. In 1998, ANR Pipeline provided approximately 67%
and 30% of the total gas requirements of Wisconsin and Michigan, respectively.

ANR Pipeline's system deliveries for the years 1998, 1997 and 1996 were as
follows:

Total System Daily Average
Year Deliveries System Deliveries
---- ------------ -----------------
(Bcf) (MMcf)

1998 1,354 3,710
1997 1,424 3,901
1996 1,517 4,145

In September 1998, the Company received FERC approval to expand its
Wisconsin system by constructing 11.7 miles of 30-inch looping and a meter
station in Wisconsin. These facilities will deliver an additional 120 MMcf per
day of capacity into Wisconsin from the Chicago area for a 10-cent rate.
Completion of these facilities is anticipated in the summer of 1999.

As an enhancement of the 1998 Wisconsin expansion, the Company filed with
the FERC in March 1999 for approval to further expand its Wisconsin system by
constructing 3 miles of 42-inch looping in Illinois and the installation of an
additional 23,000 of horsepower at existing compressor stations in Illinois and
Wisconsin. These facilities, which are estimated to cost $37.5 million, will
deliver an additional 194 MMcf per day of capacity into Wisconsin from the
Chicago area. Completion of these facilities is anticipated by late 2000.

Together, these phased-in expansions of the Company's existing system will
provide an efficient means for customers to gain access to increased supplies of
natural gas at the Joliet Market Hub via flexible and economical transportation
and storage services.

Coastal has a 14.4% equity position in the corporations and partnerships
comprising the Alliance Pipeline Project. The Alliance Pipeline Project is a
1,900-mile pipeline initially designed to carry 1.325 Bcf of natural gas per day
and associated liquids from western Canada to the Chicago-area market center.
The Alliance Pipeline will interconnect with, among other pipelines, the
Company's proposed SupplyLink Project, which consists of the construction of
approximately 73 miles of mainline looping and an increase in the transmission
capacity on the Company's mainline between a point west of Joliet, Illinois and
Defiance, Ohio by up to 750 MMcf per day. The proposed Independence Pipeline, of
which a subsidiary of ANR owns a one-third general partnership interest, will
interconnect with the SupplyLink Project at Defiance, Ohio and will extend to
the Leidy, Pennsylvania facilities of Transcontinental Gas Pipe Line Corporation
and other interstate pipelines. The proposed Independence Pipeline project
consists of the construction of 400 miles of 36-inch diameter pipe, with a
designed delivery capacity of more than 950 MMcf per day. In 1998, both the FERC
and the Canadian National Energy Board granted approval to proceed with the
construction and operation of the Alliance Pipeline system. All three projects
are scheduled to be in service by the end of 2000.

Through a subsidiary, the Company has a 40% interest in the East Breaks
Gathering Company L.L.C. ("East Breaks"). East Breaks has entered into
agreements with Exxon Company U.S.A. ("Exxon") and BP Amoco Plc ("BP Amoco")
whereby East Breaks will own and operate pipeline facilities and provide related
services for the development of the Exxon and BP Amoco Diana and Hoover
prospects in the Gulf of Mexico. The pipeline facilities consist of an 85- mile
pipeline (predominantly 20-inch diameter), extending from an Exxon and BP Amoco
production facility in the Gulf of Mexico to a point of interconnection with the
existing HIOS transmission facilities. The new pipeline will have a capacity of
over 400 MMcf per day, will cost approximately $90 million and is expected to be
in service in early 2000, subject to receipt of satisfactory governmental and
regulatory approvals. HIOS interconnects with ANR Pipeline's transportation
facilities at West Cameron Block 167, offshore Louisiana.

<PAGE>

Gas Storage

ANR Pipeline has approximately 202 Bcf of underground working gas storage
capacity, with a maximum day delivery capacity of 3 Bcf as late as the end of
February. Working gas storage capacity operated by ANR Pipeline of 126.3 Bcf is
available from five owned and five leased underground storage facilities in
Michigan. In addition, the Company has the contracted rights for 75.4 Bcf of
working gas storage capacity of which 45.4 Bcf is provided by Blue Lake and 30
Bcf is provided by ANR Storage. Gas storage revenues amounted to $139 million
for 1998 as compared to $146 million for 1997 and $131 million for 1996.

Competition

Natural gas competes with other forms of energy available to customers,
primarily on the basis of price paid by end users. These competitive forms of
energy include electricity, coal, propane and fuel oils. Changes in the
availability or price of natural gas or other forms of energy, as well as
changes in business conditions, conservation, legislation or governmental
regulations, capability to convert to alternate fuels, changes in rate
structure, taxes and other factors may affect the demand for natural gas in the
areas served by ANR Pipeline.

In recent years, the FERC has issued orders which have resulted in more
competition within the natural gas industry. This competition has intensified,
resulting in more rate competition among pipelines in order to increase and
maintain market share and maximize capacity utilization. ANR Pipeline's
transportation, storage and balancing services are influenced by its customers'
access to alternative service providers and the price of such services. The
FERC's orders have also resulted in competition between the Company and its
customers by allowing the customers to resell their unused capacity.

The Company competes in its historical market areas of Wisconsin and
Michigan with other interstate and intrastate pipeline companies and local
distribution companies in the transportation and storage of natural gas. The
Company also faces competition in the Northeast markets from other interstate
pipelines in serving electric generation and local distribution companies.
Increasingly, ANR Pipeline also competes with independent producers and other
companies seeking to construct interstate transmission facilities and with a
number of marketing companies which aggregate capacity released by firm shippers
for the purpose of managing gas requirements for end users.

ACCESS TO GAS SUPPLY

Shippers on ANR Pipeline have direct access to the two most prolific gas
producing areas in the United States, the Gulf Coast and Mid-Continent.
Statistics published by the Energy Information Agency, Office of Oil and Gas, U.
S. Department of Energy, indicate that approximately 79% of all natural gas in
the lower 48 states is produced from these two areas.

In addition, interconnecting pipelines provide shippers, in general, with
access to all other major gas producing areas in the United States and Canada.
An interconnection with Colorado, an affiliate of ANR Pipeline, provides ANR
Pipeline shippers with access to the Rocky Mountain producing area. Rocky
Mountain production contributes approximately 15% of total gas production in the
lower 48 states. Gas produced in Western Canada, nearly 100% of all Canadian gas
production, is accessible to ANR Pipeline shippers through existing
interconnections with Great Lakes and Viking Gas Transmission Company ("Viking")
and a new interconnection with Northern Border Pipeline Company ("Northern
Border").

Gas deliverability available to shippers on ANR Pipeline's system from the
Mid-Continent, Rocky Mountain and Gulf Coast producing areas through direct
connections and interconnecting pipelines and gatherers is approximately 4,000
MMcf per day. Deliverability of 1,100 MMcf per day from Western Canada is
accessible to ANR Pipeline shippers through the Great Lakes and Viking
interconnections. The interconnection with Northern Border has the capacity to
provide shippers access to an additional 500 MMcf per day of Western Canadian
gas.

The Company remains active in locating and connecting new sources of
natural gas to facilitate transportation arrangements made by third-party
shippers. During 1998, field development, newly connected gas wells, gas
production

<PAGE>

facilities and pipeline interconnections contributed over 1,600 MMcf per day to
total deliverability accessible to shippers on the Company's pipeline system.

REGULATIONS AFFECTING GAS SYSTEM

General

Under the NGA, the FERC has jurisdiction over ANR Pipeline as to rates and
charges for the transportation, storage and balancing of natural gas, the
construction of new facilities, the extension or abandonment of service and
facilities, accounts and records and certain other matters. ANR Pipeline holds
certificates of public convenience and necessity issued by the FERC covering its
jurisdictional facilities, activities and services.

ANR Pipeline is also subject to regulation with respect to safety
requirements in the design, construction, operation and maintenance of its
interstate gas transmission and storage facilities by the Department of
Transportation. Operations on United States government land are regulated by the
Department of the Interior.

On July 29, 1998, the FERC issued a "Notice of Proposed Rulemaking," in
which the FERC has proposed a number of further significant changes to the
industry, including, among other things, removal of price caps in the short-term
market (less than one year), capacity auctions, changed reporting obligations,
the ability to negotiate terms and conditions of all services, elimination of
the requirement of a matching term cap on the renewal of existing contracts, and
a review of its policies for approving capacity construction. On the same day,
the FERC also issued a "Notice of Inquiry" soliciting industry input on various
matters affecting the pricing of long-term service and certificate pricing in
light of changing market conditions. The due date for comments on both of these
matters has been rescheduled twice and is currently scheduled for April 22,
1999. The FERC has indicated that it may consider both proposals together
inasmuch as they raise several common issues.

Rate Matters

All of the Company's service options are subject to rate regulation by the
FERC. Under the NGA, ANR Pipeline must file with the FERC to establish or adjust
its services and rates. The FERC may also initiate proceedings to determine
whether the Company's rates are "just and reasonable."

On March 16, 1998, the Company's comprehensive settlement of its November
1, 1993 rate case became effective. In compliance with the settlement, lower
rates were placed into effect retroactive to November 1, 1997, and refunds and
applicable interest were paid on April 15, 1998.

Certain regulatory issues remain unresolved among the Company, its
customers, its suppliers and the FERC. The Company has made provisions which
represent management's assessment of the ultimate resolution of these issues. As
a result, the Company anticipates that these regulatory matters will not have a
material adverse effect on its consolidated financial position or results of
operations. While the Company estimates the provisions to be adequate to cover
potential adverse rulings on these and other issues, it cannot estimate when
each of these issues will be resolved.

ENVIRONMENTAL

The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations which may affect such
operations and costs as a result of their effect on the construction, operation
and maintenance of its pipeline facilities. Compliance with such laws and
regulations can be costly. Additionally, governmental authorities may enforce
the laws and regulations with a variety of civil and criminal enforcement
measures, including monetary penalties and remediation requirements.

The Company spent approximately $1.7 million in 1998 on environmental
capital projects and anticipates annual capital expenditures of approximately $3
to $5 million per year over the next several years aimed at maintaining
compliance with such laws and regulations.

<PAGE>

The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," imposes liability for the release of a "hazardous
substance" into the environment. Superfund liability is imposed without regard
to fault and even if the waste disposal was in compliance with the then current
laws and regulations. With the joint and several liability imposed under
Superfund, a potentially responsible party ("PRP") may be required to pay more
than its proportional share of such costs. The Company has been named as a PRP
in three Superfund waste disposal sites. At these sites, there is sufficient
information to estimate total cleanup costs of approximately $42 million and the
Company estimates its pro-rata exposure, to be paid over a period of several
years, is approximately $.4 million.

In Michigan, where the Company has extensive operations, the Environmental
Response Act requires individuals (including corporations) who have caused
contamination to remediate the contamination to regulatory standards. Owners or
operators of contaminated property who did not cause the contamination are not
required to remediate the contamination, but must exercise due care in their use
of the property so that the contamination is not exacerbated and the property
does not pose a threat to human health. ANR Pipeline estimates that its costs to
comply with the Michigan regulations will be approximately $10 million, which
will be expended over a period of several years and for which appropriate
provisions have been made.

In October 1998, the EPA announced a "Finding of Significant Contribution
and Rulemaking for Certain States in the Ozone Transport Assessment Group Region
for Purposes of Reducing Regional Transport of Ozone" ("NOx SIP Call"). The NOx
SIP Call requires 22 states, including eight states in which ANR Pipeline
operates, and the District of Columbia to submit state implementation plans
("SIP Plans"), with each state showing how it intends to reduce NOx emissions
from sources located within its borders to specified levels. States have until
September 1999 to submit SIP Plans to the EPA, and reduction measures must be in
place by May 1, 2003. Under the provisions of the NOx SIP Call, if a state fails
to submit approvable SIP Plans by the September 1999 deadline, the EPA has the
authority to impose reductions upon specific sources within the state. The NOx
SIP Call is the subject of legal proceedings instituted by nine of the affected
states and numerous affected industries. ANR Pipeline operates compressor
engines that emit nitrogen oxide and is, therefore, potentially subject to any
state or EPA rules issued under the NOx SIP Call. Until the states have
submitted approvable SIP Plans, the Company will not be able to reasonably
estimate the amount of any obligation resulting from this ruling.

Future information and developments, including legislative and enforcement
developments, will require the Company to continually reassess the expected
impact of these environmental matters. However, the Company has evaluated its
total environmental exposure based on currently available data, including its
potential joint and several liability, and believes that compliance with all
applicable laws and regulations will not have a material adverse impact on the
Company's consolidated financial position or results of operations.

Item 2. Properties.

Information on properties of ANR Pipeline is in Item 1, "Business,"
included herein.

The real property owned by the Company in fee consists principally of sites
for compressor and metering stations and microwave and terminal facilities. With
respect to the five owned storage fields, the Company holds title to gas storage
rights representing ownership of, or has long-term leases on, various subsurface
strata and surface rights and also holds certain additional gas rights. Under
the NGA, the Company may acquire, by the exercise of the right of eminent domain
through proceedings in United States District Courts or in state courts,
necessary rights-of-way to construct, operate and maintain pipelines and
necessary land or other property for compressor and other stations and equipment
necessary to the operation of pipelines.

Item 3. Legal Proceedings.

In October 1996, Coastal, along with certain of its affiliates, including
ANR Pipeline, was named as a defendant in a suit filed by several former and
current African American employees in the United States District Court, Southern
District of Texas. The suit alleges racially discriminatory employment policies
and practices. Coastal and its affiliates vigorously deny these allegations and
have filed responsive pleadings. Plaintiffs' counsel are seeking to have the
suit certified as a class action of all former and current African American
employees and initially claimed compensatory and punitive damages of $400
million. In February 1999, in response to Coastal's motion to deny class
certification, plaintiffs'

<PAGE>

counsel obtained permission from the Court to delete all claims for compensatory
and punitive damages and to seek equitable relief only. In January 1998, the
plaintiffs amended their suit to exclude ANR Pipeline employees from the
potential class. A new suit was then filed in state court in Wayne County,
Michigan, seeking to have the Michigan suit certified as a class action of
African American employees of ANR Pipeline and seeking unspecified damages as
well as attorneys and expert fees. The Company has filed responsive pleadings
denying these allegations.

In 1996, Jack Grynberg filed a claim under the False Claims Act on behalf
of the U.S. government in the U.S. District Court, District of Columbia, against
70 defendants, including ANR Pipeline and another subsidiary of Coastal. The
suit sought damages for the alleged underpayment of royalties due to the
purported improper measurement of gas. The 1996 suit was dismissed without
prejudice in March 1997 and the dismissal was affirmed by the D.C. Court of
Appeals in October 1998. In September 1997, Mr. Grynberg filed 77 separate,
similar False Claims Act suits against natural gas transmission companies and
producers, gatherers, and processors of natural gas, seeking unspecified
damages. ANR Pipeline, Coastal and several other Coastal subsidiaries have been
included in two of the September 1997 suits. The suits were filed in both the
U.S. District Court, District of Colorado and the U.S. District Court, Eastern
District of Michigan. The United States Department of Justice has notified the
Company that it is reviewing these lawsuits to determine whether or not the
United States will intervene.

Numerous other lawsuits and other proceedings which have arisen in the
ordinary course of business are pending or threatened against the Company or its
subsidiaries. Although no assurances can be given and no determination can be
made at this time as to the outcome of any particular lawsuit or proceeding, the
Company believes there are meritorious defenses to substantially all such claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position or
results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

<PAGE>

PART II

Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.

All common stock of ANR Pipeline is owned by ANR.

Item 6. Selected Financial Data.

The following selected financial data (in millions of dollars) for the
periods indicated is derived from the Consolidated Financial Statements included
herein and Item 6 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, as adjusted for minor reclassifications.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to Consolidated Financial Statements included herein
contain information relating to this data.

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Storage and transportation....................... $ 620.0 $ 642.7 $ 642.2 $ 705.5 $ 706.3
Other revenues................................... 127.4 87.0 121.4 116.0 135.8
--------- --------- --------- --------- ---------
Total...................................... $ 747.4 $ 729.7 $ 763.6 $ 821.5 $ 842.1
========= ========= ========= ========= =========
Earnings Before Extraordinary Item.................. $ 204.1 $ 168.9 $ 140.3 $ 151.3 $ 152.1
========= ========= ========= ========= =========
*Net Earnings (Loss)................................ $ 204.1 $ 168.9 $( 23.6) $ 151.3 $ 152.1
========= ========= ======== ========= =========
Dividends Declared on Common Stock.................. $ 160.5 $ 95.0 $ 300.0 $ 30.1 $ 331.0
========= ========= ========= ========= =========

Total Assets........................................ $ 1,688.2 $ 1,816.4 $ 1,743.8 $ 2,049.4 $ 1,858.6
========= ========= ========= ========= =========
Capital Structure:
Common stock and other stockholder's
equity........................................ $ 703.6 $ 660.0 $ 586.1 $ 909.7 $ 788.5
Long-term debt and other long-term
obligations................................... 501.0 503.5 506.4 509.3 437.0
--------- --------- --------- --------- ---------
Total...................................... $ 1,204.6 $ 1,163.5 $ 1,092.5 $ 1,419.0 $ 1,225.5
========= ========= ========= ========= =========

<FN>
Since all of the outstanding common stock of ANR Pipeline is owned by ANR,
earnings and cash dividends per common share have no significance and are not
presented.

*Effective November 1, 1996, the Company discontinued the application of
regulatory accounting principles under FAS No. 71. As a result, the Company
recorded an extraordinary charge to income of $163.9 million in 1996. Additional
information is set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 1 of Notes to Consolidated
Financial Statements included herein.
</FN>
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on pages F-1 through F-6 herein.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

For the information required by this item, see discussion under
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which is presented on page F-2.

Item 8. Financial Statements and Supplementary Data.

The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) herein.

<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.

None.

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant.

The directors and executive officers of ANR Pipeline as of March 10, 1999,
were as follows:

Name (Age), Year First Elected Positions and Offices
Director and/or Officer with the Registrant
--------------------------------------- -------------------------

Jeffrey A. Connelly (52), 1988 and 1983 President, Chief Executive
Officer and Director
David A. Arledge (54), 1994 Director
Harold Burrow (84), 1994 Director
Richard A. Lietz (53), 1994 and 1984 Executive Vice President,
Chief Operating Officer
and Director
Jon R. Whitney (54), 1996 Director
Stanley A. Babiuk (47), 1989 Senior Vice President
Daniel F. Collins (57), 1986 Senior Vice President
Donald H. Gullquist (55), 1994 Senior Vice President
Wilbur A. Hitchcock (50), 1994 Senior Vice President
William L. Johnson (41), 1991 Senior Vice President
John P. Lucido (51), 1988 Senior Vice President
Rebecca H. Noecker (47), 1989 Senior Vice President and
General Counsel
Austin M. O'Toole (63), 1985 Senior Vice President and
Secretary
Scott P. Anger (54), 1990 Vice President
Michael J. Armiak (51), 1996 Vice President
Gary C. Charette (42), 1998 Vice President
Thomas E. Jackson, Jr. (59), 1994 Vice President
Richard H. Leehr (49), 1991 Vice President
Jeffrey B. Levos (38), 1997 Vice President
Michael B. Lobin (49), 1991 Vice President
Ronald D. Matthews (51), 1994 Vice President and Treasurer
Dennis J. Paruch (53), 1984 Vice President
Ann E. Raden (42), 1996 Vice President
Elias A. Shaptini (68), 1981 Vice President
Stephen B. Shaw (48), 1997 Vice President
Gary J. Valentz (42), 1999 Vice President
Michael J. Whims (52), 1996 Vice President
Michael J. Williams (52), 1996 Vice President
Hubert W. Pipkin (46), 1997 Assistant Vice President and
Controller

The above named persons bear no family relationship to each other, except
that Wilbur A. Hitchcock and Rebecca H. Noecker are first cousins. The
respective terms of office of the directors and officers expire coincident with
ANR Pipeline's Annual Meeting of the Sole Stockholder and Annual Meeting of the
Board of Directors to be held in May 1999. Each of the directors and officers
named above have been directors or officers of ANR Pipeline, Colorado and/or
Coastal or subsidiaries thereof for five years or more except for the following:

Mr. Armiak was elected Vice President of the Company in January 1996. Prior
thereto, he has served in various capacities with the Company since 1971.

Mr. Charette was elected Vice President of the Company in July 1998. Mr.
Charette joined ANR Pipeline in 1995. Prior to that time he was Director, Gas
Supply for Wisconsin Natural Gas Company where he worked for 17 years.

<PAGE>

Mr. Gullquist was elected Senior Vice President of the Company in September
1994. From 1988 to 1989 he served as Vice President, Finance at Enron
Corporation; from 1989 to 1990 he served as President of Enron Finance
Corporation.

Mr. Hitchcock was elected a Senior Vice President of ANR Pipeline in March
1994. He previously served as a Vice President of Northern Indiana Public
Service Company, where he had been employed since 1990. From 1984 to 1990, he
was employed by Natural Gas Pipeline Company in various positions.

Mr. Levos was elected Vice President of ANR Pipeline in May 1997 and Vice
President and Controller of Coastal in March 1997. He has served as Vice
President of Coastal States Management Corporation, a subsidiary of Coastal,
since December 1995 and also served as General Auditor since July 1994. Prior
thereto, he was a Certified Public Accountant with the Houston office of
Deloitte & Touche LLP since January 1986.

Mr. Pipkin was elected Assistant Vice President and Controller of the
Company in December 1997. Prior to joining the Company, Mr. Pipkin spent 13
years with The Philadelphia Coca-Cola Bottling Co, where he most recently served
as corporate controller and assistant treasurer.

Ms. Raden was elected Vice President, Human Resources and Community
Affairs, of the Company in April 1996. Prior to joining the Company, she was
employed by First of America Bank Corporation, Kalamazoo, Michigan, for 17 years
where she held a series of human resources management positions, the most recent
of which was the position of Senior Vice President and Manager of Human
Resources Administration.

Mr. Shaw was elected Vice President of ANR Pipeline in August 1997. Mr.
Shaw most recently was a principal with CSC Planmetrics, a management consulting
firm in Chicago, and prior to that, he served in various increasingly
responsible positions from 1979 to 1994 at Michigan Consolidated Gas Company in
Detroit.

Mr. Valentz was elected Vice President of ANR Pipeline in February 1999.
Prior to joining the Company, Mr. Valentz was Director of Business Information
Systems with Great Lakes Chemical Corporation for a year. Prior to that, Mr.
Valentz served as Director/Manager, Application Development with The Lubrizol
Corporation for 18 years.

Mr. Whims was elected Vice President of the Company in January 1996. He has
served in various capacities with ANR Storage since 1979.

Mr. Williams was elected Vice President of the Company in January 1996. He
has served in various capacities with the Company since 1969.

Item 11. Executive Compensation.

The information called for by this item is omitted pursuant to General
Instruction (I) of Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information called for by this item is omitted pursuant to General
Instruction (I) of Form 10-K.

Item 13. Certain Relationships and Related Transactions.

The information called for by this item is omitted pursuant to General
Instruction (I) of Form 10-K.

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) The following documents are filed as part of this Annual Report or
incorporated herein by reference:

1. Financial Statements.

The following Consolidated Financial Statements of ANR Pipeline
and Subsidiaries are included in response to Item 8 hereof on the
attached pages as indicated:

Page
----

Independent Auditors' Report.................................... F-7
Consolidated Balance Sheet at December 31, 1998 and 1997........ F-8
Statement of Consolidated Earnings for the Years Ended
December 31, 1998, 1997 and 1996.............................. F-10
Statement of Consolidated Retained Earnings for the Years
Ended December 31, 1998, 1997 and 1996........................ F-10
Statement of Consolidated Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.............................. F-11
Notes to Consolidated Financial Statements...................... F-12

2. Financial Statement Schedules.

Schedules are omitted as not applicable or not required, or the
required information is shown in the Consolidated Financial
Statements or Notes thereto.

3. Exhibits.

(3.1)+ Composite Certificate of Incorporation of ANR Pipeline
effective as of December 31, 1987. (Filed as Module
ANRCertIncorp on March 29, 1994.)

(3.2)+ Amended By-laws of ANR Pipeline effective as of
September 21, 1994. (Filed as Exhibit 3.2 to ANR
Pipeline's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.)

(4) With respect to instruments defining the rights of
holders of long-term debt, the Company will furnish to
the Securities and Exchange Commission any such
document on request.

(4.1)+ Indenture dated as of February 15, 1994 and First
Supplemental Indenture dated as of February 15, 1994
for the $125 million of 7-3/8% Debentures due February
15, 2024. (Filed as Exhibit 4.4 to ANR Pipeline's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)

(10.1)+ Agreement for Consulting Services between ANR Pipeline
and Harold Burrow, dated as of January 1, 1996. (Filed
as Exhibit 10.3 to ANR Pipeline's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)

(21)* Subsidiaries of the Company.

(24)* Power of Attorney (included on signature pages herein).

(27)* Financial Data Schedule.

- ----------------------

Note:

+ Indicates documents incorporated by reference from the prior
filings indicated.
* Indicates documents filed herewith.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31,
1998.

<PAGE>

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Coby C. Hesse,
William L. Johnson and Austin M. O'Toole and each of them, any one of whom may
act without the joinder of the others, as his attorney-in-fact to sign on his
behalf and in the capacity stated below and to file all amendments to this
Annual Report on Form 10-K, which amendment or amendments may make such changes
and additions thereto as such attorney-in-fact may deem necessary or
appropriate.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ANR PIPELINE COMPANY
(Registrant)

By: JEFFREY A. CONNELLY
-----------------------------------
Jeffrey A. Connelly
President and Chief Executive Officer
March 26, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

By: DAVID A. ARLEDGE By: JEFFREY A. CONNELLY
---------------------------- ----------------------------
David A. Arledge Jeffrey A. Connelly
Principal Financial Officer Director
and Director March 26, 1999
March 26, 1999

By: WILLIAM L. JOHNSON By: RICHARD A. LIETZ
---------------------------- ----------------------------
William L. Johnson Richard A. Lietz
Principal Accounting Officer Director
March 26, 1999 March 26, 1999

By: HAROLD BURROW By: JON R. WHITNEY
----------------------------- ----------------------------
Harold Burrow Jon R. Whitney
Director Director
March 26, 1999 March 26, 1999

<PAGE>

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

This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, includes certain forward-looking
statements. The forward-looking statements reflect the Company's expectations,
objectives and goals with respect to future events and financial performance and
are based on assumptions and estimates which the Company believes are
reasonable. However, actual results could differ materially from anticipated
results. Important factors which may affect the actual results include, but are
not limited to, commodity prices, political developments, market and economic
conditions, industry competition, the weather, changes in financial markets,
changing legislation and regulations, and the impact of the Year 2000 issue. The
forward-looking statements contained in this Report are intended to qualify for
the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended.

The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.

Liquidity and Capital Resources

Overview. Internally generated funds have been the primary source to meet
the cash requirements of the Company over the past three years.

The Company paid dividends of $160.5 million on its common stock in 1998.
These dividends were financed from internally generated funds.

The Company uses the following consolidated ratios to measure liquidity and
ability to meet future funding needs and debt service requirements.

<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities to long-term debt
and other long-term obligations......................................... 24.3% 47.1% 46.2%

Long-term debt and other long-term obligations to total capitalization.. 41.6% 43.3% 46.4%
</TABLE>

The decrease in 1998 as compared to 1997 in the ratio of cash flows from
operating activities to long-term debt and other long-term obligations resulted
primarily from the Company's rate case settlement, including a one-time payment
of refunds and applicable interest of $66.6 million. The decrease in 1998 as
compared to 1997 in the ratio of long-term debt and other long-term obligations
to total capitalization resulted from an increase in retained earnings due to
higher net earnings in 1998 partially offset by higher dividends paid on common
stock in 1998.

The increase in 1997 as compared to 1996 in the ratio of cash flows from
operating activities to long-term debt and other long-term obligations resulted
from higher cash flows provided by operating activities in 1997 and lower other
long-term obligations. The decrease in 1997 as compared to 1996 in the ratio of
long-term debt and other long-term obligations to total capitalization resulted
from an increase in retained earnings due to higher net earnings for 1997 and a
smaller dividend paid on common stock in 1997.

Management believes that the Company's stable financial position and
earnings ability will enable it to continue to generate and obtain capital for
financing needs in the foreseeable future.

Expenditures for each of the years 1996 through 1998 and the sources of
capital used to finance these expenditures are summarized in the "Statement of
Consolidated Cash Flows."

Capital Expenditures. Capital expenditures were $77.2 million in 1998 and
$93.6 million in 1997. Capital expenditures for 1999 are budgeted at $135
million. These expenditures are primarily for completion of projects in

F-1

<PAGE>

process, development of information systems, operational necessities,
environmental requirements, expansion projects and increased efficiency.

Funding for budgeted capital expenditures will be accomplished by the use
of internally generated funds. Funding for certain proposed projects is
anticipated to be provided through non-recourse project financing in which
certain of the projects' assets and contracts will be pledged as collateral.
Equity participation by other entities will also be considered. To the extent
required, cash for equity contributions to projects will be generated from
general corporate funds. Information concerning certain of these projects is
contained in Part I herein under Item 1, "Business - Transportation Services."

Financing Alternatives. Alternatives to finance additional capital and
other expenditures are limited principally by the terms of a Coastal Natural Gas
debt instrument. As of December 31, 1998, ANR Pipeline and certain affiliates
could incur in the aggregate approximately $3 billion of additional
indebtedness.

The Company participates in a program which matches short-term cash
excesses and requirements of participating affiliates, thus minimizing
borrowings from outside sources. At December 31, 1998, the Company had advanced
$156.1 million to an associated company at a market rate of interest. Such
amount is repayable upon demand.

Recent Authoritative Accounting Pronouncements. The Financial Accounting
Standards Board has issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), to
be effective for all fiscal quarters of fiscal years beginning after June 15,
1999. FAS 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative will depend on the intended use of the derivative and the resulting
designation. The Company is currently evaluating the impact, if any, of FAS 133.

The American Institute of Certified Public Accountants ("AICPA") has issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), to be effective for periods beginning after December 15, 1998. SOP
98-5 provides guidance on accounting for costs incurred to open new facilities,
conduct business in new territories or otherwise commence some new operation.
The application of SOP 98-5 is not expected to have a material effect on the
Company's consolidated financial statements.

Market Risk Management. The Company has issued fixed rate debt to partially
finance expenditures and debt retirements. These agreements expose the Company
to market risk related to changes in interest rates.

The following table presents hypothetical changes in fair values in the
Company's debt obligations at December 31, 1998. The modeling technique used
measures the change in fair values arising from selected changes in interest
rates. Market changes reflect immediate hypothetical changes in interest rates
at December 31, 1998. Fair values are calculated as the net present value of the
expected cash flows of the financial instrument.

<TABLE>
<CAPTION>
Millions of Dollars No Change 10% Increase 10% Decrease
--------- ------------------------ ---------------------------

Impact of changes in market Fair Fair Increase Fair Increase
rates of interest on: Value Value (Decrease) Value (Decrease)
- ------------------------------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Long-term debt subject to fixed
interest rates................... $ 592.4 $ 561.8 $ (30.6) $ 624.9 $ 32.5
</TABLE>

The Company has a note receivable from a related party with a carrying
value of $156.1 million. The note earns interest at a variable rate tied to
market rates of interest and therefore, the carrying amount is a reasonable
estimate of its fair value. A 10% change in interest rates from December 31,
1998 levels would not have a material impact on earnings.

The Company's management of market risks is consistent with the prior year.

F-2

<PAGE>

Year 2000. ANR Pipeline, like most other companies, is addressing the Year
2000 issue. This issue is the result of computer programs written with two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software using two digits to define the applicable year may
recognize a date using "00" as the year 1900 instead of the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

The Company's Year 2000 compliance project relates to both information
technology and embedded systems throughout the Company and focuses on all
technology hardware and software, external interfaces with customers and
suppliers, operations process control, automation and instrumentation systems.
Systems are being reviewed in an order of priority that includes an assessment
of the potential adverse effects of noncompliance as well as an assessment of
the complexity of the system. Assessment has been substantially completed for
all systems. It will be necessary to modify or replace certain noncompliant
software and hardware so that they will properly utilize dates beyond December
31, 1999. The Company believes that with such remediation, the Year 2000 issue
can be mitigated. Necessary remediation and testing activities have begun and
are planned to be completed for all material systems by mid-1999. Remaining
systems modifications, replacement and testing are planned to be completed
before the end of 1999.

The Company is continuing with a formal communications process with outside
entities with which the Company conducts business to determine the extent to
which those companies are addressing their Year 2000 compliance. In connection
with this process, the Company has been sending letters and questionnaires to
these parties and is evaluating the responses as received and is following up
with those parties that have not responded. The Company does not expect any
single noncompliant third party to have a material effect on the Company as it
does not rely to a material extent on any single customer or supplier, including
telecommunications providers, utilities and banks. However, the Company does not
control these parties and there can be no assurance that third-party systems
will be timely converted, or that any failure to convert would not have an
adverse effect on the Company's systems. The Company will continue to cooperate
and communicate with these parties to mitigate potential adverse effects.

The Company is currently preparing and will periodically update a Year 2000
contingency plan. The primary goals of the plan are to maintain continuity of
operations, timely resume any operations that have been interrupted, preserve
Company assets and protect the environment. The Company's geographical
distribution and customer base diversity are expected to naturally reduce the
risk of major disruptions to operations due to any Year 2000-related occurrence.
Similarly, the Company's distributed information systems and wide scope of
relationships with financial institutions, suppliers and vendors will most
likely aid in limiting and localizing any individual Year 2000 failure to
specific operations or facilities. Also, in recent years, the Company has
replaced or updated a significant portion of its computer hardware and software.
The plan will include possible manual intervention to operate noncompliant
facilities or systems until they can be modified or replaced. Notwithstanding
the foregoing, due to the nature of contingency planning, there can be no
assurance that such plans will acceptably mitigate the risk of material impact
to the Company's operations due to any Year 2000-related incident.

The Company has been using both external and internal resources to
reprogram or replace its software and embedded systems for the Year 2000 issue.
While the Company has included the Year 2000 project in its overall information
systems planning process since 1996, certain systems were identified for
replacement prior to the organization of the Year 2000 project. These amounts
are not included in the Year 2000 project cost estimates, except where the
replacement date has been accelerated in order to address Year 2000 issues. To
date, the amounts incurred and expensed for developing and carrying out the plan
total approximately $2 million. The total remaining cost for addressing the Year
2000 issue, which will be funded through operating cash flows, is currently
estimated by management to be approximately $1 million.

It should be noted that the ultimate amount of Year 2000 costs is difficult
to estimate due to possible disruptions in business arising from Year 2000
noncompliance of vendors, suppliers, customers and other third parties over whom
the Company has no control. Notwithstanding the Company's efforts, disruptions
could occur in its business due to Year 2000 problems and such disruptions could
have an adverse effect.

Environmental. The Company's operations are subject to extensive and
evolving federal, state and local environmental laws and regulations which may
affect such operations and costs as a result of their effect on the

F-3

<PAGE>

construction, operation and maintenance of its pipeline facilities.
Compliance with such laws and regulations can be costly. Additionally,
governmental authorities may enforce the laws and regulations with a variety of
civil and criminal enforcement measures, including monetary penalties and
remediation requirements.

Results of Operations

ANR Pipeline transports gas to the Midwest and the Northeast regions of the
United States under FERC Order 636, which promulgated the use of the straight
fixed variable ("SFV") rate setting methodology. In general, SFV provides that
all fixed costs of providing service to firm customers (including an authorized
return on rate base and associated taxes) are to be received through fixed
monthly reservation charges, which are not a function of volumes transported,
while including within the commodity billing component the pipeline's variable
operating costs. The Order also eliminated the merchant function and unbundled
pipeline services, providing customers with greater options for transporting
their gas and by allowing customers to resell their unused capacity. These
greater customer options have resulted in increased competition among pipeline
companies and lower rates for customers. The Company auctions gas on the open
market to handle a residual quantity of gas committed and purchased under
certain remaining gas purchase contracts pending expiration of such contracts.
The impact of these gas purchase transactions on operations is becoming less
significant

F-4

<PAGE>

as the number of remaining contracts are reduced. The Company's Order 636
restructured tariff provides mechanisms for recovering from its transportation
customers the pricing differential between costs incurred to purchase gas under
these contracts and the amounts recovered through the auctioning of such gas on
the open market.

Effective November 1, 1996, the Company discontinued the application of
regulatory accounting principles under FAS No. 71. This accounting change has no
direct effect on either the Company's ability to include the previously deferred
items in future rate proceedings or on its ability to collect the rates set
thereby. The Company believes this accounting change results in financial
reporting which better reflects the results of operations in the economic
environment in which it operates.

Revenues. Storage and transportation revenues decreased by $22.7 million in
1998 as compared to 1997. The primary factors contributing to the decrease were
(a) lower revenues of $29 million resulting from warmer than normal weather and
continued intensified competition across the United States natural gas industry,
(b) a decrease in surcharge and other revenue adjustments of $24.8 million and
(c) reduced pass-through recoveries of $4.8 million which are offset in
operation and maintenance. The above decreases were partially offset by net
adjustments to provision for rate related contingencies of $38.7 million
recorded in the first quarter of 1998 as a result of the Company's rate case
settlement which became effective March 16, 1998.

Storage and transportation revenues increased by $0.5 million in 1997 as
compared to 1996. The primary factors contributing to the increase were firm
storage revenue increases of $16.3 million resulting from new contract startups
in the latter part of 1996 and 1997, and adjustments to provisions for rate
related contingencies. Storage and transportation revenues included provisions
for rate related contingencies of $28.5 million and $45.6 million in 1997 and
1996, respectively. These increases were largely offset by reduced pass-through
recoveries of $11 million which are offset in operation and maintenance, a
reduction in gathering revenue of $8.2 million due to the sale of a major
portion of the Company's Southwest gathering facilities in December 1996 and
reduced rates charged to customers. The reduced rates resulted from the
implementation of lower rates effective November 1, 1997 related to the
settlement of the Company's rate case, and continued, intensified competition
across the United States natural gas industry, particularly in the Company's
Midwest operating region.

Other revenue increased by $40.4 million in 1998 as compared to 1997
primarily due to proceeds of $26.7 million received from the termination of gas
transportation contracts and recognition of an $11.3 million gain on the sale of
certain assets.

Other revenues decreased by $34.4 million in 1997 as compared to 1996
primarily due to a $28.7 million gain related to the 1996 sale of a major
portion of the Company's Southwest gathering facilities, reduced interest income
from a related party of $7.2 million and a reduction in the quantity of gas
auctioned on the open market of $1.8 million. These decreases were partially
offset by a $4.4 million increase in equity earnings from investments in
pipeline partnerships.

Revenue has declined since the adoption of Order 636, reflecting increased
competition in the natural gas industry. Although firm capacity on the Company's
major interstate pipelines is largely sold out, the Company is pursuing business
strategies to increase revenues, including optimizing the utilization of its
existing assets, developing new pipeline infrastructure into high growth markets
such as the Northeast and the South Atlantic regions of the United States, and
accessing new gas reserves in Western Canada and the Offshore Gulf area. In
addition, the Company is undertaking a comprehensive program in 1999 to reduce
costs and improve efficiencies.

Operation and Maintenance. Operation and maintenance expenses increased by
$11.9 million in 1998 as compared to 1997. The increase was primarily the result
of nonrecurring charges of $14.1 million, largely due to a provision for
environmental regulatory compliance. These charges were partially offset by
reduced third-party transportation charges of $4.8 million, which were offset in
revenues as discussed above.

Operation and maintenance expenses decreased by $71.8 million in 1997 as
compared to 1996. The decrease was primarily due to lower gas purchase costs of
$29 million, largely resulting from the implementation of the Dakota
Gasification Company settlement in early 1997 and expiration of a significant
gas purchase contract in the third quarter of 1997, and gas purchase related
deferrals and recovery amortizations recorded in 1996 of $11.1 million. Also
contributing to the decrease were reduced third party transportation services of
$11 million, which were offset in revenue,

F-5

<PAGE>

as discussed above, and reductions to other taxes of $5.6 million due to lower
assessed property values and lower use tax provisions in 1997.

Depreciation and Amortization. Depreciation decreased by $12.6 million in
1998 as compared to 1997 and $5.2 million in 1997 as compared to 1996. The
decreases were primarily due to a revision of depreciation rates as discussed in
Note 1 of Notes to Consolidated Financial Statements, partially offset by an
increase in plant balances due to capital additions.

Interest Expense. Interest expense decreased by $16.4 million in 1998 as
compared to 1997. The decrease was primarily due to reduced interest expense
associated with provisions for regulatory matters.

Taxes on Income. Taxes on income increased $11.9 million in 1997 as
compared to 1996 primarily due to increased pre-tax income.

F-6

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholder
ANR Pipeline Company
Detroit, Michigan

We have audited the accompanying consolidated balance sheets of ANR
Pipeline Company (an indirect, wholly owned subsidiary of The Coastal
Corporation) and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, retained earnings and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ANR Pipeline Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Detroit, Michigan
February 4, 1999

F-7

<PAGE>

ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)

<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ---------

ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................. $ 3.4 $ 5.2
Notes receivable from a related party................................................. 156.1 265.9
Accounts receivable:
Others............................................................................. 20.7 26.6
Related parties.................................................................... 25.2 24.0
Materials and supplies, at average cost............................................... 27.8 28.3
Current deferred income taxes......................................................... 25.0 77.3
---------- ---------
258.2 427.3
---------- ---------

Property, Plant and Equipment, at cost................................................... 3,446.6 3,372.9
Less - Accumulated depreciation....................................................... 2,165.0 2,125.6
---------- ---------
1,281.6 1,247.3
---------- ---------

Other Assets:
Investment in related parties:
Pipeline partnerships.............................................................. 51.1 46.3
Other.............................................................................. 68.3 74.1
Deferred charges and other............................................................ 29.0 21.4
---------- ---------
148.4 141.8
---------- ---------

$ 1,688.2 $ 1,816.4
========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-8

<PAGE>

ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)

<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ---------

LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable:
Others............................................................................. $ 77.6 $ 74.0
Related parties.................................................................... 11.5 10.0
Taxes on income....................................................................... 37.8 37.2
Other taxes........................................................................... 24.1 24.1
Provision for regulatory matters...................................................... - 180.6
Other................................................................................. 50.0 22.9
---------- ---------
201.0 348.8
---------- ---------

Long-Term Debt........................................................................... 497.9 497.9
---------- ---------

Deferred Credits and Other:
Accumulated deferred income taxes..................................................... 174.4 163.5
Other deferred credits:
Others............................................................................. 103.3 119.2
Related parties.................................................................... 8.0 27.0
---------- ---------
285.7 309.7
---------- ---------

Common Stock and Other Stockholder's Equity:
Common stock, $100 par value, authorized, issued and
outstanding 1,000 shares........................................................... .1 .1
Additional paid-in capital............................................................ 466.2 466.2
Retained earnings..................................................................... 237.3 193.7
---------- ---------
703.6 660.0
---------- ---------

$ 1,688.2 $ 1,816.4
========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-9

<PAGE>

ANR PIPELINE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED EARNINGS
(Millions of Dollars)

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Storage and transportation:
Others................................................................ $ 613.1 $ 630.4 $ 619.2
Related parties....................................................... 6.9 12.3 23.0
Other revenues:
Others................................................................ 97.5 34.1 54.6
Related parties....................................................... 29.9 52.9 66.8
--------- ---------- ---------
747.4 729.7 763.6
--------- ---------- ---------

Costs and Expenses:
Operation and maintenance:
Others................................................................ 292.2 269.0 324.0
Related parties....................................................... 70.1 81.4 98.2
Depreciation and amortization............................................ 36.6 49.2 54.4
Interest expense......................................................... 46.6 63.0 60.4
Taxes on income.......................................................... 97.8 98.2 86.3
--------- ---------- ---------
543.3 560.8 623.3
--------- ---------- ---------

Earnings Before Extraordinary Item.......................................... 204.1 168.9 140.3
Extraordinary item-loss on discontinuance of FAS No. 71,
net of income taxes...................................................... - - ( 163.9)
--------- ---------- ---------

Net Earnings (Loss)......................................................... $ 204.1 $ 168.9 ($ 23.6)
========= ========== =========
</TABLE>

STATEMENT OF CONSOLIDATED RETAINED EARNINGS
(Millions of Dollars)

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Balance - Beginning of Year................................................. $ 193.7 $ 119.8 $ 443.4

Net Earnings (Loss)......................................................... 204.1 168.9 ( 23.6)

Dividends on Common Stock................................................... ( 160.5) ( 95.0) ( 300.0)
--------- ---------- ---------

Balance - End of Year....................................................... $ 237.3 $ 193.7 $ 119.8
========= ========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-10

<PAGE>

ANR PIPELINE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Earnings before extraordinary item.......................................... $ 204.1 $ 168.9 $ 140.3
Adjustments to reconcile earnings before extraordinary item to net cash
provided by operating activities:
Depreciation and amortization............................................ 36.9 51.6 57.7
Deferred income taxes.................................................... 44.7 1.9 ( 20.2)
Provision for regulatory matters......................................... ( 180.6) 39.9 61.5
Producer contract reformation cost recoveries............................ - - 26.3
Undistributed equity in earnings of pipeline partnerships................ ( 16.7) ( 18.8) ( 8.9)
Gain on sale of plant.................................................... - - ( 29.1)
Changes in other assets and liabilities affecting operating activities:
Decrease (increase) in accounts receivable:
Others................................................................ 5.9 15.3 22.9
Related parties....................................................... ( 1.2) .2 ( .9)
Increase (decrease) in accounts payable and other accruals:
Others................................................................ 35.8 ( 34.0) ( 42.7)
Related parties....................................................... 1.7 ( 5.1) 6.0
Net (decrease) increase in other assets/liabilities...................... ( 12.3) 17.4 21.3
-------- -------- --------
Total adjustments..................................................... ( 85.8) 68.4 93.9
-------- -------- --------

Net cash provided by operating activities............................. 118.3 237.3 234.2
-------- -------- --------

Cash Flows from Investing Activities:
Decrease (increase) in notes receivable from related party.................. 109.8 ( 97.2) 216.1
Decrease in note receivable - other......................................... - 18.5 -
Investment in related parties............................................... 5.8 4.0 ( 76.1)
Proceeds from sale of plant................................................. 4.8 - 10.4
Capital expenditures........................................................ ( 77.2) ( 93.6) ( 70.3)
-------- -------- --------

Net cash provided by (used in) investing activities................... 43.2 ( 168.3) 80.1
-------- -------- --------

Cash Flows from Financing Activities:
Common stock dividends paid................................................. ( 160.5) ( 95.0) ( 300.0)
Other....................................................................... ( 2.8) ( 3.0) ( 3.0)
-------- -------- --------

Net cash used in financing activities................................. ( 163.3) ( 98.0) ( 303.0)
-------- -------- --------

Net (Decrease) Increase in Cash and Cash Equivalents........................... ( 1.8) ( 29.0) 11.3

Cash and Cash Equivalents at Beginning of Year................................. 5.2 34.2 22.9
-------- -------- --------

Cash and Cash Equivalents at End of Year....................................... $ 3.4 $ 5.2 $ 34.2
======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements.

F-11

<PAGE>

ANR PIPELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

- - Basis of Presentation

ANR Pipeline is a wholly owned subsidiary of ANR, which is a direct
subsidiary of Coastal Natural Gas and an indirect subsidiary of Coastal. The
financial statements presented herewith are presented on the basis of historical
cost and do not reflect the basis of cost to Coastal Natural Gas. The
preparation of these financial statements, in conformity with generally accepted
accounting principles, requires estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Actual results
could differ from the estimates and assumptions used.

- - Reclassifications

Certain reclassifications of prior period statements have been made to
conform with current reporting practices. The effect of these reclassifications
was not material to the Company's consolidated financial position, results of
operations or cash flows.

- - Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, after eliminating all significant
intercompany transactions. The equity method of accounting is used for
investments in which the Company has a 20% to 50% voting interest and exercises
significant influence. The equity method is also being used for an investment in
a limited partnership in which the Company has an interest of more than 5%.

- - Statement of Financial Accounting Standards No. 71, "Accounting for
the Effects of Certain Types of Regulation" ("FAS No. 71")

The Company is subject to the regulations and accounting procedures of the
FERC and has historically followed the reporting and accounting requirements of
FAS No. 71. Effective November 1, 1996, ANR Pipeline discontinued application of
FAS No. 71. As a result, ANR Pipeline recorded an extraordinary charge to income
in 1996 of $163.9 million, net of related income taxes of $91.6 million. This
charge to earnings was noncash and has no direct effect on either the Company's
ability to include the previously deferred items in future rate proceedings or
on its ability to collect the rates set thereby. The Company believes this
accounting change results in financial reporting which better reflects the
results of operations in the economic environment in which it operates. Further,
the Company reexamined the useful lives of its assets. Effective October 1,
1997, the depreciation rates associated with certain of its assets were revised,
which had the effect of increasing net earnings by $14.7 million in 1998 and
$3.6 million in 1997.

- - Property, Plant and Equipment

Property additions include capitalized interest costs allocable to
construction. Such costs amounted to $3.2 million, $2.3 million and $1.8 million
in 1998, 1997 and 1996, respectively. As a result of the Company's discontinued
application of FAS No. 71, effective November 1, 1996, the Company records
capitalized interest based on the provisions of Statement of Financial
Accounting Standards No. 34, "Capitalization of Interest Cost." Prior to
November 1, 1996, and as allowed under the provisions of FAS 71, such interest
costs reflected an allowance for equity and borrowed funds used during
construction.

The Company's annual provisions for depreciation of gas plant are computed
on a straight-line basis using rates of depreciation which vary by type of
property. The annual composite depreciation rate was approximately 1.2% for
1998, 1.7% for 1997 and 1.8% for 1996.

Costs of minor property units (or components thereof) retired or abandoned
are charged or credited, net of salvage, to accumulated depreciation. Gain or
loss on sales of major property units is credited or charged to income.

F-12

<PAGE>

- - Income Taxes

The Company is a member of a consolidated group which files a consolidated
federal income tax return. Members of the consolidated group with taxable
incomes are charged with the amount of income taxes as if they filed separate
federal income tax returns, and members providing deductions and credits which
result in income tax savings are allocated credits for such savings.

- - Statement of Cash Flows

For purposes of this financial statement, cash equivalents include time
deposits, certificates of deposit and all highly liquid instruments with
original maturities of three months or less. The Company made cash payments for
interest, net of interest capitalized, of $61 million, $49.5 million and $52.4
million in 1998, 1997 and 1996, respectively. Cash payments for income taxes
amounted to $53.8 million, $92.4 million and $100.6 million in 1998, 1997 and
1996, respectively.

- - Nature of Operations and Concentrations of Credit Risk

ANR Pipeline is involved in the transportation, storage and balancing of
natural gas primarily in the Midwest and increasingly in the Northeast regions
of the United States. The Company operates under arrangements with other
companies including distributors, intrastate and interstate pipelines,
producers, brokers, marketers and end-users. As a result, the Company has a
concentration of receivables due from these customers. This may affect the
Company's overall credit risk in that the customers may be similarly affected by
changes in economic, regulatory and other factors. Trade receivables are
generally not collateralized; however, the Company analyzes customers' credit
positions prior to extending credit.

- - Accounting Pronouncements

The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," in 1998. The application of the new standard
did not have a material effect on the Company's consolidated financial
statements as the Company currently does not have any material items of other
comprehensive income.

The Company adopted Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" in
1998. The Company's disclosures for 1998 and prior years have been revised in
accordance with this statement.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative will depend on the intended use of the
derivative and the resulting designation. The Company is currently evaluating
the impact, if any, of FAS 133.

The American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which was adopted by the Company in
1998. The application of the new statement did not have a material effect on the
Company's consolidated result of operations, financial position or cash flows.

The AICPA has issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"), to be effective for periods beginning after
December 15, 1998. SOP 98-5 provides guidance on accounting for costs incurred
to open new facilities, conduct business in new territories or otherwise
commence some new operation. The application of SOP 98-5 is not expected to have
a material effect on the Company's consolidated financial statements.

F-13

<PAGE>

2. Long-Term Debt

Balances at December 31 were as follows (millions of dollars):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Debentures:
9-5/8% series, due 2021............................................................. $ 300.0 $ 300.0
7-3/8% series, due 2024............................................................. 125.0 125.0
7% series, due 2025................................................................. 75.0 75.0

Unamortized discount related to outstanding debt, net of premium.................... ( 2.1) ( 2.1)
------- -------

$ 497.9 $ 497.9
======= =======
</TABLE>

None of the above debt issuances have maturity or sinking fund requirements
prior to their retirement due dates.

Alternatives to finance additional capital and other expenditures are
limited principally by the terms of a Coastal Natural Gas debt instrument. As of
December 31, 1998, ANR Pipeline and certain affiliates could incur in the
aggregate approximately $3 billion of additional indebtedness.

3. Fair Value of Financial Instruments

The estimated fair value amounts of the Company's financial instruments
have been determined by the Company, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value, thus, the estimates provided herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.

<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ------------- ----------
(millions of dollars)
<S> <C> <C> <C> <C>
Nonderivatives:
Financial assets:
Cash and cash equivalents................... $ 3.4 $ 3.4 $ 5.2 $ 5.2
Note receivable from a related party........ 156.1 156.1 265.9 265.9

Financial liabilities:
Long-term debt.............................. 500.0 592.4 500.0 606.9
</TABLE>

The note receivable from a related party is at a floating market rate of
interest and therefore, the carrying amount is a reasonable estimate of its fair
value. The estimated values of the Company's long-term debt are based on
interest rates at December 31, 1998 and 1997, respectively, for new issues with
similar remaining maturities.

4. Litigation, Environmental and Regulatory Matters

- Litigation Matters

F-14

<PAGE>

potential class. A new suit was then filed in state court in Wayne County,
Michigan, seeking to have the Michigan suit certified as a class action of
African American employees of ANR Pipeline and seeking unspecified damages as
well as attorneys and expert fees. The Company has filed responsive pleadings
denying these allegations.

- Environmental Matters

In October 1998, the EPA announced a "Finding of Significant Contribution
and Rulemaking for Certain states in the Ozone Transport Assessment Group Region
for Purposes of Reducing Regional Transport of Ozone" ("NOx SIP Call"). The NOx
SIP Call requires 22 states, including eight states in which ANR Pipeline
operates, and the District of Columbia to submit state implementation plans
("SIP Plans"), with each state showing how it intends to reduce NOx emissions
from sources located within its borders to specified levels. States have until
September 1999 to submit SIP Plans to the EPA, and reduction measures must be in
place by May 1, 2003. Under the provisions of the NOx SIP Call,

F-15

<PAGE>

if a state fails to submit approvable SIP Plans by the September 1999 deadline,
the EPA has the authority to impose reductions upon specific sources within the
state. The NOx SIP Call is the subject of legal proceedings instituted by nine
of the affected states and numerous affected industries. ANR Pipeline operates
compressor engines that emit nitrogen oxide and is, therefore, potentially
subject to any state or EPA rules issued under the NOx SIP Call. Until the
states have submitted approvable SIP Plans, the Company will not be able to
reasonably estimate the amount of any obligation resulting from this ruling.

- Regulatory Matters

5. Lease Commitments

Operating lease rentals included in operating expenses amounted to $12
million for 1998 and $15 million for 1997 and 1996, respectively. Aggregate
minimum lease payments under existing noncapitalized, long-term leases are
estimated to be $17 million for each of the years 1999 through 2002, $25 million
for 2003 and $295 million thereafter. These amounts reflect the 1998 year end
restructuring of the lease obligation for the Company's central office
facilities.

F-16

<PAGE>

6. Taxes On Income

Provisions for income taxes are composed of the following (millions of
dollars):
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal:
Currently payable................................................... $ 47.1 $ 87.0 $ 93.3
Deferred ........................................................... 40.2 1.9 ( 18.7)
-------- -------- --------
87.3 88.9 74.6
-------- -------- --------
State and City:
Currently payable................................................... 6.0 9.3 13.2
Deferred ........................................................... 4.5 - ( 1.5)
-------- -------- --------
10.5 9.3 11.7
-------- -------- --------

Total income taxes................................................ $ 97.8 $ 98.2 $ 86.3
======== ======== ========
</TABLE>

Provisions for income taxes were different from the amount computed by
applying the statutory U.S. federal income tax rate to earnings before tax. The
reasons for these differences are (millions of dollars):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Tax expense computed by applying the U.S. federal income tax rate
of 35%.............................................................. $ 105.6 $ 93.4 $ 79.3

Increases (reductions) in taxes resulting from:
State and city income taxes reduced by federal income tax benefit... 6.8 6.0 7.6
Other............................................................... ( 14.6) ( 1.2) ( .6)
-------- -------- --------
Taxes on income................................................. $ 97.8 $ 98.2 $ 86.3
======== ======== ========
</TABLE>

Deferred tax liabilities (assets) which are recognized for the estimated
future tax effects attributable to temporary differences are (millions of
dollars):
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Depreciation........................................................................ $ 210.2 $ 196.0
Other............................................................................... 14.9 14.0
-------- --------
Deferred tax liabilities......................................................... 225.1 210.0
-------- --------

Provision for regulatory matters.................................................... - ( 69.5)
Inventory capitalization............................................................ ( 1.7) ( 1.6)
Purchased gas and other recoverable costs........................................... ( 16.2) ( 23.2)
Benefit plans and accrued expenses.................................................. ( 22.0) ( 12.2)
Environmental costs................................................................. ( 4.7) ( .8)
Certain lease costs................................................................. ( 4.6) ( 8.3)
Other............................................................................... ( 26.5) ( 8.2)
-------- --------
Deferred tax assets.............................................................. ( 75.7) ( 123.8)
-------- --------

Deferred income taxes............................................................ $ 149.4 $ 86.2
======== ========
</TABLE>

Coastal and the Internal Revenue Service ("IRS") Appeals Office have
concluded a final settlement of certain adjustments originally proposed to
federal income tax returns filed for the years 1985 through 1987. The IRS has
proposed additional adjustments to those returns, and Coastal is contesting
certain of these adjustments before the IRS

F-17

<PAGE>

Appeals Office. Coastal's federal income tax returns filed for the years 1988
through 1990 have been examined by the IRS and Coastal has received notice of
proposed adjustments to the returns for each of those years. Coastal currently
is contesting certain of these adjustments with the IRS Appeals Office.
Examination of Coastal's federal income tax returns for 1991, 1992, 1993 and
1994 began in 1997. It is the opinion of management that adequate provisions for
federal income taxes have been reflected in the Company's consolidated financial
statements.

7. Benefit Plans

The Company participates with its affiliates in the non-contributory
pension plan of Coastal (the "Plan") which covers substantially all employees.
The Plan provides benefits based on final average monthly compensation and years
of service. As of December 31, 1998, the Plan did not have an unfunded
accumulated benefit obligation. ANR Pipeline made no contributions to the Plan
for 1998, 1997 or 1996. Assets of the Plan are not segregated or restricted by
its participating subsidiaries and pension obligations for Company employees
would remain the obligation of the Plan if the Company were to withdraw.

ANR Pipeline also makes contributions to a thrift plan, which is a
trusteed, voluntary and contributory plan for eligible employees of the Company.
The Company's contributions, which are based on matching employee contributions,
amounted to $5.9 million for 1998 and $5.6 million for each of 1997 and 1996.

The Company provides certain health care and life insurance benefits for
substantially all of its retired employees. The estimated costs of retiree
benefit payments are accrued during the years the employee provides services.
Certain costs were deferred and amortized through October 31, 1996 to reflect
the impact of rate regulation. Effective November 1, 1996, these costs are no
longer deferred and amortized as a result of the Company's discontinued
application of FAS No. 71. Additional information concerning FAS No. 71 is set
forth in Note 1 of Notes to Consolidated Financial Statements included herein.

F-18

<PAGE>

The following provides a reconciliation of the changes in the
postretirement benefit obligation and the fair value of the plan assets over
each of the years ending December 31, 1998 and 1997 and a statement of the
funded status as of December 31, 1998 and 1997 (millions of dollars):

<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------
1998 1997
---------- ---------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year....................................... $ 49.6 $ 52.5
Service cost.................................................................. .5 .4
Interest cost................................................................. 3.4 3.3
Participant contributions..................................................... 1.2 1.3
Plan amendments............................................................... - ( 1.5)
Benefit payments.............................................................. ( 5.1) ( 5.1)
Actuarial loss/(gain)......................................................... 1.8 ( 1.3)
---------- ---------
Benefit obligation at end of year............................................. $ 51.4 $ 49.6
========== =========

Change in Plan Assets
Fair value of plan assets at beginning of year................................ $ 15.2 $ 18.1
Actual return on plan assets.................................................. .3 .9
Employer contributions........................................................ 4.0 -
Benefit payments.............................................................. ( 4.1) ( 3.7)
Administrative expenses....................................................... ( .1) ( .1)
---------- ---------
Fair value of plan assets at end of year...................................... $ 15.3 $ 15.2
========== =========
</TABLE>

<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
--------- ---------

<S> <C> <C>
Funded status
Funded status at year end..................................................... ($ 36.1) ($ 34.4)
Unrecognized transition obligation............................................ 40.4 43.3
Unrecognized net gain......................................................... ( 13.3) ( 16.4)
---------- ---------
Accrued postretirement benefit obligation..................................... ($ 9.0) ($ 7.5)
========== =========
</TABLE>

The following table provides the components of net periodic postretirement
benefit cost for 1998, 1997 and 1996 (millions of dollars):

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost........................................................... $ .5 $ .4 $ .5
Interest cost.......................................................... 3.4 3.3 3.6
Amortization of transition obligation.................................. 2.9 2.9 3.0
Expected return on assets.............................................. ( .4) ( .5) ( .5)
Amortization of net gain............................................... ( .8) ( 1.1) ( .7)
-------- -------- --------
Net periodic postretirement benefit cost............................... 5.6 5.0 5.9
Deferred regulatory amounts............................................ - - .3
-------- -------- --------
Net periodic postretirement benefit cost recognized in Statement of
Consolidated Earnings............................................... $ 5.6 $ 5.0 $ 6.2
======== ======== ========
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9% in 1998, declining gradually to 6% by
the year 2004. The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 9.7% and 10.4% in 1997 and
1996, respectively. A one percentage

F-19

<PAGE>

point increase in the assumed health care cost trend rate for each year would
increase the accumulated postretirement benefit obligation as of December 31,
1998 by approximately 5.37% and the net postretirement health care cost by
approximately 5.32%. A one percentage point decrease in the assumed health care
cost trend rate for each year would decrease the accumulated postretirement
benefit obligation as of December 31, 1998 by approximately 5.26% and the net
postretirement health care cost by approximately 5.36%. The assumed discount
rate used in determining the accumulated postretirement benefit obligation was
7% in 1998, 7.25% in 1997 and 7.5% in 1996 and the expected long-term rate of
return on assets was 4.3% in 1998, 1997 and 1996.

8. Transactions with Major Customers and Related Parties

- Major Customers:

The Statement of Consolidated Earnings includes revenues from major
customers amounting to 10% or more of the Company's consolidated revenues
as follows (millions of dollars):

<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -----------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Wisconsin Gas Company...................... $ 67.6 9.0% $ 89.5 12.3% $ 83.9 11.0%
</TABLE>

Revenues from any other single customer did not amount to 10% or more
of the Company's consolidated revenues for the years ended December 31,
1998, 1997 and 1996.

- Related Parties:

"Operation and maintenance" expenses within the Statement of
Consolidated Earnings includes affiliate and other related party
transactions as follows (millions of dollars):

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------

<S> <C> <C> <C>
Storage and transportation expense - affiliates........................ $ 11.5 $ 11.7 $ 13.7
Storage and transportation expense - other related parties............. 23.6 29.9 40.6
Services provided at cost - affiliates................................. 21.6 22.5 22.8
Facilities rental expense - affiliates................................. 13.4 17.3 18.9
</TABLE>

Services provided by the Company at cost for affiliated companies
were $12.6 million for 1998, $9.3 million for 1997 and $9.9 million for
1996. The services provided by the Company to affiliates, and by
affiliates to the Company, primarily reflect the allocation of costs
relating to the sharing of facilities and administrative functions,
characteristic of group operations. Such costs are allocated using a
three-factor formula consisting of revenues, property and payroll, which
is reasonable and has been applied on a consistent basis.

The Company has lease agreements with Coastal and its affiliates for
the rental of office space, natural gas storage fields and certain
pipeline facilities. The Company's investment in an affiliate, Coastal
Medical Services, Inc., was $68.3 million at December 31, 1998 and $74.1
million at December 31, 1997. The affiliate has assumed the responsibility
for facilitating the management of a portion of the medical obligations of
the Company and other Coastal subsidiaries.

ANR Pipeline participates in a program which matches short-term cash
excesses and requirements of participating affiliates, thus minimizing
borrowings from outside sources. The Company had advanced to an associated
company at a market rate of interest, $156.1 million at December 31, 1998
and $265.9 million at December 31, 1997. Such amounts are repayable on
demand.

F-20

<PAGE>

9. Quarterly Results of Operations (Unaudited)

The results of operations by quarter for the years ended December 31, 1998
and 1997 were (millions of dollars):

<TABLE>
<CAPTION>
1998 Quarter Ended
--------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................................ $ 240.9 $ 166.4 $ 172.7 $ 167.4
Costs and expenses...................................... 151.0 128.6 131.6 132.1
--------- --------- -------- ---------
Net earnings......................................... $ 89.9 $ 37.8 $ 41.1 $ 35.3
========= ========= ======== =========
</TABLE>

1997 Quarter Ended
--------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................................ $ 219.3 $ 166.3 $ 163.1 $ 181.0
Costs and expenses...................................... 159.4 136.2 134.3 130.9
--------- --------- -------- ---------
Net earnings......................................... $ 59.9 $ 30.1 $ 28.8 $ 50.1
========= ========= ======== =========
</TABLE>

F-21

<PAGE>

EXHIBIT INDEX

Exhibit
Number Document
- -------- --------------------------------------------------------------------

(3.1)+ Composite Certificate of Incorporation of ANR Pipeline effective as
of December 31, 1987. (Filed as Module ANRCertIncorp on March 29,
1994.)

(3.2)+ Amended By-laws of ANR Pipeline effective as of September 21, 1994.
(Filed as Exhibit 3.2 to ANR Pipeline's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.)

(4) With respect to instruments defining the rights of holders of long-
term debt, the Company will furnish to the Securities and Exchange
Commission any such document on request.

(4.1)+ Indenture dated as of February 15, 1994 and First Supplemental
Indenture dated as of February 15, 1994 for the $125 million of
7-3/8% Debentures due February 15, 2024. (Filed as Exhibit 4.4 to
ANR Pipeline's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)

(10.1)+ Agreement for Consulting Services between ANR Pipeline and Harold
Burrow, dated as of January 1, 1996. (Filed as Exhibit 10.3 to ANR
Pipeline's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)

(21)* Subsidiaries of the Company.

(24)* Power of Attorney (included on signature pages herein).

(27)* Financial Data Schedule.

- ----------------------

Note:

+ Indicates documents incorporated by reference from the prior filings
indicated.
* Indicates documents filed herewith.

Exhibit 21

SUBSIDIARIES OF ANR PIPELINE COMPANY

State of
Incorporation
-------------

ANR Alliance Pipeline Company Canada, Inc...................... Canada
ANR Alliance Pipeline Company U.S., Inc........................ Delaware
ANR Atlantic Pipeline Company.................................. Delaware
ANR Capital Corporation........................................ Delaware
ANR Energy Conversion Company.................................. Michigan
ANR Iroquois, Inc.............................................. Delaware
Subsidiary:
ANR New England Pipeline Company.......................... Delaware
ANR Mayflower Company.......................................... Delaware
ANR Southern Pipeline Company.................................. Delaware
American Natural Offshore Company.............................. Delaware
Subsidiaries:
Texas Offshore Pipeline System, Inc....................... Delaware
Unitex Offshore Transmission Company...................... Delaware

<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACT ED FROM ANR PIPELINE COMPANY FORM 10-K
ANNUAL REPORT FOR THE PERIOD ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 202
<ALLOWANCES> 0
<INVENTORY> 28
<CURRENT-ASSETS> 258
<PP&E> 3,447
<DEPRECIATION> 2,165
<TOTAL-ASSETS> 1,688
<CURRENT-LIABILITIES> 201
<BONDS> 498
0
0
<COMMON> 0
<OTHER-SE> 704
<TOTAL-LIABILITY-AND-EQUITY> 1,688
<SALES> 0
<TOTAL-REVENUES> 747
<CGS> 0
<TOTAL-COSTS> 399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 302
<INCOME-TAX> 98
<INCOME-CONTINUING> 204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>